Skip to main content

In boardrooms and corner offices across Europe, executives are assessing the fallout of U.S. President Donald Trump’s decision to scrap the Iran nuclear deal, which threatens to choke off an investment boom that started after the country returned to the international fold two years ago.

Since debilitating sanctions were eased in 2016, trade with Europe has tripled as Iran has won a reputation as a plum opportunity for growth, according to Natixis. Renault SA initiated a joint venture to build 100,000 cars a year in the Islamic Republic. Airbus Group SE won a $19-billion order for 100 planes. German engineering giant Siemens AG agreed to supply turbines to the country. Those deals are now up in the air.

“Big contracts in the area, in neighboring countries too, are partly a question of how far along they are,” said Ralf Thomas, Siemens chief financial officer. “We will be absolutely compliant there, but we will also complete projects, as far as legally possible.”

Story continues below advertisement

While European governments have vowed to stand by the landmark accord, which ended Iran’s program to develop nuclear weapons in exchange for access to global markets, the reality stands to be far more complex amid Trump’s plans to reinstate financial sanctions. MTN Group Ltd., Africa’s largest wireless carrier, said efforts to repatriate about 200 million euros from its Iranian unit will now become tougher.

Grave Error

Trump’s decision creates “huge uncertainty,” as it is unclear whether contracts signed in the last two years can still be honored, according to German industry group DIHK. The group says Germany’s trade with Iran has climbed 42 per cent to 3.4 billion euros since the accord was signed in 2015.

“It will have an impact on German and European companies that do business with Iran,” said Andrea Nahles, leader of Germany’s SPD, the junior coalition partner in Chancellor Angela Merkel’s government. “Withdrawal from the accord is a grave error.”

After Trump’s announcement Tuesday, European authorities scrambled to contain the damage, but lacked a clear path forward. French Finance Minister Bruno Le Maire said he plans to speak with U.S. Treasury Secretary Steven Mnuchin this week to see how European companies might be shielded.

“There could be exemptions, there could be grandfather clauses,” Le Maire said Wednesday on France Culture radio. “The extra-territoriality of U.S. sanctions makes the U.S. the economic policeman of the planet, and that is not acceptable.”

Trump officials showed no signs of compromise. Richard Grenell, the recently appointed U.S. ambassador to Germany, said on Twitter that “German companies doing business in Iran should wind down operations immediately.”

Story continues below advertisement

The European Union has in the past sought to shield companies from U.S. sanctions, but executives are reluctant to rely on such initiatives for fear of losing access to the world’s biggest economy. French oil giant Total SA, for example, has said it will pull out of a joint venture in Iran if Trump re-imposes sanctions and it can’t win an exemption.

While companies have clearly benefited from increased trade with the country of 80 million, the market remains an also-ran on the global stage. Siemens, for instance, has done on-and-off business in Iran for more than a century, but its revenue there is less than 1 per cent of its total.

Financing Shortfall

Germany exported less than 1 billion euros worth of machines to Iran last year, versus almost 18 billion euros to the U.S., the VDMA business federation estimates. Much of the bottleneck has been created by a lack of financing as banks hesitate to provide loans for new business. As of today, companies aren’t allowed to strike new deals in the Iranian oil and energy sector. By August, transactions in Iranian government debt or currency and purchases involving the country’s automobile sector or its gold and other metals must end. In November, deals involving shipping, ports, and insurance services will be prohibited.

While there still may be hope that diplomatic efforts might reopen the country for business, companies are reacting cautiously in order to avoid unwittingly invoking penalties.

“We’re carefully analyzing the announcement and will be evaluating next steps,” a spokesman for Airbus said, though that may “take some time.”

Report an error
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter