The Strait Gate: How Europe Can De-escalate U.S.-Iran Tensions

With the United Nations General Assembly (UNGA) only a few days away, speculations and expectations of an encounter between the U.S. and Iranian presidents have been upset by the attack against Saudi Arabian petroleum facilities on September 14. This possibility emerged after the G7 Summit in Biarritz, France, when the surprise guest appearance of Iranian foreign minister Javad Zarif, who met with French president Emmanuel Macron and foreign minister Jean-Yves Le Drian as well as British and German officials, sparked a much-awaited glimmer of hope to de-escalate tensions in the Gulf. President Trump made some rather encouraging statements: “We’re looking for no nuclear weapons, no ballistic missiles, and a longer period of time . . . We can have it done in a very short period of time. I really believe that Iran can be a great nation,” very much in line with President Macron’s own comments: “Two things are very important for us: Iran must never have nuclear weapons, and this situation should never threaten regional stability.” Yet after active discussions between Tehran and Paris, and Paris and Washington, regarding the opening of a $15 billion credit line, it was recently reported that so-called “mediation efforts” initiated by the French president in Biarritz have failed.

These successive developments made for many eye-catching headlines either saluting major breakthroughs or definitive setbacks. But both of these perspectives might be missing the point. The initiative launched during the G7 is not as much a one-shot “mediation” attempt rather it is a pragmatic and incremental process intended to break the escalation of tensions. Indeed the fundamental parameters of the crisis remain unchanged: the United States is pursuing a systematic policy of maximum pressure to make Iran yield and agree to a new deal; Iran is increasingly violating its commitments under the Joint Comprehensive Plan of Action (JCPOA), will not discuss any new deal without getting substantial financial relief, and appears willing to dramatically escalate the situation to obtain it. Any expectation that these policies can be reversed in the short term, either through persuasion, intimidation, or some silver bullet meeting on the margin of UNGA, can only be disappointed.

Instead, a substantial diplomatic initiative is needed to focus on the most critical problem: that Washington’s and Tehran’s positions are so irreconcilable that they can only produce further escalation, and, ultimately, confrontation—although both Iran and the United States have repeatedly communicated that they wish to avoid a conflict. To this end, it is urgent to come up with some form of pressure relief valve. Realistically, it can only work if it is de facto compatible with the fundamental parameters mentioned above (i.e., if it does not imply that either the United States or Iran capitulates to the other’s demands) and if an external actor contributes to this effort.

Europeans, and more specifically the E3 (France, Germany, and the United Kingdom), are uniquely positioned to engineer a diplomatic process that would create breathing space. Like Iran, they are committed to preserving the JCPOA. But more importantly, like the United States, their strategic objective is that Iran never develops a nuclear weapon. And they share with both countries the objective of preventing further escalation into a direct military conflict.

The JCPOA in a Catch-22

For over a year, the nuclear deal has been on the verge of collapse, following the U.S. decision to withdraw from the agreement in May 2018 and reestablish stringent sanctions to strangulate the Iranian economy. Oil waivers that had initially been established to allow for some exports with a limited number of countries were not renewed in May 2019. In response, Tehran has taken increasingly dangerous actions, including conducting at least one new ballistic missile test, targeting tankers navigating in the Strait of Hormuz, and, most alarmingly, progressively resuming some nuclear activities prohibited by the nuclear agreement. Beyond stocking more than the 300 kilograms of uranium hexafluoride allowed, Iran started enriching uranium beyond the authorized level and most recently announced it would resume research and development activities prohibited by the nuclear agreement. After numerous reports of Iranian compliance with the JCPOA, the International Atomic Energy Agency (IAEA) is now reporting that Iran is no longer in compliance with its commitments under the agreement. Although these steps do not equate to a nuclear weapons development program, they are clear signals that Iran is willing to use noncompliance with the JCPOA as leverage to obtain the economic benefits promised under the deal.

Interestingly, it should be noted that Iran did not take any action (such as constraining or expelling IAEA inspectors) to prevent the IAEA from confirming that it was in violation of some of its commitments under the JCPOA. It also developed a byzantine (and unconvincing) legal argumentation to make the case that it was not violating the agreement by ceasing to abide by some provisions. This indicates that Iran is aware of the importance of maintaining the JCPOA as a reference point for all stakeholders to avoid a lack of visibility precipitating a radical reaction. However, with little (if any) direct communication between the two main protagonists, the situation remains critical.

The Europeans have been trying to preserve the JCPOA by facilitating legitimate trade activities with Iran. Two actions in particular were designed to support EU-Iran trade:

  • First, the European Union updated its “Blocking Statute” in August 2018, a 1996 regulation that forbids EU persons from complying with extraterritorial sanctions and nullifies such sanctions’ legal and financial effects in Europe. A significant political signal, this regulation alone can achieve little, given that European companies trading with Iran worry that their more significant activities in the United States might be jeopardized.

