EU sanctions target Iran investments

BRUSSELS, Belgium — Iran was hit with a one-two punch of toughened sanctions from the United States and the European Union during the week, just days after the U.N. Security Council adopted its fourth resolution restricting dealings with the regime over Tehran’s refusal to give up its nuclear program.

Despite opposition from Cyprus, Spain and Sweden, the new EU penalties, to be laid out in more detail at a foreign ministers’ meeting in July, go beyond the U.N. measures, especially in regard to new investment, technical assistance and “transfers of technologies, equipment and services in key target areas.”

While Iranian President Mahmoud Ahmadinejad dismissed the new raft of measures, he must be worried that Brussels' move will have a bite. The 27-nation EU is Iran’s No. 1 trading partner and EU companies, unlike American ones, have maintained strong relationships with Iran even as international sanctions discouraged such business.

Germany is responsible for the largest share of it, followed by Italy and France. A year ago, German political scientist and author Matthias Kuentzel used information released by the German-Iranian Chamber of Industry and Commerce in Tehran to compile a list of 200 German companies that, to his chagrin, “want to do business with the regime.”

In 2008, Kuentzel said, the value of German exports to Iran rose 8.9 percent to almost 4 billion euros. And last year, while German exports worldwide fell by 18.8 percent due to the financial crisis, exports to Iran dropped only 5.3 percent. Nonetheless, German Chancellor Angela Merkel insists there has been “significant reduction” in German-Iranian dealings.

Kuentzel has several issues with his government’s interpretation of sanctions. He says the most effective way to change Iranian behavior would be to “completely blacklist” the Islamic Revolutionary Guard Corps (IRGC), the paramilitary organization that has come to dominate all business — including nuclear — in Iran. But since that’s never even been put on the table, Kuentzel says Germany should at least feel a “moral responsibility” to stop all trade with Iran. The IRGC was responsible for most of the violent backlash against opposition protesters after last year’s disputed elections.

But German industry has long resisted pressure to scale back its Iran trade, saying competitors will move into a niche its companies have cultivated over many decades.

Said Kuentzel: “We have to put [aside] the profit thinking and put forward the moral responsibility that we can’t deal with a terrorist nation.” 

German engineering giant Siemens has done just that.

In January, Europe’s biggest engineering conglomerate announced that it would not sign any new contracts with Tehran, winding down a relationship that brought in more than $700 million annually.

But Kuentzel doesn’t have much faith that other German companies will do the same. He noted that two companies, Wirth Maschinen- und Bohrgeraete-Fabrik and Herrenknecht, operated or had subsidiaries in Iran to market their capabilities in drilling and tunneling, creating huge deep caverns like the one used to hide the most recently discovered uranium-enrichment site at Qom. Ruthmann GmbH & Co., Atlas Terex GmbH and ZF Friedrichshafen AG all sell cranes to Iran.

Kuentzel also criticized the longstanding practice of exporting to Dubai for the purposes of re-exporting to Iran. In this way, he said, companies never have to admit they are selling to Iran. He said he had seen notes from a meeting in Dubai where German business representatives discussed such back-door dealings. Stronger enforcement of sanctions would make this pathway even more attractive, Kuentzel said. 

But not all Iran watchers share Kuentzel’s prescription for altering the path of the Iranian regime. Reuel Marc Gerecht, a senior fellow at the Foundation for Defense of Democracies and former CIA specialist on Iran, disagrees that the robustness of sanctions is the problem.

“European sanctions do hurt in Iran — the regime shouts and screams about them all the time,” Gerecht said. “What is lacking here is German will to sanction and to enforce sanctions already on the books. It's entirely possible that if the Europeans led the way, which means the Germans and the French must together be on the cutting edge, the EU could retard Iran's nuclear program. And that would be most helpful.”

However, Gerecht said that underlying this reluctance was a bigger problem: threat perception. “The real issue, and this has been the issue since the beginning,” he said, “is whether the Europeans — especially the Germans and the Italians who are Iran's two biggest European trading partners — really do believe that nuclear weapons in the hands of Ali Khamenei and the Revolutionary Guard Corps are a menace worth rallying against.”

Perhaps the latest American assessment of Iranian ambitions will change that. After a visit to NATO headquarters on June 11 — where he said Iran could be as close as one year away from having a nuclear weapon — U.S. Defense Secretary Robert Gates said that “if Iran were actually to launch a missile attack on Europe, it wouldn't be just one or two missiles or a handful. It would more likely be a salvo kind of attack, where you would be dealing potentially with scores or even hundreds of missiles.”

In response, Iranian Defense Minister Ahmad Vahidi said Saturday that Gates’ remarks constituted "psychological warfare."