Back in September, following months of absurd anti-Iran bombast from the administration and just days ahead of what would end up being a predictably over-the-top address to the UN General Assembly from Donald Trump, the EU, China and Russia tipped plans to set up an SPV that would theoretically allow everyone to simply circumvent American sanctions on Tehran.
A joint statement from foreign ministers of China, Russia, Germany, the UK and France said the deal would be designed to “assist and reassure economic operators pursuing legitimate business with Iran” and as you might expect, US officials were not amused.
“[Anyone who establishes financing vehicles] does so at their own risk,” John Bolton declared, while speaking to United Against Nuclear Iran in New York on September 25. SWIFT, he went on to warn, should “take a good hard look at their business with Iran.”
Speaking at the same event, Pompeo called the SPV idea “one of the most counterproductive measures imaginable for regional and global peace and security”.
Read more
In Brazen Move, Europe, Russia, China Establish SPV To Circumvent Trump’s Iran Sanctions
‘Do It At Your Own Risk’: Bolton, Pompeo Not Amused With Europe’s Plan To Circumvent Iran Sanctions
The proposal was met with quite a bit of skepticism in financial circles for the simple reason that trying to get around US sanctions is an endeavor that’s virtually guaranteed to fail as it sounds like transactions will have to be conducted in something other than dollars. Admittedly, I haven’t kept myself apprised of the operational details, but presumably, the effort would be designed (at least tacitly) to promote the internationalization of the euro. Again, I could be completely mistaken about that, but it’s hard to imagine how it would work if everything were denominated in dollars. Here’s what we said six months ago:
If the European powers view this as an opportunity to de-dollarize at a time when the U.S. is seen as an increasingly unreliable partner for France and Germany, well then Europe’s resolve might be stronger than Washington anticipates.
More broadly, Europe, Russia and China are presumably trying ensure that US sanctions don’t end up causing an outright economic calamity for Iran that then leaves the regime with no choice but to restart its nuclear program in order to gain leverage over the US.
It’s also likely that despite the world’s generalized disdain for the Iranian regime, nobody (with the exception of John Bolton, Mike Pompeo, the Saudis the Israelis) wants to see a scenario where the country is thrown into chaos by some kind of haphazard coup attempt orchestrated by loosely-organized opposition groups. Remember, this ain’t Venezuela – so to speak. Regime change in Iran would be a nightmare of epic proportions in the near- to medium-term and there’s no telling what the political ramifications would be for Iraq.
In any event, the EU is pushing ahead with the SPV. In fact, Bloomberg has seen a draft version of a statement announcing the official establishment of the vehicle. According to two diplomats who spoke on the condition of anonymity, France, Germany and the UK will likely make the announcement this week.
“[The EU welcomes the move] to operationalize the Special Purpose Vehicle, which has now been registered as a private entity, with a view to providing a positive impact on trade and economic relations with Iran, but most importantly on the lives of Iranian people”, the statement reads, adding that the SPV is aimed at “support[ing] European economic operators engaged in legitimate trade with Iran, in accordance with EU law and with UN Security Council resolution 2231.”
And see, this is yet another example of Trump getting himself into trouble by flouting international agreements and resorting to the free-wheeling weaponization of the dollar when he can’t marshal legitimate support from traditional allies.
The dollar’s reserve status and the economic clout that comes with it is highly effective when it comes to supporting America’s foreign policy goals. But as with any powerful weapon, it has to be wielded carefully and strategically (e.g., turning the screws on Venezuela) to avoid scaring everybody to death.
When you start throwing the dollar’s weight around willy- nilly you incentivize de-dollarization. JPMorgan’s Marko Kolanovic wrote about this in the days following the original announcement of the SPV back in September. To wit:
Recently, there are developments that suggest such a diversification could take place, and is being catalyzed by policies of the current US administration. The EU foreign affairs chief announced this week the creation of a ‘special vehicle’ for trade despite US sanctions, and similar ideas were promoted by Germany’s foreign minister. US unilateral policies risk bringing major powers of China, Europe and Russia closer, and such an alliance could profoundly impact the USD-centric financial system. While the current US administration may be a catalyst for long-term de-dollarization, such diversification may be prudent even if Washington policies change. For instance, currency/rate diversification might be in the best interest of Emerging Market economies, time and time again left at mercy of US Federal Reserve rate cycles.
It’ll be interesting – to say the least – to see how Trump responds to the establishment of the SPV.
If the US were to make good on threats to hold anyone and everyone who deals with Iran responsible for efforts to undermine the sanctions, it would presumably entail chastising Germany, France and the UK.
