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EU sets in motion special mechanism against US sanctions

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According to French Foreign Minister Jean-Yves Le Drian, the EU’s updated Blocking Statute mechanism of maintaining financial, economic and trade relations with Iran, aimed at mitigating the impact of Washington’s sanctions on EU companies doing business with Tehran, will take effect within the next few days.

However, the French minister stood corrected by Reuters, which said that the EU mechanism would only be launched the next few days and could take several months to start working in earnest as many details still remain to be agreed.

The Special Purpose Vehicle (SPV) is part of EU efforts to protect and keep in place the Joint Comprehensive Plan of Action (JCPOA), commonly known as the nuclear deal with Iran.

On July 14, 2015, Iran and six countries (Russia, China, Britain, France, Germany and the United States, with the active participation of the EU) adopted the JCPOA as a way of resolving the Iranian nuclear problem, which had been a source of concern for the international community, above all the IAEA. This truly historic document brought Iran’s nuclear program in line with IAEA requirements and significantly reduced Tehran’s ability to build nuclear weapons.

Resolution 2231, unanimously approved by the UN Security Council on July 20, gave the JCPOA the status of international law.

The JCPOA and the UN Security Council resolution envisaged a reduction in Iran’s nuclear potential and a slowdown in its development rates within the next 10 to 15 years. It also provided for a gradual lifting of the financial and economic sanctions imposed on Iran over its nuclear program, thus setting in motion a process of peaceful and civilized implementation of the nuclear nonproliferation regime.

However, the new US President Donald Trump started lashing out against the JCPOA in 2016, while still on the campaign trail. As a result, in 2018 he withdrew the US from the compromise nuclear deal and slapped tough unilateral sanctions on the Islamic Republic.  What is more, “secondary” US sanctions targeted also foreign companies that would dare to keep doing business with Iran.

Iran, meanwhile, had given no reason whatsoever to doubt its meticulous implementation of the terms of the JCPOA accord. Since January 2016, the IAEA has verified Iran’s compliance with the JCPOA 13 times, with the UN nuclear watchdog’s Secretary General repeatedly confirming Tehran’s compliance with the agreement. Moreover, since the US withdrawal from the JCPOA, Iran has been intensifying its cooperation with the IAEA in a clear bid not to give Washington any pretext to blame it all down on Tehran, which has allowed no technical violations of the JCPOA and has consistently implemented its provisions.

All the signatories to the 2015 nuclear accord with Iran, including the European Union (and excluding the US), protested Washington’s decision to exit the JCPOA and have been working hard to keep it in place, even without the US.

As part of this effort, Iran was persuaded to continue to abide by the terms of the nuclear pact, even despite US sanctions, as it wants to avoid confrontation and maintain normal economic relations with the EU and other countries, and is not yet ready to exit the 2015 nuclear accord.

In August 2018, the EU reactivated the “blocking statute” that prohibits European companies from complying with US sanctions on Iran and implementing any decisions by foreign courts based on these sanctions thus nullifying their effect. The “blocking statute” also allows all European organizations to take legal action to recover damages arising from US extraterritorial sanctions from the persons who caused these damages to happen (meaning the US government).

This measure has proved less effective than expected though, since state authorities in countries with market economies cannot force private companies to challenge the global supremacy of the US dollar or dictate conditions in the global market, including the financial one, dominated by the United States. Therefore, it became clear that the situation necessitated the creation of a special mechanism for doing business with Iran bypassing  “primary” and “secondary” US sanctions with the help of an alternative payment channel to facilitate trade with Tehran – essentially a separate European SWIFT system with payments made in euros.

Much will depend on the effectiveness of this mechanism, to be shortly registered in France, and which is at the core of the EU’s efforts to keep the JCPOA in place. This means that the anti-American body will very likely be headquartered in France and headed by a German citizen with France, Germany and Britain acting as shareholders.

