Sod off Germany to US: We’re ready for your sanctions and we’re staying in Iran

The US ambassador to Germany called on companies to leave Iran immediately. But German companies, which have a long history in the country, have been preparing for this moment for months, effectively cutting the US out of any Iran-related business.
German companies are also protesting.

The new US ambassador to Germany, Richard Grenell, had a tough night on social media. After US President Donald Trump decided that his country would be pulling out of the Iran deal and re-imposing sanctions, Mr. Grenell posted on Twitter that: “US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately.”

The reaction was fast and furious. His message to Germany was retweeted almost 6,000 times (and counting) and there were close to 1,500 comments, many of them from angry Germans basically telling the ambassador, a longtime critic of the Iran deal, to butt out.

As it stands, neither Mr. Grenell nor his critics need bother. German companies doing business in Iran have been preparing for this moment for months, said Michael Tockuss, head of the German-Iranian Chamber of Commerce, based in Hamburg.

“We’re not shocked,” he told Handelsblatt. “For some time now, companies doing business in Iran have been trying to find substitutes for any US-related aspects of their supply chains.” For example, European companies in Iran do not work with dollars at all; they prefer euros or perhaps dirhams. “Any US staff members are excluded from Iran-related business,” Mr. Tockuss noted. “There have been a wide variety of preparations and many companies have been building a fence around their Iran business.”

As long as the German government leaves us alone, we’re staying. Matthias Rüdiger, Samson

Before the last lot of sanctions was imposed, Germany was Iran’s biggest trading partner. After the Iran deal was reached in 2015, German exports there grew by 27 percent. In 2017, German exports to Iran were worth an estimated $3.5 billion and today many of Germany’s biggest businesses are working with Iran, as are hundreds of the country’s medium-sized firms.

“As long as the German government leaves us alone, we’re staying,” said Matthias Rüdiger of Samson, sounding upbeat and rather defiant in an interview at an oil and gas trade fair in Tehran. Samson, which specializes in control valves, has been active in Iran for 40 years. Bigger companies might be wary of the attention, Mr. Rüdiger says, but for family-owned firms, Iran has been and remains lucrative.

Some US sanctions will come into effect immediately, including those on civil aviation. Others – known as secondary sanctions – won’t take effect until November. Many German companies have a long history in Iran and already have plenty of experience dealing with sanctions, Mr. Tockuss said, having had to work within those limits until 2015.

“The biggest difference now is that we won’t have to deal with EU sanctions as well,” he explained, adding that his organization believes that European governments will continue to support the Iran deal and not re-impose sanctions of their own. “I have already spoken with our biggest members this morning,” he said. “For the time being, it is business as usual.”

Still, some sectors will be more affected than others. If the US decides to start sanctioning European companies as in the past, the focus will be on so-called “bottleneck sectors” – areas in which there is no way to avoid an American connection. That includes aviation, banking, insurance, shipping and logistics.

The crux, however, lies in banking. Even with sanctions lifted, international financing for Iran has been slow to return in the past few years. Unlike European businesses, Europe’s banks have been more reluctant to enter the Iranian market since 2015. Heavy potential fines, a lack of transparency, an isolated and outdated financial system and fears of mistakenly financing terrorism were among the reasons for that reluctance. There was also considerable apprehension about sanctions being imposed again after Mr. Trump was elected.

As a result, Iran has been forced to finance projects largely on its own dime. This has hindered a number of major projects with engineering firms, said a spokesperson for the German machinery association VDMA. This will only get worse as a result of Mr. Trump’s latest decision.

“For companies it will become even harder to finance projects in Iran through banks. The banks don’t want to endanger their usually larger business operations in the US,” said Dieter Kempf of the business association BDI. “It is urgently critical that our companies are meaningfully protected from the impact of the US sanctions.”

There’s another way in which the new US sanctions could impact German-Iranian business ties – and that is psychological. Even before the Iran deal, consumer goods company Henkel had almost completely withdrawn due to political considerations, CEO Hans Van Bylen noted. A moment later in his press call on Wednesday may explain why: Mr. Van Bylen is hoping US business will pick up in the second quarter.

Cathrin Schaer and Christopher Cermak are editors with Handelsblatt Global based in Berlin. Various Handelsblatt and WirtschaftsWoche correspondents contributed to this story. To contact the authors: [email protected] and  [email protected]