Every system and Empire has it’s achilles heel . In the case of the US it is the fact that unilateralism (the stepchild of arrogance ) tends to unite formidable forces to the inevitable opposition. The alignments take on an economic tone such as the new silk belt initiatives connecting Europe and Asia in lucrative commercial arrangements and exclude the US. The inevitable result is de- dollarization which is the “Trump” card and goal for the opposition. All this is taking place at a snails pace but is much more critical long term than the phony balancing act at the Fed.
George your perspective on withdrawing from TPP?
I see it as the chapter in Trumps history entitled:Leverage Lost. It could be just a chronologically based event that just happened sooner than other unilateral actions because leaving your seat the table empty there was easy and convenient early in the administrations flailing..However that lack of presence was major tactical error. By the time Uncle Donnie arrived in China the game was over, his inner child was tuned up and played like a fiddle.
The China visit opera: “Look he is puffed up like a cheeto”, “No i think he is actually a cheeto”
I am not in disagreement on your view on TPP.. Disengagement is generally not a good policy as you create a vacuum that gets filled to your detriment. Trade deals turned sour for the US in some cases because profits became more important than National interests and corporations did what they always do in this case. Being the reserve currency where printing Dollars to meet unlimited demand, was the supreme advantage over economic rivals extended this Empires ability to prevail as long as it has but not forever….
Exports from the European Union to Iran amount to 11 billion euros, or about $13 billion. It’s not so strategic.
As regards foreign direct investments and relevant orders, we have the Italian engineering group Ansaldo Energia, the German car maker Volkswagen, and Daimler, then Airbus, Total, Renault has already a plant and plans to make a second one, last but not least Siemens.
I’m not surprised that this SPV has been planned and developed mainly by Germany and France.
Business is business, we all know, but a nation is made by all citizen, not only by corporations. And yes, there is a slowing cycle, employment to save, and a struggling European growth, I am aware. Yet I feel uncomfortable that Europe ignores all signs of an aggressive Iran testing missiles and able to widen their ranges, already able to hit South Europe.
I save articles and not being a blog author or analyst I don’t care of taking note of sources but I have this in my “Iranian folder”
“On the 8th December Iran launched a ballistic missile that can deliver nukes; near-complete silence of the press here in Europe. The test showed the confusion of European countries, who are alarmed by the mullahs’ behavior but fear losing the deal that enables it. Rather than punish Iran, the European Union instead actively seeks to circumvent American sanctions, even to attempting to establish a special-payment channel that Âallows for financial transactions with the mullahs. The Iranian test concerned a medium range ballistic missile that’s capable of carrying multiple warheads.” [I usually cut sentences and keep only what is relevant, so probably the original sentence is longer]
The German newspaper Die Zeit not long ago wrote about the “enigmatic love relationship between Germany and Iran,” which “survives every war, every upheaval, every revolution,”.
The Trans-Iranian railway project built between 1927 and 1938 connected Tehran with the Persian Gulf in the south and the Caspian Sea in the north. For the construction of this long railway line, German companies founded a consortium in which almost the entire German industry was represented: Julius Berger, Philipp Holzmann, Siemens and German banks.
The Nazis in Iran were very active propagandists, in some cases also very successful. Until recently, a swastika hung over the entrance to Tehran’s main railway station, and a well-known district of the Iranian capital bears the name “Nazi-Abad” — in other words: urbanised by the Nazis.
There is something visceral between Iran and Germany that is uncanny.
There are lot of things I don’t like in Trump, but I agree on his hard face attitude towards Iran. Iran is far from being a good guy.
I only hope Israel will sneak another Stuxnet code inside the Siemens’s plants and block them again.
I am not noticing a relationship between Germany and Iran that I can’t explain in a different light. I see the Germans reacting due to their need to diversify Energy resources and as a hedge against American Unilateralism (especially trade related). This is even more true currently because of unhinged foreign policy in the US of the last decade or so that threatens a WW3 scenario involving and starting on the European continent.
The Iranians are confronted with the consequences of the Brenton Woods agreement (Dollar Hegemony) which advantages the Saudis over all others in the region. The unlimited cover and support for Israel a traditional rival and adversary is an existential threat especially due to Russian mixed performance in supplying them even defensive weapons. All the while Saudi weapons sales and the objections of Israel to Iran’s progress persist. The Examples of Libya, Iraq and currently Venezuela and the Military threats to Iran which are blatant ,frequent and credible (sadly enough) are viewed as justification for anything they have done to beef up their Military. So it would seem to me at least.!!!
Iran is, and will continue to be, a nightmare to deal with, something that most Europeans would readily acknowledge. But the idea that reneging on commitments made to them might encourage better behavior is plainly absurd.
Good comments, all.