LAST week Donald Trump pulled America out of the Iran nuclear deal, the Joint Comprehensive Plan of Action (JCPOA). This gives Iran sanctions relief in return for curbing its nuclear programme. It was signed in 2015 by Iran and the permanent members of the UN Security Council—America, China, France, Britain and Russia—as well as Germany and the European Union. Mr Trump’s decision weakens the deal, perhaps fatally, and will see America reimposing sanctions on Iran. American companies’ dealings with Iran will be ended, but European business also have reason to worry.

America first imposed sanctions relating to Iran’s nuclear programme in 2005, when George W. Bush ordered a freeze on the assets of individuals connected with it. The European Union did something similar two years later. In helping persuade Iran to come to the negotiating table and then sign the JCPOA, the sanctions can be said to have worked. They were lifted in 2016, though those that relate to Iran’s support for international terrorism have remained in place. Their lifting enabled many European and some American companies to begin conducting trade with Iran. But their approach has been cautious, given that dealings with the Islamic Revolutionary Guard Corps, a branch of Iran’s army that controls a large chunk of the economy, are forbidden. As a result, few large long-term investment deals have been announced.

For European companies, the problem with the American sanctions lies in their extra-territoriality. EU sanctions apply only to Europe’s companies and citizens; American ones are different. They have a primary component that applies to American citizens and companies, and includes embargoes prohibiting trade, freezes of assets belonging to citizens of the designated country, and restrictions on the export of specific equipment. Then they often have a secondary, extra-territorial component restricting non-American individuals and companies. This means that any company, wherever located, must comply with American sanctions if it uses dollars for its transactions, has a subsidiary in America or is controlled by Americans. In this instance, some European outfits will apply to America for waivers from the sanctions—Total, a French company that has signed a deal to develop a massive Iranian gasfield, is doing this. Some may be able to skirt round the waivers by conducting their Iranian dealings in euros. But many will need to choose between their American business and their Iranian business. And if they do decide to continue working in Iran, they may find it tough to bank the proceeds, since Western banks can be reluctant to clear transactions involving Iran, even if they are legal.

The EU has little room for manoeuvre. It could turn to one of its own statutes, a 22-year-old “blocking regulation” that makes it illegal for EU companies to comply with extra-territorial American sanctions. If it is applied, EU companies would either have to ignore it and apply America’s sanctions, or comply with it and thereby breach those sanctions. But few EU countries have even implemented the legislation necessary to enforce the blocking regulation, so the whole question could be moot. Austria is the only country to have initiated proceedings against a company for breaching the blocking regulation. The case, from 2007, never even went to court. The prosecution was dropped when the company in question obtained American licences allowing it to circumvent the sanctions with which it was—illegally, in the view of the Austrian government—complying.

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