The EU’s supreme court has intervened to protect European companies against legal action by Iran for failing to fulfill their contractual obligations.
The European Court of Justice (ECJ) in Luxembourg has ruled that EU companies can end contracts with Iranian firms if upholding the deals would lead to “disproportionate economic loss” as a result of US sanctions.
The ruling was prompted by a lawsuit from the German branch of Iran’s Bank Melli against Deutsche Telekom after the telecommunications provider terminated a contract with the bank in 2018 prior to its expiry.
The decision effectively neutralizes a “blocking statute” that prohibited individuals and companies in the European Union from complying with US sanctions imposed in 2018 by then US president Donald Trump after he decided to withdraw unilaterally from the Iran nuclear deal.
As per their obligations under the nuclear deal, the Europeans issued the prohibition in order to keep Iran in the agreement, but companies in the bloc quickly severed ties rather than risk running afoul of US sanctions.
Under the blocking statute, European firms must seek a legal exemption for withdrawing from Iran due to US sanctions and those failing to do so could be penalized by their governments. Firms, however, can twist the law if they claim that their withdrawal is a business decision.
The court on Tuesday paid lip service to the EU blocking statute in its ruling, saying “the prohibition imposed by EU law on complying with secondary sanctions laid down by the United States against Iran may be relied on in civil proceedings”.
But the judges also said the rules of the blocking statute “cannot infringe the freedom to conduct a business by leading to disproportionate economic loss”.
According to the ruling, the Higher Regional Court in Hamburg will have to decide whether upholding the contract with Bank Melli would expose Deutsche Telekom to such a disproportionate economic loss.
Observers believe the decision is a foregone conclusion, given that Deutsche Telekom makes about half of its turnover with its US business.
The ECJ said the Hamburg judges must take into account that Deutsche Telekom did not apply for an exemption from the EU blocking statute’s rules.
Other European measures taken to maintain trade channels open with Iran have equally proven to be empty shells.
For example, Iranians have got almost nothing from the Swiss Humanitarian Trade Agreement (SHTA) since it was launched in January 2020 with the support and consent of the US.
The Swiss trade channel much publicized by Washington as a purportedly secure way of delivering humanitarian assistance to Iran at a time of sanctions has failed to process deals on Iranian imports.
The channel was meant to find a way around the US sanctions to use Iranian funds deposited abroad to buy food and medicine for the country via the Swiss bank BCP.
However, companies seeking to participate in the scheme have found it very difficult to comply with the criteria set by the US government to avoid violating the general rules governing the sanctions.
Fabian Maienfisch, a spokesman for Switzerland’s State Secretariat for Economic Affairs (SECO), which oversees the channel, has admitted in the past that the initiative had effectively failed to meet its objectives.
Such failures and the ECJ’s ruling prove statements by the Iranian government that the Europeans are disingenuous in dealing with the Islamic Republic.
The ruling comes as Iran and the Europeans continue negotiations in Vienna to find a way to remove the US sanctions.
A possible revival of the agreement would require the European companies to return to Iran and fulfill their obligations, but the EU court decision appears to be intentionally timed to provide them a leeway for further violations.