  • Second, the European Union announced the creation of a special purpose vehicle—the Instrument in Support of Trade Exchanges (INSTEX)—which became operational on June 28, 2019. INSTEX is mirrored by an Iranian instrument—the Special Trade and Finance Institute—both acting as clearing houses to support trade between Europe and Iran while avoiding direct financial transactions. In addition to France, Germany, and the UK, seven other European countries have announced they are interested in joining INSTEX (Austria, Belgium, Finland, the Netherlands, Slovenia, Spain, and Sweden).

This system allows goods to be delivered from Iran to Europe or vice versa but with financial transactions staying within the European banking system for European companies and the Iranian banking system for Iranian companies. For example, a European company exporting goods to Iran would not receive payment from its Iranian importer but instead from another European company importing goods from Iran. Likewise, the Iranian importer and the Iranian exporters would be transferring money to one another.

Effective implementation of these instruments, including INSTEX, remains a challenge. Iran has shown limited eagerness to do its part to make the mechanism work. The United States has been dismissive of European efforts, warning that INSTEX should not operate in contradiction with U.S. sanctions, although it is first and foremost designed to support food and medicine exports, which are not prohibited. And more importantly, the success of INSTEX will depend on the perception of private companies that this new instrument can effectively shield them from the risk of U.S. sanctions, which is far from being the case today. This results in overcompliance behaviors as companies refrain from conducting authorized transactions because the extent to which they might be interpreted as complying or violating U.S. sanctions is deliberately not clarified.

Claims that Europeans are merely trying to defend their commercial interests in Iran are not supported by the facts. Iran represents only 0.5 percent of overall EU trade. At $20.27 billion in 2018, trade with Iran is comparable to trade with Bangladesh. Likewise, INSTEX is not intended to undermine the role of the dollar or circumvent U.S. sanctions (its focus is on food and medicine, goods that are not formally under U.S. sanctions); it is a specific instrument designed for a specific purpose, and that is the preservation of the JCPOA.

As a result, the JCPOA is today in some variant of a catch-22, plagued with self-defeating paradoxes:

  • On the U.S. side, while Washington has withdrawn from the JCPOA and has focused on negating the benefits that Iran should receive from the deal, it is also calling upon Iran to abide by its own commitments and return to compliance with all provisions of the agreement.
  • On the Iranian side, Tehran has remained a participant to the JCPOA and is demanding that others respect their commitments. However, at the same time it acknowledges that it is itself no longer in compliance with the agreement.
  • On the European side, France, Germany, the United Kingdom, and the European Union have consistently expressed their intention to preserve the JCPOA by continuing to implement it and demanding that all parties abide by their own commitments. But they have been struggling to deliver the economic benefits promised to Iran because the extraterritorial outreach of U.S. sanctions.

Rebooting a Diplomatic Approach to Iran

Just 18 months ago, the United States and Europe agreed on three core concerns regarding Tehran: (1) constraining Iran’s nuclear activities beyond the sunset clauses of the nuclear program, (2) curtailing its ballistic missile program, and (3) limiting its destabilizing regional actions. There has been zero progress. No alternative to the JCPOA was put forward; no strategy to address the development and proliferation of Iranian missiles was offered; and no solution was articulated to confront Iran’s support to Hezbollah, Houthis, the Syrian regime, various militias in Iraq, and various terrorist activities. In fact, the situation has deteriorated on all of these fronts: key oil processing facilities were hit in Abqaiq and Khurais in attacks claimed by Houthi rebels, Tehran seized a British tanker in the Strait of Hormuz, indications of transfers of Iranian missiles and associated technology have been accumulating, and Iran is no longer abiding by all of its commitments under the JCPOA.

This situation illustrates that the division between U.S. and European policies is damaging and ineffective. It is unlikely that the United States would reverse its maximum pressure policy on Iran or that the European Union will abandon its longstanding support to the JCPOA. But even after acknowledging those diverging policies on both sides of the Atlantic, there is a margin for joint action if focus is placed on common transatlantic interests, both in the short term (avoiding an uncontrolled escalation) and in the longer term (ensuring that Iran never acquires a nuclear weapon). Rather than trying to devise an impossible magic formula that would resolve all these issues at once, the United States and Europe should engage in a pragmatic and incremental approach to defuse tensions and create breathing space for subsequent negotiations. To this end, the following steps should be considered.

