The United States and Iran have had no diplomatic relations since 1980 and from 1995 to 2015 the US placed a trade embargo on the country. The Obama administration made a turning point in the US-Iran relations: in 2015 US led successful negotiations for a nuclear deal, the Joint Comprehensive Plan of Action (JCPOA). The Plan was concluded on 14th July 2015 between China, France, Germany, the Russian Federation, the United Kingdom, the US, (collectively referred to as the E3+3 in Europe or the P5+1 in the rest of the world), the High Representative of the EU and the Islamic Republic of Iran. On the 20th July the Security Council unanimously adopted UN Res 2231(2015) endorsing the JCPOA.[1] Its objective is to dismantle Tehran’s nuclear weapon capabilities. In front of Iran’s compliance to the JCPOA’s measures, the sanctions on the country were lifted.

With the presidency of Donald Trump, the relations with Iran deteriorated until a new breaking point. In May 2018, Donald Trump decided to pull out of the JCPOA announcing the US would re-impose economic sanctions on Iran, starting from November 4th, 2018. The relations between the two countries worsened in July when Tehran threatened to close off the strait of Hormuz to the US should the economic sanctions be applied again. [2]

US sanctions on Tehran

This unilateral detachment from the JCPOA brings with it consequences that significantly affect the commercial traffic of Europe. On August 6th, the US have applied the primary sanctions on the purchase of American dollars from the Iranian government, trade of gold and other precious metals, direct and indirect selling of some products (ranging from graphite to software). A second round of US sanctions will kick in from 4th November, applying to port operators, to all the transactions related to oil products, foreign transactions with the Central Bank of Iran, insurance services and to the energy sector as whole. International companies have been having two stand-by periods (90 days or 180 days) to adapt their regulations and activities to the evolved situation, proceeding with the cancellation of the commercial agreements with Tehran. If these companies will not adapt and cease their commercial relations with Iran, the US has threatened to fine non-US companies either having commercial relations with the US or using American dollars for their trades.[3] The extraterritoriality of the US sanctions is applicable also to Italy.

Italy and Iran have a long history of commercial relations. The economic interests play a large role in the relations between the two countries. Before the imposition of the United Nations sanctions, Italy and Germany competed for ranking as Iranian top trading partners. Italian companies, active in the oil field, petrochemical industry, iron and steel industry, energy, mechanical field, and infrastructures and transports, are based in Iran. In 2005, Italy was the third largest trading partner of Iran, and confirmed this role over 2017.

This commercial relation is convenient for both countries, as demonstrated by the latest numbers. After a peak of import-export reached in 2011 (€7.097 billions), a decreased has been recorded in 2012, when an intensification of the international sanctions from EU and US against Iran combined with other restrictive measures in the financial and commercial fields, led to a flection in the trade between Iran and Europe (Italy included). With the advancement of the JCPOA the commercial relations between Italy and Iran slowed down. Italy supports the international sanctions against Tehran. This led, in 2015, to the interruption of the import of Iranian oil. Starting from 2016, Italian private sector recently re-established contacts with its network in Iran.

In the first nine months of 2017, the trade between Europe and Iran worthed about €15 billion. Of it the Italian exportation was of about €1,147 billion and the import €2 billion.[4] These numbers show an increase of the +97% of the Italian-Iranian trade in comparison to 2016.

How the US unilateral suspension of JCPOA will impact on the Italian commercial relations with Tehran?

The reactions of the European Union and of the Member States to the US move against Iran, aim at protecting the Iran-EU relations to avoid a strong commercial impact that would damage the commercial trade of the EU. For this reason, some EU Member States are working on an ad hoc exemption to discuss with the US, to preserve the European companies based in Iran.

The European Commission recently proposed some alternative measures as protection to avoid a serious negative impact on the US sanctions: 1- launch of the formal process to activate the Blocking Statute[5] updating the list of US sanctions on Iran falling within its scope; 2- launch of the formal process to remove obstacle for the European Investment Bank (EIB) to decide under the EU budget to support and guarantee financial activities outside Europe.[6] These two measures will, on a side, help the European companies based in Iran to recover from the damages deriving from the US sanctions and nullifying the effect of them in the EU of any foreign court based on them. On the other side, these measures help also the investments in Tehran of Small and Medium Enterprises. [7] The EU Commission and Parliament will have two months to object these measures before they entered into force. At the same time, other measures have been undertaken by the EU Commission as for instance confidence building measures. These include the strengthen of the sectoral cooperation with Tehran. [8]

While the US takes the distance from Iran, Italy continues to support the JCPOA despite the changed view of Trump. It is important for the Italian trade to give a continuity to the diplomatic commercial relations with Iran. Since January 2018 Italy signed a Master Credit Agreement between InvItalia Global Investment and the Iranian Banks, Bank of Industry and Mine and the Middle East Bank. This Agreement contains terms and conditions to regulate the Facility Agreements between the signers that worth €5 billion, that are covered by an Iranian warranty released by the national government. These facility agreements will earmark funds for projects and partnerships in Iran jointly conducted in sectors of common interests helping the commercial interactions between the Countries and the R&D sector.

