US president Donald Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) concerning Iran’s nuclear programme, which was announced during a May 8 press conference, was viewed by many business leaders as an inevitable part of his unilateralist foreign policy. What it means for business relations between Iran and other signatory parties to the deal remains to be seen.

“There was nothing surprising about it. It was one of those things that everyone expected it, but [we] just didn’t know when it would happen,” said Dr Siroos Mehdi-Zadeh, deputy chairman of the British Iranian Chamber of Commerce.

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The JCPOA, which was agreed upon in July 2015, received widespread international support, including approval from all five permanent members of United Nations Security Council, plus Germany. As part of the deal’s framework, the UN and Europe lifted their own sanctions against Iran. The US lifted secondary sanctions, generally applied to non-US individuals and entities for activities outside the US, although most US unilateral sanctions on US individuals and entities remained in place.

Iran has thus remained off-limits for US investors because of the sanctions. However, the deal opened the door on certain exceptions, which provided legal grounds for US companies such as aviation powerhouse Boeing to close a multi-billion dollar civil aircraft deal with Iran, a deal that now appears doomed.

On the other hand, Western European foreign direct investment within Iran has expanded considerably. According to investment monitoring service fDi Markets, there have been 47 greenfield foreign direct investments from Western Europe into Iran in the wake of the deal’s completion.

With regard to Iran’s top FDI source markets, three of the top five are Western European countries: Germany, France and Italy. In fact, Germany is Iran’s top overall source market, with 19 greenfield projects worth $829m. In the past year, this interest has cooled, with only two Western Europe greenfield investments recorded so far in 2018, compared with 31 projects in 2016, according to fDi Markets.

New, harsh nuclear-related US sanctions on Iran are now expected to jeopardise developing European interests in the country, and US diplomats are already voicing criticism.

“German companies doing business in Iran should wind down operations immediately,” the new US ambassador to Germany, Richard Grenell, tweeted the same day he presented his credentials to the German government.

However, at the moment European leaders seem committed to keeping the deal afloat, thereby saving their companies’ existing trade and investment interests in Iran.

“We will remain committed to this agreement and will do everything to ensure that Iran complies with the deal,” Germany’s chancellor Angela Merkel told reporters on May 9.

French president Emmanuel Macron stressed the “willingness of France to continue to implement the Iranian nuclear agreement in all its dimensions” in a phone call with Iranian president Hassan Rohuani on May 9, as disclosed by a press release from the presidency. UK foreign minister Boris Johnson told the UK parliament that “the UK has no intention of walking away”.

Despite their political commitment, leaders will struggle to shield European companies from a possible retaliation from the US for doing business in Iran, which could jeopardise their existing interests in the North American market. This looming risk explains why a number of companies, particularly in the financial sector, never re-engaged with Iran in the first place.

“The major clearing banks of the UK have such huge exposure [to the US] that they have been rather reluctant in doing Iran business,” explained Mr Mehdi-Zadeh.

At the same time, the US withdrawal from the plan could provide an opportunity for both China and Russia to expand their economic presence in the region. “Iran wants to get a lot closer with Europe and the US, of course, but if the will is not [there], then [Iran’s] choices become very narrow,” said Mr Mehdi-Zadeh. After Germany, China and Russia represent Iran’s second and third largest source markets for foreign direct investment, according to fDi Markets.

Only time will tell whether or not the Trump administration will apply sanctions against European companies, but it is clear that the president’s withdrawal has ended months of uncertainty surrounding US intentions. 

“Hopefully, now we know where we are. Everything should be much clearer,” stressed Mr Mehdi-Zadeh. “We are hoping that the Europeans will take the right action and move the JCPOA forward.”