Wednesday, May 16, 2018

ZTE and the Iran Nuclear Deal

The whiplash that many observers have felt on learning of President Trump's about-face on China's ZTE telecom company from condemning it as violating US national security and violating sanctions rules by selling to North Korea and Iran has been pretty easily explained by our soon thereafter learning that China has provided a mere half a billion dollars to a project in Indonesia where Trump interests are deeply involved.  This is probably the most blatant violation of the Emoluments Clause of the US constitution yet, but do not hold your breath that anything formal will come of it, despite widespread outrage.  Rather his backers will accept that this is necessary for obtaining Chinese support in dealing with Kim Jong-In in the possible forthcoming summit.  This is supposed to trump all other considerations.

Of course the supposed forthcoming summit and related events, such as the  recent release of hostages held by North Korea, have been trumping Trump's withdrawal from the JCPOA nuclear deal with Iran, which has been praised by his supporters as an action that "fulfills a campaign promise" and thus just simply wonderful.  However, a little noticed aspect of this in the US is triggering considerable reverberations abroad. It is the hypocrisy that while Trump seems to be blithely forgiving ZTE for breaking already in-place sanctions against Iran, he and members of his administration such as John Bolton have been unyielding to the Europeans that all of their companies must cease any economic dealings with Iran ASAP now that Trump has scuttled US participation in the deal, even though it is widely accepted in Europe that Iran is in full compliance with the deal.  The spectacle of the freshly arrived US ambassador issuing an immediate "order" to German companies to immediately comply with US demands on this has raised especial hackles.

Pretty clearly the Europeans need to identify some budding Trump Organization project somewhere on the planet that they can dump a pile of money into so that their companies can get exemptions like ZTE has from having their markets in the US cut off if they continue to operate in Iran.

Barkley Rosser


2slugbaits said...

So if you're an EU company, and your staff is smart enough to notice that in all likelihood Trump will only be in office for about another 2 years after he effectively implements the US exodus from the Iran nuke deal. Do you ride it out or not? There's an excellent chance that in 2021 the next President will (effectively) reverse Trump's withdrawal. And I think the Iranian leadership is smart enough to figure that out. The Iranians don't really need trade with the US anyway. OTOH, if you urge your EU politicians to cave into Trump's demands, then you risk being permanently excluded from the Iranian market. It doesn't seem like a tough choice to me. If I'm running an EU company, then I'd rather assume Trump is a temporary aberration and decide to wait him out until 2021. Besides, if you give into Trump on this he'll only find some other fight to pick with the EU. Call the bully's bluff and wait for him to leave office. said...


This is much more serious than it looks, and I fear Trump and his minions may get away with it, although the outcome of that would likely be Iran exiting JCPOA and go back to lots uranium enriching and rebuilding its plutonium reactor, all of which would feed into the hawks who opposed the deal in the first place and want to bomb or invsde Iran (or have somebody else do it for them).

The problem is that the US is threatening to block companies from getting financing from US banks or participating in the US market. Today's WaPo has a small article showing the problem. The major French oil company, Total, has signed an agreement to do a lot of drilling and other activity in Iran. But 905 of its current funding comes from US banks, and about 30% of its assets and operations are in the US. Unless the French government or somebosy else can cover all that, they will on their own probably kowtow to Trump and withdraw from Iran. It is in fact fairly unlikely the French government will be able to cover that, and it becomes worse whwn one looks at all the other European companies that would need similar financial support. Ironically, Russian and Chinese companies may be less effective as they are less tied into the US financial system and with subsidiaries in the US. It is all fine and good for the Europeans to talk a game here about getting around the US sanctions, but if they cannot really do it for their companies, and it is hard at this moment to see if they can, Trump will succeed. Total is formally asking from the US for an exemption from the sanctions, but that is unlikely to be granted. They are not ZTE with their government stuffing money into Trump's personal pockets.

2slugbaits said...

Barkley Rosser,

All fair points, but I don't know that the EU countries would have to cover all of the financing. Covering a portion of it might be enough to put pressure on US banks. After all, if EU companies can't do business with US banks that also means US banks can't do business with those EU companies, so US banks are likely to pressure the Trump Administration to grant a lot of waivers and exemptions. Trump has a history of talking tough unless and until his opponents start pushing back; then he caves. And there are so many shell banking companies that are quite skilled at laundering money that US Treasury sanctions might prove to be pretty leaky.

I agree that Russia and China are probably licking their chops over Trump's stupidity. said...

The latest effort by the EU countries might be a negative one, to impose their own sanctions on companies that pull out of Iran in response to the US secondary sanctions.

As for Total pulling out, which seems quite likely, apparently there is a Chinese company quite willing and eager to step into its place. A likely outcome of Trump's policy will be to hurt US and European companies while helping Russian and Chinese ones, with quite possibly minimal impact on the Iranian economy in the end. Maybe that will be enough to keep Iran adhering to the agreement, which if it happens, I can well imagine Trump turning into a triumph down the road, claiming tough guy cred for leaving the JCPOA and then claiming credit for Iran not enriching uranium or de-mothballing their plutonium reactor. Really, I would not put it past him.