The Path to Powerlessness: Iran and the Failure of European Foreign Policy
Negotiations of the original Iran deal, later formally known as the Joint Comprehensive Plan of Action, take place in Lausanne, Switzerland in March 2015. State Department photo.
Last year, European leaders announced the creation of the Instrument in Support of Trade Exchanges, more commonly known as INSTEX. It was designed as a mechanism to evade having to impose sanctions on a country classified by the United States Department of State as a rogue nation and state sponsor of terror.
Hold on, you might say—aren’t Europe and America supposed to be close allies? What was the target country? Russia? Eritrea? North Korea? No. It was a country on which Europe had also imposed sanctions just a few years earlier: Iran. The United States claims virtually unlimited authority to sanction trade anywhere in the world. The source of American power is simple: the U.S. dollar remains the primary currency of international exchange. Almost every transaction that crosses a border touches the United States at some point. The world’s America-centric financial system gives the United States a unique ability to create “extraterritorial” sanctions, which apply not only to American companies or American trade but also to any entity that uses American financial infrastructure.
Europe is in a state of asymmetric dependence on American financial infrastructure. Banks communicate with each other through the Society for Worldwide Interbank Financial Telecommunication. SWIFT is headquartered in Brussels, but one of its major data centers is in northern Virginia. This leaves it vulnerable to being sanctioned under U.S. law. Thus, SWIFT is more or less obliged to offer its data to the United States and to abide by U.S. sanctions. U.S. law also controls the Clearing House Interbank Payments System, which accounts for about 95 percent of large-dollar transactions between banks internationally. Some 90 percent of foreign exchange transactions are carried out in dollars, and about 62 percent of central bank reserves are in dollars. In essence, almost any international financial transaction will ultimately take place in dollars.
This asymmetric dependence matters: cutting a country off from SWIFT and CHIPS—and hence from the dollar-denominated financial infrastructure—amounts to cutting it off from the international financial system as a whole. This means that U.S. sanctions can effectively force foreign companies to comply with sanctions even if they do not do business in the United States. Enormous fines are levied against companies that do business with Iran, even if those companies are not American. China, the other world superpower, is also not exempt: A senior Huawei executive was jailed in Canada, ostensibly for violating American sanctions against Iran.
No European company wants to risk losing access to America’s market and crucial financial infrastructure for the sake of doing business with a developing nation that has a comparatively minuscule and state-dominated economy in which it is difficult to invest. Thus, European companies have largely abandoned the Iranian market, with trade between Europe and Iran declining 75 percent each year after the re-imposition of US sanctions.
To European governments, America’s coercive policy on trade with Iran seems like a unilateral attempt to humiliate them. In 2015, Iran agreed to forswear the development of nuclear weapons as part of a deal that had been hailed as a triumph of multilateralism. The agreement did not only involve only the U.S. and Iran—France, Germany, and Britain, along with Russia and China, were guarantors of the agreement. A mercurial U.S. administration, determined to reverse the policies of former president Barack Obama, shredded the deal and re-imposed sanctions in a rejection of the idea that the United States should even consider the sentiments of its European allies. Europe’s response to this move illuminates its largely subordinate role in the world order, especially relative to the United States. While Europe has attempted to create a policy response, the lack of an effective foreign policy machinery and of a sustainable will for independence from the United States has guaranteed failure in the long term.
Europe’s attempt to save the Iran deal was the creation of INSTEX, a legal device designed to enable European companies to trade with Iran without formally violating the terms of U.S. sanctions. INSTEX functions by matching up European companies doing business with Iran to complete transactions without technically using any Iranian money. For example, let’s say Company A chooses to import €100 of pistachios from Iran and Company B wishes to export €100 of medical supplies to Iran. INSTEX matches the two companies together, so that Company A makes a payment directly to Company B, without receiving Iranian funds at all. The transaction is mirrored by a counterpart of INSTEX within Iran, facilitating trade with European companies in the same way.
INSTEX is a joint venture of the governments of France, Britain, and Germany. Senior government officials such as Britain’s Permanent Under-Secretary of State for Foreign and Commonwealth Affairs and the secretary-general of France’s foreign ministry sit on its board. This support makes INSTEX difficult for the United States to sanction without directly acting against its European allies.
Taken at face value, the creation of INSTEX represents an open rebellion against a bellicose American policy in Iran and the assertion of unilateral American power in defiance of European allies. This fits into a broader narrative that has defined European politics for the past four years: the retreat of American primacy and the development of an independent and unified European policy. Just before the start of President Trump’s term, Angela Merkel was referred to as the “Chancellor of the Free World” on the cover of Time magazine. Emmanuel Macron, the “Jupiter'' of a newly confident France, has openly called for a “European Way.”
