MAJOR: Trump ends Iran nuclear deal, EU-US tensions escalate

A new economic war against Iran would hit the EU and Germany hard.

The Iran nuclear deal may be doomed, at least if you believe the global oil market.
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This is a major development with ramifications in multiple directions. Trump’s move today introduces an ‘X’ factor in what is already an increasingly destabilized world. It is not to be expected that there will be an immediate outbreak of war on a large scale. But the intensification of the years-long economic war against Iran could be the result of current political activities – with far-reaching consequences for Europe.

German Business News spells out what this all means:

Economic war against Iran would hit Germany

A renewed intensification of the years of economic war against Iran would be to the detriment of the Europeans. Germany would be particularly affected.

A new economic war against Iran would hit the EU and Germany hard. DIHK* foreign trade chief Volker Treier told German Business News:

“Bilateral trade has increased noticeably since the easing of sanctions in 2015. In 2017 alone, the German economy sold 3 billion worth of goods, an increase of 16 percent over the previous year and 45 percent since 2015. Numerous German companies have reopened their branch offices in Iran, are selling their products in the Iranian market and planning investments with Iranian joint venture partners.

graph of EU-Iran Trade, showing effect of sanctions

“However, the German-Iranian economic relations still lag short of their possibilities. Corporate finance is still a difficult undertaking. With the announcement of US President Donald Trump not wanting to extend the suspension of US sanctions on May 12, 2018, the slightly positive development in the Iran business is a big question mark.

“It is also uncertain how the Iranian government will behave in view of a possible US exit from the nuclear agreement and what consequences this will have for German companies. Already, many companies are worried about risking their US business because of trade with Iran. Particularly, the internationally active banks with US business would be confronted with even higher risks through reactivated US sanctions and could withdraw completely from the Iran business – with considerable consequences for the German companies that are being financed there.

Should the nuclear agreement fail, not only will bilateral economic relations suffer, but so too will confidence in international law as a whole. The Federal Government should work to maintain the nuclear agreement within the EU and with the US. Likewise, the federal government should work to improve the financing of the Iran business so that the Iran business really gets going.”

The danger that the US will speak out against the deal and the resurgence of sanctions should not be underestimated. On Sunday, US Attorney Donald Trump’s legal advisor Rudy Giuliani said the US government is even looking to overthrow the government in Tehran. Further, Israel,without providing specific evidence, has warned against an Iranian missile strike from Syria. The warning is remarkable because Israel has flown over 100 air strikes against primarily Iranian targets since the outbreak of the Syria war. Actually, the Israeli army is known for its precision. It is unlikely that Israel is said to have bombed those positions that are now identified as an immediate threat. In Israel, Prime Minister Benjamin Netanyahu is fighting for his political survival and therefore has an interest in making himself invulnerable to domestic politics through acts of war.

It is not to be expected that there will be an immediate outbreak of war on a large scale. But the intensification of the years-long economic war against Iran could be the result of current political activities – with far-reaching consequences for Europe.

The sanctions imposed on Iran by the UN, the US and the EU before the deal to force Iran to stop uranium enrichment paralyzed Iran’s economy, costing more than 160 billions of dollars in lost oil revenues just from 2012 to 2016, the BBC said. The deal with the US, on the other hand, provides Iran with access to more than $ 100 billion of its frozen assets frozen and lets Iran resell oil on international markets and use the global financial system for trade. If Iran violates any aspect of the agreement, UN sanctions will be reintroduced for ten years with the possibility of a five-year extension.

If the Joint Commission can not settle a dispute, it is referred to the UN Security Council. Iran also agreed to continue the UN arms embargo on the country for another five years, although it could end sooner if the IAEA is convinced that its nuclear program is completely peaceful. A UN import ban on ballistic missile technology will continue for up to eight years under the Atom deal.

 

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Energy Policy

European companies, in particular, have an interest in maintaining the nuclear deal. Al-Monitor states: “In practice, to protect the JCPOA, the EU should announce the creation of one or more EU-financed funds to unlock Iran’s economic and industrial potential. The first such fund should have the goal of making investments and technology transfers to make Iran a global natural gas power. Iran has the second largest gas reserves in the world, but has not been able to develop into a major player in the international gas markets due to the sanctions, in particular restrictions on technology transfer.

