This week, US President Donald Trump announced that he has withdrawn from the Iran nuclear deal and is set to renew sanctions on Iran. It’s a decision which has implications for the global oil market and multi-billion dollar business deals.
European companies like Total, Airbus, Siemens and Renault are nervously looking at their options. They could risk losing access to the US market and face fines if they choose to do business with Iran.
The US decision to walk away from the 2015 nuclear deal also threatens to cut off a chunk of the world’s crude oil supply, which is sending oil prices up.
The European Union(EU) wants to calm tensions and salvage the deal with Iran. A French government spokesman said EU partners could fight the sanctions under world trade rules.
“The European Union is ready to challenge at the WTO any unilateral measure that would hurt the interests of European companies and respond in a proportionate manner, in accordance, of course, with the rules of that international organisation,” said French government spokesperson Benjamin Griveaux.
Russia will benefit most from a withdrawal from Iran by European and other international companies.
With European companies starting to count potential losses, their withdrawal from Iran could open the door to Chinese firms, says Bijan Khajehpour, managing partner of Austria-based consulting firm Atieh International. “China will certainly benefit from the current development, but the biggest winner in the process will be Russia.”
“The new phenomenon in Iran is the emergence of Russian investments and Russian projects in Iran,” explains Khajehpour. For the very first time, “Iran recently awarded an upstream oil project to a Russian company. They had never done that before. They had awarded it to Chinese, to Indians, to Europeans, but never to Russians. Russians would always get smaller sub-contracting service contracts – but not a prime contract … and there are others [contracts] on the horizon.”
“I would say Russia will benefit most from a withdrawal from Iran by European and other international companies.”
Ultimately, there are different dimensions to this development, explains Khajehpour: “Obviously there will be more economic uncertainty because of this US withdrawal. A number of international companies and banks will reconsider their Iran strategy, and that will definitely have an impact.”
He says while the Europeans will try to cushion the blow, it’s worth considering the situation from the perspective of international companies.
“The most significant group are the larger European companies that have relatively extensive interests in the US, that probably export to US market, they probably have interactions with American banks, with American stock exchanges – and they’re obviously the most exposed group to potential US sanctions. So one can imagine no matter what kind of protection the EU offers, those companies will be very careful unless they manage to secure the so-called OFAC licenses they need for business with Iran.”
“The second group are those companies that have exposure to US interests and are vulnerable to sanctions, but they feel what the EU are offering would be good enough for them to continue their Iran business. And the third group are potentially smaller and medium-sized companies who have either no or very limited exposure to the US market, who may feel that continuing their Iran business is more to their advantage,” says Khajehpour.
Also on this episode of Counting the Cost:
Argentina’s cry for financial help: Argentina is once again looking for a financial lifeline from the International Monetary Fund. Interest rates hit 40 percent this week, but many Argentines still remember the role the IMF played in the last financial crisis in 2001, as Teresa Bo reports from Buenos Aires.
Edward Glossop, a Latin America economist at Capital Economics, offers his take.
Kenya floods: A heavy rainy season has destroyed large stretches of farmland in Kenya and displaced over a quarter of a million people. Andrew Simmons has travelled to Kilifi County to meet farmers who lost their land to the river Sabaki.
South Africa tourism: The world’s fastest-growing tourist destinations, South Africa, hosted the continent’s biggest travel trade show this week. But another key industry, mining, is hurting the growth of the tourism sector, as Malcolm Webb reports from Matubatuba.
Macron’s first year: One year on from Emmanuel Macron‘s historic election win, public opinion is divided on France‘s youngest president and how he’s handled the powerful unions, as Natacha Butler reports from Paris.