EU Safeguards for Iran Investment Sealed

08.08.2018 -

EU safeguards for member states whose companies want to invest in Iran – colloquially known as the “blocking mechanism” –officially entered into the bloc’s legal statutes on Aug. 7. The act purposely coincided with reintroduction of tougher US sanctions. In view of the intensive pressure exerted by Washington, many doubted that the intended European protections would have any effect.

In the petrochemical industry. European heavyweights planning to go back into Iran after the 2015  nuclear pact, such as French energy group Total and BASF’s oil and gas subsidiary Wintershall, have already declared they see no chance to go ahead with previously announced projects and will withdraw from Iran completely.

Other would-be Iran investors, such as French industrial gases producer Air Liquide and Anglo-Dutch energy group Shell were expected to follow suit.

Under the revived EU investor protection rules, companies would be guaranteed the right to be active in Iran and would also be able to demand financial compensation for projects that cannot be realized. In the event that “non-compliance would seriously jeopardize the interests of the operator or of the European Union”, the rules could even block companies from bowing to US pressure.

If a member state decided to comply with the US sanctions without authorization, it would be up to member states to decide on “effective, proportionate and dissuasive penalties,” as well as to enforce them, the statute says.

European banks, which Brussels had hoped to empower to provide credit for Iranian projects, have also backed away, especially in light of American pledges to place sanctions on credit institutions as well as operating companies doing business with Tehran.

In June, the European Commission sought to encourage the European Investment Bank (EIB)  to support investment in the Middle East country. However, EIB chief chief Werner Hoyer said in late July that being active there would risk the bank’s business model. “There is no European bank which is presently able to do businesses in or with Iran,” he commented.

The EU considers the sanctions to be illegal, especially as they are imposed on companies not operating under US law. European leaders, in particular those of the three countries that had appealed to US President Donald Trump not to press ahead with the new sanctions, stressed that they would continue to uphold the nuclear agreement officially known as the Joint Comprehensive Plan of Action (JCPOA).

“We are determined to protect European economic operators engaged in legitimate business with Iran,” the EU’s High Representative Federica Mogherini and the foreign ministers of France, Germany and the UK, Jean-Yves Le Drian, Heiko Maas and Jeremy Hunt, said in a joint statement.