Once the first fund is set up, it could participate in existing and emerging projects that are both economically and technically feasible through European-Iranian joint ventures. Such projects would address defined Iranian objectives and could include:

Further expansion of gas production capacity in upstream projects, similar to the agreement signed by the Total consortium in 2017.
Investments in gas-based industries, petrochemicals and power plants. EU companies would be important sources of technology and investment, but could also partner with Iranian companies to develop regional opportunities – for example, by using Iranian gas in a third country to produce gas products.

Production of LNG and gas-to-liquids (GTL process) – both products could be exported to the EU and other world markets.

Invest in energy efficiency programs to improve Iran’s environmental and economic conditions and unlock more potential for clean energy exports.”

The European Union could enact legislation to protect its companies that are active in Iran when the US rescinds the 2015 nuclear deal and restores extraterritorial sanctions, the Reuters English-speaking service quoted Denis Chaibi, head of the EU’s Iranian Task Force for external actions. One of the options would be to restore “blockade rules” – a system of 1996 that would protect EU companies.

“We are looking at a number of possibilities. It is not complicated to do this legally because the legal instrument exists,” said Chaibi.

The arrangements were agreed in 1996 as a countermeasure to the US extraterritorial economic sanctions against Cuba, which, in the view of the EU governments, benefited US foreign policy interests at the expense of European sovereignty.

Michael Tockuss, Managing Director of the German-Iranian Chamber of Commerce, told state broadcaster Deutsche Welle about the energy relations between Germany and Iran: “We [Germany] do not buy crude oil from Iran. Our refineries are not designed to handle the sulfur-rich crude that Iran produces. Only Italy and Greece have refineries that can process it – so they are the main European importers of Iranian oil. Most Iranian crude oil is exported to China, India and other Asian countries. About 60 percent of Iran’s total trade income comes from oil and gas sales. That’s a lot – but the other 40 percent is also important. Iran is the country in the region that is the most industrially diverse in its economy. ”

 

Trade

This year, in the first two months, EU-Iran bilateral trade came to € 3.74 billion, up 17.4 percent from the same period last year. The most important trading partners of Iran in January and February 2018 were Italy with a bilateral trade volume of 844.92 million euros, France with 664.84 million euros, Germany with 545.83 million euros, Greece € 381.87, and Spain € 457.65 million. Even Luxemburg had bilateral trade with Iran totaling € 2.1 million.

Iran’s exports to the EU totaled more than 2.168 billion euros, an increase of 32 percent over the same period last year. Iran’s main export countries were Italy with an export value of 583 million euros, France 496.58 million euros and Greece 377.44 million euros.The exported goods mainly included mineral fuels, mineral oils and distillation products, bituminous substances and mineral waxes, petroleum oils and bituminous mineral oils, edible fruits and nuts, peel of citrus fruits or melons, iron and steel, plastics and articles thereof, ethylene polymers in primary forms, articles of iron or non-alloy steel, and fertilizers. This is apparent from data provided by Eurostat to the Financial Tribune.

Iranian imports from the EU amounted to € 1.574 billion through the end of February, an increase of two percent over the same period last year. The three most important European exporters to Iran were Germany with an export value of € 479.37 million, Italy € 261.86 million and the Netherlands € 150.2 million.