Even though the Special Purpose Vehicle (SPV), which offers sophisticated compensation services for exports to and imports from Iran, has not been devised with humanitarian activities in mind, EU officials still expect it to initially be used for food and medicine supplies until the system is firmly in place and working smoothly.

Meanwhile, Tehran believes that the SPV should go beyond covering only drugs and food, and also include a wide range of transactions, as well as economic and industrial cooperation, and even investments. Future will show whether this can be done though. According to some experts, the SPV is just a sort of a barter option without attracting direct cash payments, and will only serve small-scale transactions. French Foreign Minister Le Drian believes, however, that within the framework of the SPV Iran will be able to “benefit from some of its oil sources and at the same time buy essential products from the three main [European] partners,” (namely France, Germany and Britain).

The key question is how the US will respond. Will it be able to sidetrack this mechanism too?

Experts say, meanwhile, that the SPV is certainly not a magic wand but rather a complex, multi-layered financial and economic system. Moreover, its completely transparent market mechanism of maintaining business ties with Iran makes it vulnerable to potential attacks by Washington.

One encouraging factor here is that Switzerland, which is not an EU member, strongly believes that the JCPOA should remain in place and is now establishing its own interbank financial channel (independent of the EU) that would make it possible to bypass the SWIFT system in settlements with Iran and circumvent the US sanctions against Tehran.

Sharif Nezam-Mafi, Chairman of the Board of the Iran-Switzerland Chamber of Commerce, said that financial exchanges between the two countries will be carried out by the Swiss bank BSP, which prior to the introduction of anti-Iranian sanctions executed currency transfers from Iran to Switzerland.

Moreover, some of the proceeds from Iranian oil sales will be kept in this Swiss bank.

The launch of the SPV ushers in possibly the most crucial period in the ongoing political tug-of-war for preserving the JCPOA accord. If successful, it could help ease tensions in and around Iran and create a precedent in the future attempts to challenge the US financial domination and its aggressive policy of using economic sanctions against other countries.

If not, this could lead to Iran’s withdrawal from the JCPOA and the resumption of its nuclear program which, in turn, would further ratchet up tensions around the Islamic Republic.

Let us hope that the latter scenario never comes true.

First published in our partner International Affairs

Senior research assistant at RAS Institute of Oriental Studies, candidate of historical sciences

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Victor Orban’s eyes may be bigger than his stomach

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When Prime Minister Victor Orban recently spelled out his vision of Hungary’s frontiers, he joined a club of expansionist leaders such as Russia’s Vladimir Putin, China’s Xi Jinping, and members of the Indian power elite who define their countries’ borders in civilisational rather than national terms.

Speaking on Romanian territory in the predominantly ethnic Hungarian town of Baile Tusnad in Transylvania, a onetime Austro-Hungarian possession home to a Hungarian minority, Mr. Orban echoed the worldviews of Messrs. Xi and Putin.

Those views are on display in the South China Sea and Ukraine, as well as in statements by the Russian leader about other former Soviet republics.

It’s a worldview also embraced by members of India’s Hindu nationalist elite that endorses a country’s right to expand its internationally recognized borders to lands inhabited by their ethnic kin or territories and waters that historically were theirs.

Unlike the Russian and Chinese leaders, Indian Prime Minister Narendra Modi has been careful to avoid public support for the civilisationalist concept of Akhand Bharat embraced by his ideological alma mater.

The concept envisions an India that stretches from Afghanistan to Myanmar and encompasses nuclear-armed Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives.

Mr. Modi’s silence hasn’t prevented Mohan Bhagwat, head of the powerful ultra-Hindu nationalist Rashtriya Swayamsevak Sang (RSS) or National Volunteer Organization, from recently predicting that Akhand Bharat would become a reality within 15 years.

Mr. Modi has been a member of the RSS since the late 1960s. However, he is believed to have last referred to the Akhand Bharat concept in an interview in 2012 when, as Chief Minister of Gujarat, he suggested that “Hindustan, Pakistan, and Bangladesh should rejoin.”

