Iran Sanctions: A Turning Point in US-Europe Relations?

As November 4 (Aban 13) approaches and a new round of US sanctions against Iran begins, Washington is intensifying efforts to reduce Iran's oil sales to zero and sever its financial and banking connections with the world, similar to the period from 2012 to 2015. However, Europe holds a contrary view on both fronts, without yet having reached a decisive and effective approach in practice. The first phase of US sanctions against Iran, imposed last August, has effectively forced many large European companies that do business with the US to exit Iran. For medium and small European companies that do not have operations or transactions in the US, continuing to work with Iran is fundamentally not problematic, provided that Iran's financial and banking exchanges with the outside world are not cut off and their access to the funds deposited by Iran is not hindered. However, the US is working to push SWIFT to eliminate international banking and financial transactions with Iran as the new round of sanctions begins on November 4 (Aban 13). SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, was established in May 1973 through an agreement among 239 banks from 15 European and North American countries in Brussels, and it began operational activities in 1977 with the membership of 518 banks from 22 countries. SWIFT provides each country (central bank) with a point of access or SAP to connect to the global SWIFT system. Banks in each country connect to the SAP at the central bank through internal lines, and messages are sent from there via SWIFT to banks outside the country. In other words, any sending and receiving of messages between banking units within a country and banks outside it is done through SWIFT, making foreign exchange transactions globally faster, safer, and less costly than before. Each bank has an 11-digit code with SWIFT that serves as its identifier. To make a currency transfer, this bank code must be included along with the account holder's personal information. For example, the National Bank of Iran's code is MELIIRTHXXX and the Export Bank's is BSIRIRTHXXX. The SWIFT center is located in Belgium and is legally subject to the laws of that country and the European Union, although the Americans have significant influence on the board of this institution. Although the European Union and other members of the 5+1 group oppose severing SWIFT's ties with Iran, the US is trying in various ways to push this institution in that direction, so that after November 4, even if Iran sells oil, accessing its revenues will not be easy, and companies cooperating with Iran will be deprived of financial connections with the country and will abandon further cooperation. The US exerts pressure on SWIFT using both incentives and threats. Particularly noteworthy is the tone of John Bolton, the US National Security Advisor, who has stated that SWIFT managers should consider whether continuing cooperation with Iran is worth the risk. The risk refers to threats directed at SWIFT's management members by the US. It is said that if these members do not comply with Washington's demands, they will face legal action upon entering the US. In recommendations made by the 'Foundation for Defense of Democracies,' a think tank close to the Republicans, options such as sanctioning board members and cutting off power to one of SWIFT's computing centers located in Virginia are discussed. The problem with these solutions is that SWIFT's board members are themselves managers of major banks in Europe and the world. Sanctioning them will also impact the operations, stability, and credibility of these banks, further placing the US and Europe at odds in the financial and banking arena. Cutting off power to SWIFT's computing center in the US will not only disrupt Iran's operations but will also lead to disruptions in a large portion of banking transactions worldwide, including in the US. Nevertheless, Europeans have nearly concluded that ultimately, US pressure on SWIFT will not be without effect, and this institution and various banks around the world, especially given the role of the dollar in global transactions, may have no choice but to comply with Washington's demands and sanction Iran. Therefore, they are seeking to create mechanisms and arrangements to ensure that Iran's financial connections with the world are not severed, without needing SWIFT or the use of the dollar. Discussions have thus far focused on creating a special trading mechanism (special trading exchange) for Iran, meaning that the money from Iran's oil sales will not be returned to the country but will remain in this exchange (bank), and Iran's purchases from abroad will be settled with this deposit. Thus, there will fundamentally be no need for direct banking connections with Iran, and companies that do not deal with the US may be encouraged to continue operations with Iran or start work in the country without worrying about receiving their payments. The debate is also ongoing in the European Union regarding whether this trading exchange should eventually receive a banking license so that it can cover all trade interactions with Iran under international regulations while bypassing the dollar. In Brussels (the EU's center), these steps