P5 Monitor: The Sanctions War Heats Up: US vs. the World
On May 8, the US withdrew from the Iran nuclear deal; on May 21, Pompeo warned European allies from continuing to do business with Iran.
by Enrico Carisch. This article originally appeared on PassBlue.
Mike Pompeo, in his first speech as Donald Trump’s new secretary of state, threatened United States’ allies: “You should know that we will hold those doing prohibited business in Iran to account.”
Pompeo, speaking at the conservative Heritage Foundation in Washington, D.C., on May 21, is actually pitting the US against the United Nations, specifically extending America’s Iran sanctions against anybody who complies with the UN’s relief package legally mandated by Security Council Resolution 2231. The Trump administration breached the resolution on May 8, to the chagrin of the five other signatories — plus the European Union — to the Iran nuclear deal.
Since that moment, a new world order has emerged virtually overnight, creating a division between two camps: the team of extreme unilateralists in the White House and the ultraconservatives of Israel and Saudi Arabia against the other team: the rest of the industrialized world.
In a short time, from an international legal perspective, America’s foreign and economic policymakers are already responsible for:
- Attacking or undermining international law by moving the US embassy in Israel from Tel Aviv to Jerusalem;
- Shielding Israel’s violations of international humanitarian law by failing to condemn its disproportionate deadly strikes against Palestinian protesters;
- Threatening sanctions against Germany over its gas supplies from Russia through the Nord Stream 2 gas pipeline;
- Upsetting the World Trade Organization system by pursuing extortionist trade negotiations with all major industrial countries;
- Attacking its closest NATO partners for skimping on defense expenditures;
- Playing a game of chicken with North Korea’s Kim Jong Un over who must denuclearize.
President Trump’s belief that he can throw down a drawerful of gauntlets to friends and foes alike is rooted in the power of the US dollar. Still an indispensable currency in global trade, dollar-denominated transactions are funneled through the bottlenecks of international payment settlement systems. Many of them are controlled by the US government, lending Trump’s America First warriors — for now — the leverage to economically cripple everyone who dares to defy them.
For too long, chloroformed by the peace and security promises of a Pax Americana, diplomats across the world are finally awakening to their American peers’ stepping over them as if they were nettles. As Bruno Le Maire, the French finance minister, seems to observe in the Financial Times, “The international reach of US sanctions makes the US the economic policeman of the planet, and that is not acceptable.”
Trump’s domination strategy, however, looks increasingly illusory. Iran’s government has lost all confidence in the Trump administration and is unlikely to negotiate a new deal despite Pompeo’s posturing. Moreover, Chairman Kim Jong Un of North Korea may prove to be as elusive a summit-meeting partner as the benefits that Trump hopes to accrue from his dollar hegemony. It didn’t take long for Trump to admit the meeting may be delayed.
“Using the dollar as a bludgeon has already led to capricious and arbitrary decision-making,” the Economist warned this week. The US, it said, “risks destabilising global finance. Eventually, it may hasten the demise of the dominant dollar.”
A month ago, Iran announced that it would manage its currency by using euros rather than dollars. The declaration may be symbolic, but Iran is not alone in aiming to shake off its US currency shackles.
The European Union, with a gross domestic product equal to that of the US; and China, whose economy is close to equal America’s, have begun carving out dollar-free channels for their international trade. With similar efforts by other Asian economies and by Russia, these niches will together provide a lifeline to a nuclear-free Iran.
The question is: Are companies in these regions willing to engage with Iran’s economy of close to $400 billion or instead with the behemoth $18.5 trillion US economy? Do large companies that depend on funding from international stock exchanges even have a choice, whether or not their governments support them?
Formally, the UN Security Council, through Resolution 2231, is still “seized of the matter” — that is, Iran’s nonproliferation. Since Jan. 5, however, the Council has not convened any meeting on Iran. Some diplomats of member states have confided to PassBlue that addressing the US challenge to the nuclear deal in the Council makes sense only after it is certain that such a move will avoid a US veto.
That is why actions on the matter are taking place outside the Council, under the revised P4+1 formula. That group encompasses the remaining signatories of the Iran nuclear-arms deal: Britain, China, France, Germany and Russia, with the European Union as chief negotiator. They are preparing joint steps to protect the deal, possibly including a bolder new agreement, to be announced soon.
Under discussion is a range of options, including new concessions from Iran on ballistic missiles and regional destabilization concerns. Billions of euro credits would be offered to entice the Iranians into agreeing to such a plan.
More aggressive plans revolve around protecting the nuclear deal with far-reaching economic and trade agreements, backed by credit lines from Europe, China and Russia, as well as perhaps India. Could the Asian Infrastructure Development Bank, China’s answer to the US-dominated World Bank, play its first major role as facilitator of a development plan for Iran?
Such a plan would represent a natural extension of China’s efforts to tie Iran into the Belt and Road Initiative already underway. Investments by Chinese businesses in Iranian developments were worth at least $33 billion as of June 2017, Bloomberg reported, noting that China provided a $10 billion credit line in September to five Iranian banks to finance water, energy and transportation projects. In March, the two countries signed a $700 million deal allowing China to build a train line linking the port of Bushehr to the rest of Iran’s rail network.
Russia is also busy exploiting opportunities. The Eurasian Economic Union — a powerful bloc that includes Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan — has just signed a free trade pact with Iran. This will ensure that Russia has access to Iran’s Indian Ocean gateways, a strategic victory that Britain and the US fought for almost a century through their hostilities against Iran.
Additionally, Russia is delivering its very strong S-300 P long-range surface-to-air missile, or SAM, to Iran while it is also carrying out an agreement to enable Iran to manufacture the Su-30SM, Russia’s fighter aircraft. Once these deals are finalized, Iran hopes to fix its air-defense vulnerabilities against America’s regional proxies: Israel, Saudi Arabia, the United Arab Emirates and Bahrain.
Equally important, the US economic warfare that Pompeo threatened this week is not likely to deter engagement between Iran and its nuclear deal partners.
“For us, nothing has changed,” said Heiko Maas, Germany’s new foreign minister, said before his departure for Washington this week to meet with Congressional delegations and Pompeo. Maas wants to address the sanctions imposed by the US on Iran and the punitive tariffs the US wants to impose on its European allies.
“We are willing to talk,” he said, “but not with a pistol on our chest.”
Yet the Europeans must contend with a weak link in the sanctions resistance chain they are trying to build: large, multinational companies and their US-based investors. The French energy giant Total, for example, which is highly dependent on US capital, has no choice but to withdraw from Iranian business. Airbus, Siemens and the French carmaker Peugeot are caught in the dollar trap, too.
Trump’s sanctions warriors have begun celebrating the exiting of large European companies from Iranian industry. But winning a battle is not the same as winning the war. Smaller European companies that are not exposed to US capital markets or Russian and Chinese companies that are inured to US sanctions can afford to defy the cudgel of sanctions.
These defiant parties are also encouraged by the continuous US trade-war drama against China. Faced with resolute opposition by Chinese President Xi Jinping, Trump’s militancy is failing.
The P5 Monitor column examines the actions of the permanent members of the UN Security Council, Britain, China, France, Russia and the US. We welcome your comments: email@example.com or in the space below.
Originally published at www.passblue.com on May 22, 2018.