Iran’s imports from the EU mainly included nuclear reactors, boilers, machinery and mechanical equipment and parts, electrical machinery and equipment, sound recording and reproducing apparatus, television picture and sound recorders and reproducers, vehicles other than rail or tram vehicles, pharmaceutical products, optical equipment, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, parts and accessories for tractors and motor vehicles, iron or steel goods, air or vacuum pumps, air or other gas compressors and fans, and various chemical products.
Iran’s trade with the EU Member States in 2017 amounted to almost € 18.56 billion as of 30 November. This represents an increase of 57 percent compared to the same period of the previous year, according to the Financial Tribune.
Iran’s most important trading partners during this period were Italy with more than 4.54 billion euros, France with 3.45 billion euros, Germany with 2.99 billion euros, Spain with 1.67 billion euros and the Netherlands with 1.34 billion euros. Trade with Italy increased by 117 per cent year-on-year.Michael Tockuss, Managing Director of the German-Iranian Chamber of Commerce, told Deutsche Welle: “Germany’s trade surplus with Iran is enormous (…). But that is nothing new. The Iranians complain about it from time to time, and we try to find ways to promote more Iranian exports to Europe and Germany. But we have had large trade surpluses with Iran for forty years (…). An important demand that Iranians often make is that German companies should not just export goods to Iran. They should build production facilities, like Bavarian Knauf,  which has a large drywall factory in Iran.”
According to Tockuss, relations between Germany and Iran are traditionally good. “Iranians have a very positive view of Germany and the Germans. If you’re in Tehran talking to Iranians, and they ask where you’re from, and you say Germany, they’ll be happy right off,” said Tockuss. He says that Iranians and Germans both have an affinity for technology and engineering: “When German engineers are in Iran on business and spending time with their colleagues, they can spend hours talking technology (…). It’s not just about money. “

Atomic Deal Details: Uranium Enrichment

There are two uranium enrichment plants in Iran, at Natanz and at Fordo. There uranium hexafluoride gas is fed into centrifuges to separate the fissile isotope U-235. Low enriched uranium, which has a three to four percent concentration of U-235, can be used to produce fuel for nuclear power plants. But it can also be enriched to the 90 percent needed to make nuclear weapons.

In July 2015, Iran had nearly 20,000 centrifuges. Under the Joint Comprehensive Plan of Action (JCPOA) – the Atomic Deal – it will be limited to using no more than 5,060 of Natanz’s oldest and least efficient centrifuges for ten years.

The Iranian uranium reserve is to be reduced by 98 percent to 300 kg for 15 years. The country also has to maintain its level of enrichment at 3.67 percent.

By January 2016, Iran had drastically reduced the number of centrifuges on line in Natanz and Fordo, and shipped tons of low-enriched uranium to Russia.

In addition, research and development will only take place in Natanz and be limited to eight years. At Fordo, enrichment will be banned for 15 years. The underground facility will be converted into a nuclear, physics and technology center. The 1,044 centrifuges at the site will produce radioisotopes for use in medicine, agriculture, industry and science.

Plutonium

Iran had built a heavy water facility near the city of Arak. The fuel from a heavy water reactor contains plutonium, which is suitable for an atomic bomb.
The world powers originally wanted Arak dismatled because of the proliferation risk. Following a nuclear deal agreed in November 2013, Iran agreed not to put the reactor into operation.Instead, Tehran agreed to redesign the reactor so it can not produce weapons-grade plutonium. All spent fuel is taken out of the country as long as the modified reactor exists.Most of the 20-tonne heavy water that the Arak plant is expected to produce is shipped to the United States via a third country, according to Iranian officials. About six tons are maintained to produce medical isotopes.

The JCPOA says that Iran will not be allowed to build additional heavy water reactors or accumulate excess heavy water for 15 years.

 

Secret activities

At the time of the agreement, the White House expressed its confidence that the JCPOA would prevent Iran from secretly conducting a nuclear program. Iran has committed to “extraordinary and robust surveillance, inspection and inspection”.

Inspectors from the International Atomic Energy Agency (IAEA) are constantly monitoring Iran’s nuclear facilities and verifying that no fissile material is hijacked to a secret location to build a bomb.

Iran also agreed to the implementation of the Additional Protocol to its IAEA Safeguards Agreement, which allows inspectors to access any location in the country they consider suspicious.

In the 15 years of the agreement, Iran will have 24 days to comply with an access request from the IAEA. If Tehran refuses, an eight-member Mixed Commission – including Iran – can decide on punitive measures and the reintroduction of sanctions. A majority vote by the Commission is enough.

Prior to July 2015, Iran had a large supply of enriched uranium and nearly 20,000 centrifuges – enough to produce eight to ten bombs, the White House said.

US experts then estimated that it would take two to three months for Iran to produce enough 90% enriched uranium to build a nuclear weapon.

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*DIHK: The Association of German Chambers of Commerce

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