First, the JCPOA must be preserved in the interest of all parties because it prevents the crisis from escalating dramatically into the nuclear realm—something that Europe, the United States, and Iran have shown they wish to avoid. This would not entail reversing Washington’s position on the nuclear agreement but rather letting the JCPOA play its role as a stabilizer. Indeed, Europe and the United States have a common interest in focusing on the most critical issue: ensuring that Iran never develops a nuclear weapon. The aim is to do so by maintaining Iran’s nuclear program under restrictions and close international supervision as both President Trump and President Macron underlined in Biarritz. It is essential that all parties have sufficient visibility of Iran’s activities and share a common and trusted assessment of the status of Iran’s nuclear program. And it should also be in Tehran’s interest to avoid any misunderstanding that could trigger dramatic reactions. We can argue endlessly whether the JCPOA provisions are sufficiently stringent to ensure that Iran’s nuclear program remains exclusively peaceful, but the fact is that these provisions are the only ones that have been agreed to. More importantly, they constitute the only mandate given to the IAEA for its vital monitoring activity. To ensure that Iran does not develop a nuclear weapon, the top priority should be demanding that Tehran returns to full compliance with the JCPOA and ensuring that IAEA inspectors have all necessary resources and information to make independent and robust determinations on Iran’s nuclear program. This also implies maintaining the waivers for various nuclear projects provided for in the JCPOA as President Trump decided to do this summer, albeit for a short 90 days.

Second, some financial relief needs to be implemented to avoid further escalation of the crisis, and Europe and the United States rely on one another to make this happen. As Washington is not willing to divert from its maximum pressure policy, it would be in its interest to let Europeans alleviate pressure. Such actions could be limited and reversible so that Washington could assess the impacts on Iran’s behavior. This could start with making INSTEX work, as it covers food and medical goods, which are not in principle under U.S. sanctions. Other financial relief measures should also be considered, such as opening credit lines to facilitate some Iranian oil exports, which has reportedly been considered in recent talks with Iran and the United States. Further down the road, the United States could consider reestablishing some waivers on Iranian oil exports (which were halted earlier this year). Although there is little indication that Washington might be taking such a step at this time, it would be a powerful instrument to create space for negotiations with Tehran and could also be easily reversed if needed. In all instances, it should be made clear that any progress on financial relief should then be matched by an improvement in Iran’s own compliance with the agreement.

Third, Europe and the United States should demonstrate resolve by responding firmly and jointly to destabilizing Iranian actions, in particular its missile program . On July 24, Iran tested a Shahab-3 medium-range ballistic missile, ignoring United Nations Security Council Resolution 2231, which calls upon Iran “not to undertake any activity related to ballistic missiles designed to be capable of delivering nuclear weapons, including launches using such ballistic missile technology.” Additionally, just a few weeks ago, a space-launched vehicle failed to take off from the Imam Khomeini Space Center. These are only the latest developments regarding Iran’s ballistic missile program, which is not only perceived as a regional threat by neighboring countries but also a potential threat to European security. Likewise, indications of transfers of missile technology or even production facilities are very concerning, and the UN Panel of Experts on North Korea just reported some level of cooperation on ballistic missiles between Iran and the DPRK. Such activities would contravene UN sanctions and could lead to targeted joint EU-U.S. sanctions against actors involved. Finally, the United States and Europe should develop a common assessment of the drones and cruise missiles that hit Saudi infrastructures last week to establish unequivocally where they were launched from and what technology was used. At Riyadh’s request, France is sending experts to investigate the attacks. If Iranian responsibility is demonstrated, it would justify taking robust measures against entities and individuals involved.

Fourth, once the most immediate steps are taken, it will be essential to resume serious technical work among allies to define a common approach, or at least coherent approaches, to tackle the three core issues mentioned previously: Iran’s nuclear program, its ballistic missile activities, and its destabilizing regional actions. Such effort was engaged in 2017, and an agreement was in sight before the United States announced its decision to withdraw from the JCPOA. Obviously, the task has only become more difficult given Iran’s actions and the division generated by the maximum pressure policy, but no solution to those challenges can be found without allied unity—and, eventually, unity in the UN Security Council, including Russia and China. Opening negotiations with Iran on those issues seems currently a remote prospect, but the only way to ultimately get there is to start working in that direction now.

The U.S.-Europe conversation on Iran must move out of the current dead end. The idea that maximum pressure and negotiations are exclusive options is not only erroneous, it is also dangerous. It locks the United States and Iran into a binary standoff that neither will accept losing. The actual stakes are much higher than a meeting between Presidents Trump and Rouhani on the margins of the UNGA, and the recent attack on Saudi Arabian infrastructure underlines how volatile the current situation is. Instead of nurturing impossible expectations, transatlantic partners should start working on solutions that realistically consider each actor’s positions. If anything, the G7 was not a punctual breakthrough but rather the beginning of a process that will take a bit of time, much commitment, and substantial pragmatism to avoid this crisis from escalating into a conflict. This is precisely where the transatlantic relationship can, and should, make a difference.

Quentin Lopinot is a visiting fellow with the Europe Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2019 by the Center for Strategic and International Studies. All rights reserved.

Quentin Lopinot