However, in contrast to his more recent silence, Mr. Modi has approached Indian Muslims, the world’s largest minority and its largest Muslim minority, in much the same way that Mr. Orban envisions a racially and religiously pure Hungary.

The Hungarian prime minister sparked outrage in his July speech when he rejected a “mixed-race world” defined as a world “in which European peoples are mixed together with those arriving from outside Europe.”

Mr. Orban asserted that mixed-race countries “are no longer nations: They are nothing more than conglomerations of peoples” and are no longer part of what he sees as “the Western world.” Mr. Orban stopped short of identifying those countries, but the United States and Australia would fit the bill. 

Romanians may be more concerned about Mr. Orban’s racial remarks than his territorial ambitions, described by one Romanian Orban watcher as a “little man having pipe dreams.”

Romanians may be right. Mr. Orban’s ability to militarily assert his claims is far more restricted than those of his Russian and Chinese counterparts. Nevertheless, one underestimates at one’s peril.

Mr. Orban shares Mr. Putin and Mr. Xi’s resentment of perceived historical wrongs that need to be rectified irrespective of international law and the consequences of a world whose guardrails are dictated by might rather than the rule of law.

His speech seems to promise to reverse what he sees as an unjust diktat. His revanchism may explain why Russia’s alteration in Ukraine of national boundaries by force doesn’t trouble him.

Mr. Orban left no doubt that his definition of the Hungarian motherland included Transylvania and other regions in the Carpathian Basin beyond Hungary’s borders that ethnic Hungarians populate.

Insisting that the world owed Hungary, which eventually would call in its debt, Mr. Orban asserted that his country was driven by the notion “that more has been taken from us than given to us, that we have submitted invoices that are still unpaid… This is our strongest ambition.”

Mr. Orban implicitly suggested a revision or cancellation of the 1920 Treaty of Trianon, which deprived Hungary of much of its pre-World War I territory.

Two months earlier, Hungarian President Katalin Novak ruffled diplomatic feathers when she posted a picture of herself climbing a mountain peak in Romania’s Alba County, standing by a disputed milestone painted in Hungarian colours.

At the time, Ms. Novak advised Romanian Foreign Minister Bogdan Aurescu that it was her duty to represent “all Hungarians, regardless of whether they live inside or outside the borders” – a claim Romania rejected.

Mr. Orban’s grievance and racially driven nationalism may be one reason the Hungarian leader has been Europe’s odd man out in refusing to sanction Russia for its invasion of Ukraine fully.

In a break with European Union policy, Hungary’s foreign minister Péter Szijjarto met his Russian counterpart Sergei Lavrov in Moscow on the eve of Mr. Orban’s speech to request additional gas supplies.

In contrast to the EU, which wants to remove Russia as a supplier of its energy, Mr. Orban insisted that “we do not want to stop getting energy from Russia, we simply want to stop getting it exclusively from Russia.”

Mr. Orban’s speech is unlikely to ease the task of Tibor Navracsics, Hungary’s regional development minister and a former EU commissioner. Mr. Navracsics arrived in Brussels this week to persuade the EU to release €15 billion in covid recovery funds amid an unprecedented disciplinary process that could lead to the suspension of EU funding because of Hungarian violations of the rule of law.

So far, Mr. Orban’s support of Russia has isolated him in Europe with the de facto demise of the Visegrad 4 or V4 in its current form in the wake of the invasion of Ukraine and the threat of an economic recession.

Grouping the Czech Republic, Hungary, Poland, and Slovakia, the Visegrad 4 were united in their opposition to EU migration and rejection of what the Hungarian leader termed Europe’s “internal empire-building attempts,” a reference to the European Commission’s efforts to stop moves that hollow out Central European democracy.

Leaving Mr. Orban isolated, Slovakian Prime Minister Eduard Heger has pledged to use his current six-month presidency of the European Council to return the Visegrad 4 to the roots of its founding in 1991 as the four countries emerged from communism: respect for democracy and a commitment to European integration.

