Iran Deal Surprise: Clause Negates Snapback Sanctions

With the appropriate amount of fanfare and the raising of the Union Jack, the UK reopened its embassy in Tehran on August 23. Foreign Secretary Philip Hammond, who was accompanied by a delegation of British business leaders, declared, “We will not always agree but as confidence and trust grows, there should be no limit to what over time we can achieve together and no limit to our ability to discuss together the challenges we mutually face.”

The opening of the embassy comes after its closure in 2011, when protesters stormed the security gates, burned the flag and ransacked the ambassador’s residence. The Brits evidently wanted a reminder of those days, leaving the scrawled “Death to England” on the wall of the embassy directly over the picture of the queen.

But as the Europeans have shown us since the signing of the nuclear accord between Iran and the world’s superpowers, animosity over politics plays second fiddle to venture capital.

With the ink barely dry on the agreement, the European elite were lining up to milk Iran’s burgeoning market of more than 77 million people, many of whom comprise a middle class eager to purchase trendy European products they have been denied through the imposition of sanctions the last number of years.

A German delegation arrived on July 14, literally the same day the agreement was signed. They were followed by the French foreign minister and his entourage of 100 French business executives and the Italian foreign minister who was accompanied by the minister of economic development and key leaders from Italy’s top financial firms). Officials from Austria, Spain, Poland and Sweden are all planning visits next month.

While the U.S. Congress mulls the deal, European parliaments seem to have no similar concerns, especially in light of the prospect of the billions of dollars (more accurately, euros) to be made in trade with Iran.

A little background: The U.S. cut off ties with Iran in 1979 after protestors the stormed the U.S. embassy in Tehran and took 52 American diplomats and citizens hostage for more than a year. Iranian collusion at the highest levels of government were suspected in the embassy takeover.

The Europeans, however, had no such history (save the 1980 siege of the Iranian Embassy in London by an Iranian Arab group campaigning for sovereignty in the Khuzestan Province in Iran). In fact, the Europeans only began imposing sanctions of their own in 2010 and joined in the broad-based sanctions in 2012. As late as 2011, the Europeans had a bustling business with Iran, with over $12 billion in exports alone.

“The Europeans have done their homework,” said Ellie Geranmayeh of the European Council on Foreign Relations, who was quoted in The New York TImes. “Politically, there is no diplomatic freeze between European member states and Iran.

“For the past 35 years, the Europeans have had a contact base in Iran,” she commented. “They are not reinventing the wheel.”

The Europeans, rightly, seem unconcerned about the possibility of sanctions snapback in the face of Iranian violations of the agreement. That’s largely because of the “grandfather” clause built into the agreement which states that investments made before any violation is registered will be not be effected.

Presumably, given the fact that many of the foreign investments will require building a tremendous amount of infrastructure to support their business dealings (especially in the oil industry), the Europeans are counting on the vague wording of the agreement that any renewed sanctions will “not apply with retroactive effect” on contracts being signed now (or before any report of violations).

Although U.S. President Barack Obama and Secretary of State John Kerry have touted the toughness of the agreement due to its snapback provisions, in reality, these provisions can do little. Even though it is practically a moot point, a secret letter has been uncovered in which the U.S. administration allegedly promises foreign governments that their companies will not be penalized for violating sanctions imposed on Iran.

At present, Senators Mark Kirk (R-IL) and Marco Rubio (R-FL) have demanded the public release of the letter.

In addition, according to the agreement, sanctions snapbacks require the unanimous agreement of Germany, the United Kingdom, France, and the High Representative of the European Union for Foreign Affairs and Security Policy.  A “yes” vote couldn’t be less likely.

Taking all these considerations together, it is no wonder Obama and Kerry stated that even if Congress rejects the agreement, the U.S. would have its hands tied trying to re-impose a trade embargo on Iran. It seems they have provided the rope to do the binding.

These provisions leave Congress with only one choice – to not only reject the current agreement but demand of its European partners that the agreement be renegotiated.