are partly seen as a move towards rejecting dollar dominance and potentially replacing it with the euro in global financial and trade interactions. This goal is also pursued by China and Russia in their own ways to strengthen their currencies against the dollar, although it has yet to yield specific results. Within the EU, the discussion of the euro's parity with the dollar and playing a similar role is met with skepticism, especially since the financial markets of the euro area are not large enough to attract significant investments (in euros) from around the world. A delegation from SWIFT officials traveled to several EU capitals earlier in October to gather the opinions of officials in these countries on the best way to confront US demands regarding sanctions on Iran. The outcome of the trip was that if Europeans genuinely wish to prevent SWIFT from sanctioning Iran, they must extend the 'Blocking Regulation' to SWIFT as well. The Blocking Regulation was the EU's measure against two laws passed by the US Congress in 1996 to sanction Cuba and Iran. At that time, US laws aimed to punish foreign companies operating in Cuba and Iran, even though these activities did not violate international laws. The Blocking Regulation did not find grounds for implementation due to an agreement between the US and Europe. However, the EU has recently sought to revive and update it. According to this law, European companies are obliged to disregard US sanctions, and otherwise, they will be penalized. If this resistance to US pressure causes them to face US sanctions or incur losses, they can file complaints, and damages must be compensated, even through the confiscation of US and American companies' assets in Europe if necessary. Extending this law to SWIFT means that this institution (its member banks) will be penalized if it does not resist US demands, and if it incurs losses, it will also receive compensation. Such an extension is considered a sensitive and consequential step in US-European relations, and there is no absolute certainty about its effectiveness. However, some European countries, such as France, emphasize such an approach, believing that it will showcase the EU's power and send a message to the US that it is not capable of doing anything. Regardless of the fact that countries in Eastern Europe do not necessarily agree with a policy of staunch resistance against the US, countries like Germany advocate for more flexibility and hope for the dominance of more moderate forces in the Trump administration, emphasizing that relations across the Atlantic should not be further strained by such actions. From Germany's perspective, figures like Steven Mnuchin, the US Treasury Secretary, are seen as having a more moderate approach compared to John Bolton and Mike Pompeo, and perhaps a solution for moderating sanctions against Iran could be reached with individuals like them. However, Mnuchin has left no doubt in recent joint meetings of the International Monetary Fund and the World Bank in Bali, Indonesia, and during his recent trip to Israel that he is a staunch advocate of sanctions against Iran via SWIFT and that European countries should also move in this direction. He expressed hope that SWIFT would comply and that some banks would be designated for transactions solely related to essential goods needed in Iran. As November 4 approaches, intense negotiations are underway between both sides of the Atlantic. The US seeks to drag Europe into accepting complete sanctions against Iran, while Europe aims to halt this US policy as much as possible, provided there is some internal cohesion. Preparations for mechanisms to facilitate trade with Iran are still underway, although their success remains uncertain. How all this will enable Iran to sell oil at an acceptable level and maintain minimal transactions with the world, thereby convincing it to remain in the JCPOA, remains shrouded in ambiguity. Exiting the JCPOA does not present a clear prospect for Iran, and there are no signs of a change in Iran's regional policy, especially towards Israel. Some believe that the US and Europe are engaged in a complementary game against Iran to ultimately bring it to the negotiating table regarding regional policies, missile issues, and some reforms in the JCPOA, particularly regarding its stance towards Israel. However, a closer look at the dynamics between the two sides of the Atlantic indicates that the approach to the JCPOA and the issue of sanctions against Iran has plunged the US and Europe into one of the historical challenges since World War II. The dimensions of this challenge extend beyond the issue of Iran and may accelerate the entry of these two parts of the world into a phase of relations characterized by increased fluidity of the current alliance and heightened competition and challenges across various economic, monetary, political, security, military, and cultural arenas, along with diverse and sometimes contradictory alliances, contingent upon maintaining necessary cohesion within the EU and achieving consensus on advancing a unified policy towards the US. November 4 is not merely the day sanctions against Iran begin; it could also mark a significant date in the ongoing developments in US-European relations and perhaps within Europe itself.