If successful, Mr. Heger’s V4 will likely be a V3 with Hungary on the outs.

Said Mateusz Gniazdowski, an analyst at the Warsaw-based Centre for Eastern Studies: “Attempts to ideologically use the V4 brand harm mutual trust and don’t contribute to building a strong Central Europe in the EU.”

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The End of History, Delayed: The EU’s Role in Defining the Post-War Order

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While the world is following the dramatic unfolding of the Russian aggression against Ukraine’s sovereignty and territorial integrity, Europe needs to start elaborating its vision for the post-war world. While a new Yalta might be needed, we all should realise that a peaceful world order has never existed outside the European Union. This in itself grants the EU the credibility – and responsibility – for arranging the post-war framework that secures the peaceful future of the continent.

By Dr.Maria Alesina and Francesco Cappelletti*

In the interconnected international society, war is not only a horrific and painful but also irrational choice. It is a zero-sum game, which sets into motion the domino effect of global repercussions. However, rational considerations have little to do with what stands behind the ongoing military attack on Ukraine. Russia’s war is not limited to Ukraine or aimed at a regime change to strengthen regional influence (as realists would say), nor does it represent an attempt to reinforce specific strategic interests (as a cognitivist analysis would suggest). It has emerged as something beyond traditional disputes: it is, as a matter of fact, an ideological war against the West. More than anything, it is Huntington’s “clash of civilizations”, although driven not by ideology or religion but by the two conflicting standpoints on human life – as a value and a non-value. This fundamental clash is happening now on the Ukrainian soil, and the battle is as fierce as it can possibly get.

The propaganda-driven “Rus-zism” rhetoric, missing any solid ideological basis or constructive meaning, consists of an overt anti-Western narrative aiming to establish a multi-polar world order and a vaguely defined concept of Russia’s “greatness”, entrenched in the shreds of evidence given by altered revision of events, such as the Great Patriotic War. A war that, in the eyes of the Russian establishment, has never ended. In the anti-Western rhetoric, the corroborating factor is a series of facts, events, convictions, beliefs, interests that support the leitmotif of the inevitability of “blocks”, an enemy, the “others”. A heritage of the Cold War. All this is grounded in the historical super Troika of the Russia’s foreign policy: fear of external threats, dispersed economic and political inefficiency, and focus on securing citizens’ support – by all means, ranging from propaganda to political repressions. This is a sheer exercise in power without purpose, control without vision, projected both internally and externally. This dynamic, although never fully dissipated, has been re-gaining momentum starting with Putin’s speech at the 2007 Munich Security Conference.

Today, in mid-2022, Russian aggression in Ukraine is only growing in atrocities and cynicism. In contrast, the EU politics still remain a palliative medicine, by definition unprepared to dealing with the concept of war. Political crises in several Member States – Italy, France, Estonia, Bulgaria – risk becoming a further destabilizing factor preventing the EU from fully standing up against Putin’s war plans. Meanwhile, the Europeans are becoming increasingly concerned with the upcoming ‘Russian winter’, recession, global food shortages, and a new migration crisis. As much as citizens advocated for support to Ukraine in the beginning, soon they might start demanding peace at any cost – most likely, Ukraine’s cost. This is the trap that Russia is orchestrating.

However, any simple, although desperately needed, ceasefire agreement risks only deepening the problem and postponing the solution. It will be a matter or years, if not months, when Russia restarts its aggression, possibly better prepared the next time around. The somewhat belated understanding of this simple truth should prevent us from re-engaging into the dilemma of prioritizing short-lived comfort and material gain over long-term solutions based on our fundamental, “civilizational” priorities. We need to remember that Europe’s prosperity has resulted from a prolonged period of peace – not vice versa. Those who threaten the peace, by definition threaten our growth and sustainability. Alongside building up its strategic autonomy for the 21st century, Europe must be prepared to do what it takes to secure a new long-term peaceful world order – not simply patch the old one.

