EU to block US sanctions on Iran for European companies

European Union Commission President Jean-Claude Juncker announced Thursday that the bloc plans to reactivate a law that would seek to prevent European companies from complying with any sanctions the US may reintroduce against Iran.

Juncker's announcement came during the second day of an EU meeting in the Bulgarian capital, Sofia, which has already been marked by sharp criticism from European leaders of American President Donald Trump's decision to pull the US out of the 2015 Iran nuclear deal.

What Juncker said:

• In Thursday's announcement, Juncker said: "As the European Commission we have the duty to protect European companies. We now need to act, and this is why we are launching the process to activate the 'blocking statute' from 1996."
• Juncker said that the law would be launched Friday morning at 10:30 a.m. local time (0730 GMT).
• He added that European leaders "also decided to allow the European Investment Bank to facilitate European companies' investment in Iran," and said the Commission would continue to cooperate with Iran.

Read more: Germany to help its firms in Iran after US pullout from nuclear deal

What is the 1996 blocking statute?

A blocking statute is a law enacted in a local jurisdiction that attempts to hinder application of a law made by a foreign jurisdiction. The 1996 legislation protects "against the effects of the extra-territorial application of legislation adopted by a third country." It was originally developed to get around a US trade embargo on Cuba and sanctions related to Iran and Libya, though it was never enacted because the disagreements were settled politically. In the current proposed application, the law would attempt to shield European companies that do business with Iran from future US sanctions by prohibiting the companies from respecting US sanctions. It also would not recognize any court rulings that enforce the American-issued penalties.

What effect could the blocking statute have?

In order to have any effect, the blocking statute would have to be updated to include US nuclear-related sanctions on Iran — a lengthy process that would require consent from the EU's 28 member states.

The law's potential economic effect remains unknown, since it was never used during the Cuban embargo.

In addition, its regulatory language is nebulous, and the measures it lays out to block European companies' from bowing to US sanctions could prove difficult to enforce, in part due to the international banking system and the significance of the US in international financial markets.

Many European governments see the blocking statute as a political tool that could put pressure on the US to walk away from punitive financial punishments.

How have European companies responded?

German-headquartered insurance firm Allianz and Danish shopping company Maersk have already said they plan to close operations in Iran in order to avoid getting hit by reintroduced US sanctions.

The 1996 legislation leaves it up to each EU member state "to determine the sanctions to be imposed in the event of breach of any relevant provisions of this Regulation," adding that such sanctions "must be effective, proportional and dissuasive."

European companies with large operations in the US are putting pressure on their governments to grant them individual waivers.

What is the Iran nuclear deal? 

The 2015 Iran nuclear deal was a pact negotiated by Iran, China, Russia, Germany, France, and Britain, as well as the EU and the US, which authorized the lifting of economic sanctions against Tehran in exchange for the dismantling of its nuclear program and compliance with international atomic regulations. 

Read more: What is the Iran nuclear deal?

What did President Trump decide to do?

The president decided that he would withdraw the US from the accord, which he referred to as "flawed," thereby raising the specter of renewed sanctions against companies that do business with Iran. 

Read more: US ambassador to Germany Richard Grenell vows 'no trade war' with EU

What was the reaction to Trump's decision?

The deal's other signatories have pledged to continue their commitment to the deal and encouraged Iran to uphold its responsibilities as well. EU foreign ministers met their Iranian counterpart earlier this week to discuss how they could keep the nuclear deal alive without the US. In particular, both sides have discussed how to keep revenue flowing into Iran in light of pending sanctions.

Read more: How will Iran's economy hold up if sanctions return?

cmb/msh (dpa, Reuters, AP)