The Shadow of U.S. Withdrawal from the JCPOA: From Iran's Aviation Industry to Oil

On the eve of the U.S. announcement regarding its decision to remain in or withdraw from the nuclear agreement on May 12, the Associated Press reported on the implications of the U.S. decision on Iran's economic sectors. The report states that President Donald Trump's decision will affect billions of dollars in international transactions, from aircraft sales to Iran's oil industry. According to the report, regardless of where the companies trading with Iran are based, all international companies typically conduct business with the U.S. and use its banking system. Therefore, a return to the pre-sanctions era could nullify transactions that occurred during the post-sanctions period with Iran. The report adds that the threat of renewed sanctions has frightened companies like Boeing, which are heavily risk-averse regarding sanctions, and these companies have already been cautious, but the U.S. exit from the JCPOA could further expose them to risk and hesitation. Richard Nephew, a former sanctions expert at the U.S. State Department who worked on the nuclear agreement and is currently at Columbia University in New York, states: 'I firmly believe that companies on the edge (of operationalizing transactions with Iran) will hold back. Perhaps only companies that stand to gain extraordinary profits from trading with Iran and do not face the risk of U.S. sanctions will step forward.' Under the 2015 nuclear agreement, which was implemented in January 2016, sanctions that isolated Iran from the global financial system, along with oil export restrictions, were lifted. In return, Iran imposed limits on its uranium enrichment program, altered the configuration of the Arak heavy water reactor so that it could not produce plutonium used for nuclear weapons, and also imposed limits on the number of active centrifuges and its stockpile of enriched uranium. For Western traders and companies, the JCPOA provided access to Iran's 80 million-strong market. Particularly, aircraft manufacturing companies quickly entered the Iranian market, which is in dire need of modernization. In December 2016, French company Airbus signed a $19 billion contract to deliver 100 aircraft to Iran Air. Subsequently, U.S. company Boeing also signed a $17 billion contract with this Iranian company to deliver 80 aircraft, which were to be delivered between 2017 and 2025. Boeing also separately signed a $3 billion contract with Aseman Airlines for the delivery of 30 aircraft. The Associated Press states that Boeing has yet to deliver a single aircraft to Iran, and recently, Dennis Muilenburg, CEO of Boeing's Chicago office, announced that he is fully aware of the 'risks and consequences of the aircraft sales agreement with Iran, which is the largest deal by an American company with the Islamic Republic since the Islamic Revolution.' Mr. Muilenburg stated that Boeing will follow U.S. government actions and that everything depends on future government decisions. He mentioned that currently, no aircraft is scheduled for delivery to Iran this year. The European consortium Airbus, headquartered in Paris, has similarly conditioned its sales to Iran on U.S. government decisions, as at least 10% of the components of the aircraft produced by this company are made in the U.S. and require a license from the U.S. Treasury Department for sale to Iran. This company has delivered three aircraft to Iran so far. The French-Italian airline company ATR, which signed a $536 million contract to deliver 20 aircraft to Iran, has so far delivered 8 of them with U.S. permission and a spokesperson for the company told the Associated Press that ATR intends to deliver the remaining aircraft according to the scheduled timeline. Despite Iran's vast oil and gas reserves, Western companies have shown less interest in entering Iran's oil projects than in the aviation sector. Only a consortium led by the French company Total has signed a $5 billion contract to develop Phase 11 of the South Pars gas field with Iran, in which the Chinese company CNPC also has a 30% stake. Total, which left Iran in 2008 due to sanctions, has returned to the oil and gas sector with this project but has yet to commence development and has recently been reported to have requested Mr. Trump for exemptions from potential sanctions. Patrick Pouyanné, CEO of Total, has also told the Financial Times that 'if the framework and rules of the game change, this company will have to reassess the South Pars contract.' The Associated Press also refers to the 2016 contract of French company Peugeot Citroën with Iran for the annual production of 200,000 vehicles, noting that this company has not commented on the future of the agreement with Iran in response to the news agency's inquiries. French company Renault, which signed a $778 million contract for the annual production of 150,000 vehicles with Iran, has told the Associated Press that the company is closely monitoring diplomatic developments. German company Volkswagen has also begun exporting cars to Iran and has stated that it is closely examining the political and economic landscape of the region and considers itself obliged to comply with all national and international laws. Ms. Elly Granmaier, a foreign relations expert at the European Council who studies Iran, told the Associated Press that France, Britain, and Germany, which have asked the U.S. to preserve the JCPOA, may consider protective measures for their companies against U.S. sanctions. According to her, these measures could include a series of exemptions for companies that have entered strategic investment and trade sectors in Iran, with 'priority given to preventing a sudden shock to Iran's oil exports.' After the lifting of sanctions, Europe began importing oil from Iran, and currently, about 40% of Iran's total oil exports go to Europe.