Given that the ‘Russian factor’ will not disappear even after the overt military conflict is over, the Cold War II stands in the midst of diplomatic challenges anticipated for the post-war scenario. On the one hand, as Russia has acquired the official status of the world’s villain, dethroning China from this role, it will continue to face some extent of isolation. Regaining any level of trust will require years, and Moscow will struggle to find a credible audience to speak to when trying to redefine its external relations, while having to deal with a prolonged recession and a technological slowdown never experienced since 1991. On the other hand, without being naïve, we cannot expect any substantial regime changes to happen in Moscow. For centuries, the narrative ‘Russia vs. the West’ has constituted the very central axis of the national public discourse, even within the liberally-minded opposition circles. Such long-standing trends do not change quickly, if ever.

Although no notions of trustworthy diplomacy will bring Russia to the international negotiation tables for a long time, the need to guarantee security goes beyond this conflict and its territorial or ideological implications. The only viable solution is to find a way to contain Russia within a binding and comprehensive international framework. This means a pragmatic approach is needed in developing untouchable geopolitical, diplomatic, and security-related boundaries of the new order. The exact same boundaries that kept the first Cold War “cold”, with the difference that this time one of the great powers involved is – to use Kennedy’s word – declining.

The results of the potential Kyiv-Moscow talks will largely depend on the West’s willingness to avoid grey zones in the future security settlements. It is a matter of responsibility, especially for the EU, to provide a forum to assess, judge, clarify, evaluate, measure, and pragmatically set limits of the new post-war security system. While the US is interested, first and foremost, in slowly weakening Russia politically and economically, Europe’s long-term concern consists primarily in preventing its giant neighbour from disrupting the very basic principles of coexistence on the continent. A zero-trust model should be applied to Russia, while a new paradigm for debates should be developed from scratch: there is no more “balance of power” and “deterrence” to fit into the discourse. The world is now divided into nations that either care or not about commonly accepted principles, rights, and, above all, about the value of human life. The end of history, in 2022, is farther away than expected.

*Dr Maria Alesina and Francesco Cappelletti are Policy and Research Officers at the European Liberal Forum. Dr Alesina holds MA degrees in Political Science and EU Studies obtained in Ukraine, Germany and Belgium and a PhD degree in interdisciplinary cultural studies from Ghent University. She specializes in EU foreign, social, and cultural affairs. Francesco Cappelletti holds an MA in International Relations from the University of Florence and MA in World Politics from MGIMO. Member of Center for Cybersecurity in Florence. He focuses on cybersecurity, digitisation, Russian-Western relations and the relation between sustainability and technologies.

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“No longer analyze Asia with European eyes”, says French expert in Bucharest conference

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A 2-day academic hybrid conference organized in Bucharest at mid-July by MEPEI (Middle East Economic and Political Institute) and EuroDefense Romania, two Bucharest-based think-tanks, was the perfect venue to learn about the latest analyses on economic, geopolitical and security topics related to the Middle East and Asia, during which China was mentioned by all speakers as clearly playing a role in today’s international order. Entitled “Middle East in Quest for Security, Stability, and Economic Identity”, the conference was the 8th in a series of international conferences that annually gather well-known experts from all over the world to present their analyses and research on highly debated topics such as terrorism, Middle East, emerging Asian countries, the rising China, to which this year a new topic was added: the conflict in Ukraine.

Interesting ideas derived from the speakers’ presentations.

Adrian Severin, former Romanian minister of foreign affairs and EU parliamentarian, pointed out that “the conflict in Ukraine is actually one between Russia and the West, but economic sanctions never stop wars, and they even may lead to global disaster”. Severin considers it to be more and more difficult for NATO to defend its allies, with so many countries relying on NATO, and on the US, for their national protection, including non-European countries such as Saudi Arabia and Israel. When it comes to Asia, Severin sees “China to have a first rank role in shaping the world order.”