Today, InvItalia is monitoring the US-Iran relations with apprehension. The drop out of Trump from the JCPOA, raises the risks of negative influences on the revenues of Italian companies and investors interested in developing joint projects, pausing the projects already started. [9]

In addition to this fear, the Italian political context is worsening the whole situation. The new government, installed last June, is exacerbating the populistic side of Italy. Apart from the domestic measures, that are pushing for tax cuts and for the introduction of an income programme for the Italian citizens, also the relations with the EU are deteriorating since the politics promoted by the two leading parties, the Movement 5 Stars and the Lega Nord, is of increasing hostility towards the European Institutions. This context is worrying the commercial partners of Italy.

Italy must evaluate the future steps in this relationship with Iran, while also must preserve the traditional diplomatic ties with the US. Damaging or weakening the transatlantic relations can bring with it a series of consequences that might worsen the Italian role in the international fora and changing the priorities of the country.

Italy is between the hammer and the anvil: how to maintain the relations with Iran without damaging the one with the US? There are different interests. Iran is a major commercial partner for Italy and Italy has the same importance for Iran. Italy will continue to support the JCPOA but is against the US sanctions, as the European Union. But, US is a fundamental partner for Italy. Their diplomatic relations are going on for seventy years and both the countries, in one way or another, they have always found a common point or a common interest in many situations.

What position should adopt Italy? Firstly, Italy must put over the top its national interests and its commercial needs. Keeping the commercial links with Tehran will benefit the Italian economy, but payments and banking issues needs to be solved, avoiding the Trump’s sanctions and helping the SMEs and private companies to reduce potential losses in their revenues.[10]

A solution might be boosting private companies and SMEs activities to develop business relations between the two countries, with the support of the European Union, through:

  • Policy measures, to create a supportive framework for commercial operations with the introduction of legal measures that will help create a favourable environment for trade in specific fields, such as energy.
  • Financial measures, to guarantee the payment of the commercial operations avoiding the dollars but introducing an ad hoc currency or helping the adoption of payments in Euro for the commercial transactions.
  • Capacity building measures, in line with the policy adopted by the EU Commission.

To preserve the relations with the US, Italy should take a calculated risk in taking the distances from the American sanctions. It will be a tough task for the Italian diplomats, but in this frame a relevant role needs to be played by the EU in supporting Italy, as well as other Member States, to guarantee the right diplomatic protection to them. EU must act as one.

 


References and notes

[1] United Nations Security Council Res. S/RES/2231 (2015). Retrieved: https://undocs.org/S/RES/2231(2015)

[2] Goodman, Peter S. Italy’s Economy Was Humming Nicely. Then Came Trump. The New York Times, 22 June 2018. Retrieved: https://www.nytimes.com/2018/06/22/business/italy-economy-trade-war-iran-sanctions.html

[3] Alb. Ma., Iran, cosa succede dopo lo strappo di Trump e perché riguarda anche noi. Il Sole 24 Ore, 13 May 2018. Retrieved: https://www.ilsole24ore.com/art/mondo/2018-05-11/iran-cosa-succede-lo-strappo-trump-e-perche-riguarda-anche-noi-164830.shtml?uuid=AEZWZ2mE

[4] http://www.infomercatiesteri.it/paese.php?id_paesi=104

[5] Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom. Official Journal L 309, 29/11/1996 P. 0001 – 0006. Retrieved: https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31996R2271:EN:HTML

[6] Perteghella, Annalisa and Tiziana Corda. Nuova Strategia USA verso l’Iran: quali rischi per l’Italia? ISPI, 24 May 2018. Retrieved: https://www.ispionline.it/it/pubblicazione/nuova-strategia-usa-verso-liran-quali-rischi-litalia-20598

[7] European Commission acts to protect the interests of EU companies investing in Iran as part of the EU’s continued commitment to the Joint Comprehensive Plan of Action. European Commission, Press Release. Brussels, 18 May 2018.

Retrieved: http://europa.eu/rapid/press-release_IP-18-3861_en.htm

[8] Ibid.

[9] Mahdokht Pazoki, Italian companies interested in Iran’s market, fearing US sanctions. Islamic Republic News Agency (IRNA), 5 August 2018. Retrieved: http://www.irna.ir/en/News/82992099

[10] Iran, Italy Conclude €5 billion Finance Deal. Financial Tribune, 12 Jan. 2018. Retrieved: https://financialtribune.com/articles/economy-business-and-markets/79791/iran-italy-conclude-5-billion-finance-deal