Only CNN was surprised by Donald Trump’s recent announcement that he was pulling the United States out of the Iran Deal negotiated by his predecessor. Following the same failed approach of the last Republican administration, the President opted for confrontation with the Iranian regime rather than uplifting more moderate factions within the country through trade. The decision has already increased tensions in the volatile region, with Iran and Israel exchanging fire in Syria.
Meanwhile European leaders are meeting Iranian officials to try to design a way to bypass new American sanctions. Others have vocally attacked Trump’s actions and attacked the US playing the role of “economic policeman.”
As French Finance Minister Bruno Le Maire said after the decision:
Do we want to be vassals who obey decisions taken by the United States while clinging to the hem of their trousers? Or do we want to say we have our economic interests, we consider we will continue to do trade with Iran?
According to reports, European officials are looking at a few different options to help salvage their economic relationship with Iran.
One is by reviving “blocking statues” such as the ones the EU threatened in response to sanctions on Cuba, Libya, and Iran in the 1990s. The mechanism works similar to the anti-commandeering doctrine, ordering European officials to refuse to comply with US sanctions. As Reuters notes, blocking statues have “never been used and is seen by European governments more as a political weapon.” They were successful in the past because the Clinton Administration simply backed down, something that seems unlikely with President Trump.
The other is to establish new financial institutions with no connection to the US financial system. Iran has already made the euro the official reporting currency for foreign exchange, so on the surface this seems like a viable alternative.
The problem European decision makers face, however, is that the US has gone to great lengths to militarize the banking industry in recent years.
[In 2010] Congress passed a new law leveraging America's greatest strength against the fulcrum of global commerce with Iran: financial transactions.
After years of blacklisting most financial institutions in Iran for their involvement in various illicit activities, Congress recognized that it also needed to punish third parties for doing business with these criminal enterprises. Thus, it declared that any foreign bank that maintained a correspondent banking relationship with a designated Iranian bank would forfeit its banking relationships in the United States.
In 2011, the United States extended this prohibition to transactions conducted with the Central Bank of Iran and, in 2012, to transactions conducted in connection with a wide range of Iranian economic sectors and activities.
No financial institution is going to want to risk being blackballed from the US banking system, no matter how firmly worded a blocking statute is. As such, the first proposed policy tool has little chance of success.
Meanwhile, US lawmakers are already devising ways to go after European Central Banks should they seek to establish special financial institutions for Iranian trade. As the Weekly Standard reported, a memo is being passed around Capitol Hill stating that US policy makers should:
Remind European governments that U.S. financial sanctions apply to all “foreign financial institutions,” which the Treasury Department has previously interpreted to include “central banks or foreign state-owned or -controlled banks,” not just private banks. Countries that consider shifting their payment processing from private institutions to central banks will put their financial systems at serious risk.
Ironically the lack of real options in checking Trump actually vindicates the worldview Trump espoused as a presidential candidate. Just as Trump articulated an “America First” approach to foreign relations that prioritized “national interest” ahead of the schemes of “globalists,” Europe must identify ways to limit their dependence on the US financial system – or else indeed be reduced to de facto-vassal status to Washington. Just as political decentralization is the best way to achieve true self-determination, financial decentralization is the best way for nations to protect their own sovereign interests.
Of course to really do so requires resetting the global monetary order.
So long as the dollar enjoys its privileged position established by Bretton-Woods, the rest of the world is vulnerable to the US leveraging that against them.