Teodor Meleșcanu, another former Romanian minister of foreign affairs, stressed that “Asia has the majority of the world’s population and lots and resources, and the future of Asia will assume the future of our civilizations.” Meleșcanu explained that “China wants to stabilize the world and to forge alliances, but not to fight with the West. Chinese trade is not interested in confrontation with Western partners by making alliance with Russia and it’s obvious why – because the West means more than 700 million people whereas Russia means only 114 million.” Meleșcanu suggested that the optimal solution in international relations is to operate with regional organizations in order to have dialogue, not directly with “the big boys in the garden.” Meleșcanu also encourages never-ending dialogue between the US-Russia-China, as the current situation proves it, in order to prevent such events that destabilize the world. He believes that the principles in Norman Angell’s The Great Illusion will always apply, as war does not actually mean conquering territories.  

Lily Ong, host of the Geopolitics360 live show in Singapore, confirmed that regional organizations are vital for dialogue: “Had not it have been for ASEAN, Singapore would have been on the menu, not at the table.”

Foad Izadi from the University of Tehran informed that Iran signed a 25-year agreement with China, and a separate one with Russia, and said “Iran would welcome such 25-year agreements with European countries. It’s Europe’s decision if they really want to follow the US decisions, but the US interests are often not aligned with the European interests”, concluded Izadi.

Vasily Kuznetsov from the Institute of Oriental Studies of the Russian Academy of Sciences in Moscow reminded the audience that Russia and the West cooperated very well in Libya, in fighting against ISIS in Syria, and expressed his confusion about Europe’ militarized approach towards Russia.  He stressed that “the current international situation will result into the strengthening of Asian centres of global power and global economics. China, as well as India and the Middle East as a collective actor become new great powers directly linked to each other, without the West.” At the same time, Kuznetsov sees “for China, a dilemma between pragmatic economic interest and global political ambitions, and for India, a choice between regional and global ambitions outside South Asia”, and he wondered whether “China can have a realistic foreign policy in the Middle East which  is facing issues of internal reconfiguration, sovereignty and security.” For the US, Kuznetsov sees the biggest challenge in the effort “to preserve leadership without more engagement, to make American politics more successful and to combine values and pragmatism.”

 “The rise of China is beneficial not only for China but for entire Asia”, believes Yao Jinxiang from China Institute of International Studies (CIIS) in Beijing. “The rise of Asia will rebalance the world.” Yao also stressed that “people are often biased about Asia. Let us not forget that, apart from the wars led by the US in Asia, Asia has been stable with no war for a long time. The self-control of the Asia countries ensures stability. It looks that it’s easier to attract Europe in a war than Asia. Asian countries try to solve problems by consensus. For example, China, Japan and South Korea step back because ASEAN is the leader. On the other hand, China has always been defensive. China does not want to claim hegemony or to replace the US, or another great power.” Yao equally explained the two terms used to refer to the same region: Asia-Pacific and Indo-Pacific: “Asia-Pacific reflects economic relations, whereas Indo-Pacific rather mirrors the political and military relations”, and he stressed that “China does not want to claim hegemony in this world or to replace the US or another great power. China is only interested in prosperity around the world and it watches carefully the Global Development Index and the Global Security Index”.

Pierre Fournié, French expert on Asia from SUFFREN International think-tank declared the Belt and Road Initiative, formerly One-Belt, One-Road (OBOR), to be “a magnificent project that could be pivotal in Europe” because “trade has always been a peaceful and fruitful relation among countries.” Fournié made clear that the war in Ukraine, inflation, migration, social discontent in Europe and the ongoing reconfiguration of the US society create conditions for Asian nations to become key partners in the post-war reshaping of Europe. “Thus, BRI, or the Indonesian Global Maritime Fulcrum are magnificent assets. Fournié also suggested that ”the current economic model creates tensions, and it’s time for  people to apply mutual aid and to unite to create coo-petition, a term coined by himself, and not competition. He recommended people to “no longer analyze Asia with European eyes.”

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