How far can the EU go to salvage the Iran nuclear deal?

The US influence over international trade became obvious this week.  

The European Union along with China and Russia might have defied Washington on Monday in the clearest possible terms.

Foreign ministers from these countries met their Iranian counterpart and then announced that a financial facility will be set up in the EU to pay for Iranian imports and exports including oil. 

But bankers and experts say no amount of assurance is enough to convince companies to take the risk of running foul with the US Department of Treasury, which seeks to enforce the ban on any sort of trade with Iran. 

"European companies make much more from their businesses in the US than they do in Iran," Nicolas Veron, a senior fellow at the Washington-based Peterson Institute for International Economics told TRT World. 

"And they make their own decisions. They don't follow the decisions of the politicians." 

Major European firms including French oil giant Total and German insurer Allianz have closed businesses in Iran since US President Donald Trump re-imposed sanctions against Tehran.  

Washington has pulled out of a landmark 2015 agreement, formerly known as the Joint Comprehensive Plan of Action, to lift economic sanctions in return for Tehran's promise to limit its nuclear activities. 

The EU says the deal translated in limiting Iran's nuclear programme, something that the International Atomic Energy Agency has verified 12 times. 

Trump, who sees the deal as too generous for Iranians, wants to renegotiate it. 

Unlike 2012, when the US sanctions were backed by the EU, the move this time is unilateral and widely opposed. 

Yet, the strength of the US financial system makes it nearly impossible for businesses to ignore the sanctions. 

That's because international trade is denominated in dollars and the dollar transactions go through the US financial system for settlement, bringing them under the ambit of Washington's laws, says Harsh V Pant of the Department of Defence Studies at the King's College London. 

"The US can prevent any company from entering its financial system. Especially in this case, why would any company risk benefits of American economy over Iran, which is not a powerful economic actor," he told TRT World. 

Sanctions mean that Iran has also been blocked out of the global banking system. 

In the last few years major banks including BNP Paribas, Standard Chartered and ING have paid billions of dollars in fines for breaching what are known as secondary US sanctions. 

"It's a big problem for us. It doesn't matter what the EU governments say. We as a bank can't take the risk of letting our customers deal with Iran," a senior Dubai-based compliance official at HSBC bank told TRT World. 

“Any connection can be construed as a violation and invite penalties.”

Some of the sanctions have already come into effect while the more crippling ones on Iran's oil exports will be enforced next month.

As a result, the Iranian economy is facing a grim future since it derives substantial revenue from oil exports. 

Iran's oil exports have dropped 800,000 barrels per day to 2 million bpd between April and September this year, according to the Institute of International Finance. 

The rial, the Iranian currency, has shed two-thirds of its value in the last six months because of the sanctions, igniting inflation and creating shortage of imported goods such as medicines. 

The United Nations has already expressed fear that the unilateral sanctions could push millions of Iranians into poverty. 

The worst impact could be on hospitals. 

"A lot of medicines for specialised treatments such as blood clotting and cancer are imported into Iran," says James Miller, the Managing Director of Oxford International Development Group, who has closely worked with Iranian doctors for a decade. 

"These are patented drugs, and Iran doesn't produce them. Secondary sanctions mean, the western pharmaceutical companies would be reluctant in selling them these medicines," he told TRT World. 

Miller says since the banks were unsure about how far the US Treasury was willing to go, the financial institutions did not facilitate the trade of even humanitarian goods. 

On its part, the EU has tried to contain the effects of the US sanctions. 

In August, it revived its Blocking Regulation, which allows European companies to slap civil lawsuits against the US, seeking compensation for damages caused by the sanctions. 

But its effectiveness is yet to be tested in a court of law. 

"I think these are stop-gap arrangement, which might help in the short term but in the  longer term if America decides to really pull the plug, then it would become very difficult for these countries to sustain relations with Iran," says Pant of King's College.