Speculation is rife when it comes to Trump and Iran, and what the president elect will do with the JCPOA nuclear deal signed last year. But where does this uncertainty leave businesses and banks already dealing with the much-debated Middle Eastern country, and what should they look out for?
It is no secret that Trump doesn’t like the nuclear deal with Iran. On the campaign trail, Trump has called it everything from “disastrous” to “the worst deal ever negotiated” and has repeatedly said that dismantling it was his “number one priority”.
Now that the Trump presidency is a reality, commentators have been quick to offer speculation as to what his administration could possibly do with the deal. On the one hand, experts say there is good reason to think Trump won’t tear it up, pointing to the fact that Iran has complied with the agreement over its first year and that it is of strategic importance to the US in other parts of the world.
On the other hand, some believe the deal could be in real danger considering the extensive Republican opposition to it in the past. “It is Republican orthodoxy that the deal was a bad one,” says Richard Nephew, a former US State Department sanctions official, who is now a policy professor at Columbia University. “Some of these people are going to be staffing his administration. And they are not going to abandon that viewpoint at the door,” he tells GTR.
Nephew also points to the fact that the JCPOA is an executive agreement, not a formal treaty, which means that it is indeed possible that Trump could neglect Washington’s commitments. “The sanctions are still on the books; they are just being put in abeyance by Obama,” he says. “The waivers and exemptions all have deadlines, they expire, and the first of them will probably expire in the middle of April.”
Speculation aside, no one will know the fate of the nuclear deal until Trump has moved into the White House. But according to Nephew, the president elect will send a clear indication of his future line when appointing his staff.
“We will start to see some signals pretty soon, when we see who gets nominated to key jobs – if we see some real sanctions hawks coming back into the government,” he says. “If John Bolton gets nominated to secretary of state, I don’t think you should waste a lot of time looking to see if you can make the deal work. He has just written that the deal should be killed on day one, and he has said before that the only solution to the Iran nuclear problem is to bomb it.”
However, if Trump nominates a more moderate political figure or businessman to the role, the nuclear deal would have better chances of surviving, Nephew explains.
A big issue when it comes to trade with Iran is that of large European banks’ reluctance to get involved in any business with the Islamic Republic. Long before the US election’s outcome was known, Iranian official had repeatedly complained that the deal wasn’t yielding the expected trade and trade finance results. Many large European banks have simply been holding back from dealing with Iran for fear of falling short of the US sanctions that remain in place – and while waiting for the results of the Trump-Clinton election.
With the outlook of a Trump presidency, Nephew doubts that banks who were previously reluctant to deal with Iran will decide to reopen credit lines to the country anytime soon. Even if Trump decides to keep the nuclear agreement in its current form, it is unlikely that his administration would take on the task of reassuring foreign banks on funding authorised Iranian trade.
“The political risk attached to the deal is pretty severe,” he says. “So if I were advising any companies directly, I couldn’t in good conscience say ‘go ahead’. I think that’s unfortunate, because there is a line of argument that if you make the business so attractive and your investment so beneficial, you’ll keep the deal alive.”
Speaking to GTR, Nigel Kushner, a UK-based sanctions lawyer who advises businesses and banks on how to deal with Iran, says many of his clients have expressed serious concerns following Trump’s presidential victory, asking how to best respond to the events.
“To most of my clients who are doing what I call ‘spot’ business, which is one-off large, small or medium deals, I’m saying don’t worry, it’s absolutely fine, it’s a one-off deal,” he says.
But, Kushner adds, when it comes to advising clients with longer-term interests with Iran, he is giving “more careful advice, because they risk being exposed in a very different way”.
“My one advice is, watch out for your next sale and put clauses in your contract which make sure that, if for whatever reason you cannot perform your part of the bargain, there is a clause in that contract which relieves you of all liability,” he says. “I have been recommending this from day one. They are not easy clauses to get. It’s just a business decision and it’s a commercial negotiation, but my advice to my clients is that this clause is now critical rather than helpful.”
Nephew agrees, especially considering the general risks related to entering the Iranian market. “Iran was not going to be an easy environment to go into anyway; there are many different ways in which this would have gone bad,” he says. “My advice all along has been, negotiate deals with the Iranians, see what you can get, but build in lots of escape clauses.”
What Europe can do about it
If a Trump administration does decide to withdraw from the JCPOA, it could have severe consequences for banks and companies all over the world. Thus, the prospect of stricter US policies towards Iran will likely put a dampener on foreign trade with the Middle Eastern country.
But there is much that the rest of the world, especially Europe, can do to keep the Iran deal alive, Nephew emphasises. In fact, at the end of the day, Trump can do little on his own to stop foreign businesses who have started to engage with Iranian businesses.
“Some commentators have called the sanctions extraterritorial. That’s wrong: they don’t actually prohibit European companies from doing anything, European companies are governed by their own laws,” he says.
As such, other signatories could keep the JCPOA in force, if they have the political will to do so.
“The question that folks in the European capitals need to be asking themselves now is, do they think there is a viable path to keep the deal alive with their own trade and financial relationships with Iran? And, if not, what are they going to do about the sanctions that may be coming back,” Nephew asks.
In 1996, when the US imposed some of its first sanctions against Iran, the European Union adopted a blocking statute that made it illegal for any EU company or person to comply with those US sanctions. Europe could do that again.
“Europe should not underestimate its power in terms of putting pressure on a new president and underscoring the importance of this issue,” he ends.