EU move to counter US sanctions on Iran faces obstacles

So-called blocking statute may backfire for firms still interested in serving US market

European Union efforts to circumvent US sanctions on companies with business in Iran showed signs of unraveling as some member states questioned whether measures to counteract the penalties would do more harm than good.

While Chancellor Angela Merkel was among EU leaders who unanimously gave the green light last week for the bloc to take action, in private the German government is worried some of the steps responding to the US threat could become an overwhelming burden, according to a government official.

Germany is especially concerned that a regulation forbidding companies from complying with US sanctions would inflict too dire a cost, said the official.

This so-called blocking statute, which the EU plans to have in force before August 6, may backfire for those companies that are still interested in serving the US market, according to a government official from a separate member state.

Both asked not to be named discussing internal government deliberations.

The reservations reflect the concerns of following through on Europe’s harsh criticism of Trump’s decision to withdraw from the accord and deny Iran the economic benefits that were supposed to flow from curtailing its nuclear activities.

In private the German government is worried some steps responding to the US threat could become an overwhelming burden.

Blocking statute

The European Commission, the EU’s executive body, invoked the blocking statute on Friday, and took steps aimed at bringing central banks and the European Investment Bank on board to secure financing and payment flows for Iran-related activities. “Employing the blocking statute is understandable, but its effect is unclear,” Germany’s BDI industry federation said in a statement.

“It would be prudent to analyse the effects thoroughly to avoid causing damage” to European companies.

“It’s clear that the blocking statute can interfere significantly with German industry’s US business.”

The blocking statute, which would forbid EU companies “from complying with the extraterritorial effects of US sanctions,” would also allow firms to recover damages arising from the sanctions and would nullify the effect in the EU of any foreign court judgments based on them, according to the commission.

The EU could realistically offer support only to companies that have no US exposure or aren’t selling in the US market, according to one of the officials.

Companies for which the US business is more relevant than the Iran business will have little choice but to play along US rules, they said.

With the world economy even more connected globally than in 1996, when the blocking statute was last invoked, its effectiveness could be limited.

After meeting with other leaders last week in Sofia, Merkel warned that the EU shouldn’t “encourage illusions” that the EU could “compensate industry in a comprehensive manner for US measures.”

French President Emmanuel Macron echoed that sentiment.