So is Europe destined to go its own way? The answer is best illustrated by the success, or rather the lack thereof, of INSTEX. More than a year after it was established, INSTEX has failed to process any transactions at all. It does not appear that future trade will grow; INSTEX has not even been allowed to conduct oil sales, and European companies have still stayed away for fear of American sanctions. There has been no indication that Europe will act to reduce these shortcomings.
There’s a clear reason that INSTEX has failed: Europe has not played power politics in a way that would oblige America—or Iran—to listen to it. Fundamentally, Europe retains a limited capacity for strategic action, lacking both the willpower and the state machinery to execute a major policy against the will of the United States. There are two reasons for this. First, Europe’s institutional structure is poorly suited to the challenges of great power politics. The various institutions of the European Union tend to rely on supermajorities to make decisions, which means a single spoiler country can render policymaking largely ineffective. Second, European democracies lack the will to project power—it simply is not a priority. INSTEX reflects a reactionary policy. It responds to President Trump’s decision to torpedo the Iran deal, but it does not effectively build the power necessary to allow Europe to be seen as an equal partner.
Unlike the United States, Europe has largely failed to create a coherent Middle East policy that would give it a stake in the region. While America stations troops and fleets in the Middle East, European policy is limited to platitudes, with its leaders contending that the Middle East is in “turmoil” that will only resolve itself “decades from now,” with no specific European role in the operations of fate. While America is willing to impose a vast sanctions regime, the E.U. has never attempted to bend the United States to its will and likely never will.
Europe’s failure to create a coherent policy is primarily as a result of the E.U.’s supermajority model. The Common Foreign and Security Policy, the E.U.’s official foreign policy, requires unanimity for most decisions, which is often impossible to achieve. The consequence is that most decisions are simply impossible to make. The High Representative, Europe’s nominal “foreign minister,” has effectively ceased to advocate for big-picture strategic initiatives as recent incumbents try to navigate between national governments prickly about losing sovereignty. When a committee of 27 member states has to make policy, it is frankly surprising if policy is made at all. Quite simply, Europe’s external relations machinery simply cannot produce policy.
One example of this lack of efficacy is the case of European policy towards China. China has invested vast sums in the Piraeus, the port of Athens. Once the home base of the ancient Athenian fleet, today the Piraeus is a mainstay of the Greek Merchant Marine, which is still one of the largest fleets in the world. The payoff has been straightforward: Greece has vetoed many of the E.U.’s attempts to sanction, or even to condemn, China for human rights violations. China’s efforts to exert influence in Europe are not limited to Greece: China has sponsored “17 + 1” meetings with Eastern European members of the E.U. In an institutional structure that requires near-unanimity to get anything done on foreign policy, the E.U. will remain unable to act as long as one E.U. member can be convinced that such action is not in its interests.
E.U. indecision is not limited to China. There is virtually nowhere the E.U. finds itself able to organize a common foreign policy because the interests of European member states so often diverge. A few years ago, Libya was the scene of coordinated action, as France and Britain joined the U.S. to topple the regime of long-standing dictator Muammar Ghadaffi. Today, France and Italy support different Libyan strongmen in a tussle over African influence that seems almost Victorian.
Beyond even foreign policy, the E.U. cannot compel its members to respect Europe’s established democratic norms. The E.U.’s anemic methods for sanctioning its members have been compared to “needing to repair a plane in midair.” In requiring unanimous consent, Europe’s sanctions mechanisms simply do not contemplate a situation like the one in which Europe currently finds itself, where there are two European states governed by parties with an authoritarian bent. Two European states, Poland and Hungary, are now governed by populist and explicitly illiberal parties that arguably deserve to be sanctioned under the E.U.’s established norms. However, Poland blocked sanctions on Hungary and there is no mechanism for imposing them without unanimity.
The American founders realized that allowing members of a loose confederacy to conduct their own foreign policies could only be a recipe for chaos. Indeed, even the toothless government of the Articles of Confederation reserved the treaty-making power exclusively to the Congress: The states were denied the authority to form an “agreement, alliance, or treaty, with any ... state.” Yet the founders of Europe realized that a millennium of prickly nationalism would not instantly resolve itself into kumbaya unity. Hence, the straitjacket of unanimous consent continues to bind Europe’s foreign policy.
Even if the E.U. was capable of coordinating the unified front that being a great power demands, it’s unclear whether Europe would want to do so. Since 1991, a generation of Europeans have grown up in a Europe without war, tyrants, or revanchism. From the viewpoint of young Europeans, the old machinery of statecraft is largely superfluous, with the number of Europeans willing to defend against an attack on a N.A.T.O. ally having declined dramatically.
For an international actor to be powerful, they have to be both able and willing to deploy power. In the long term, European distaste for American leadership and, consequently, Macronian and Merkelian projects designed to counter American policy are likely to disappear. European approval of American policy often depends on the approval of the current president. The Bush administration was widely loathed in Europe as a result of the war in Iraq. According to opinion polling, European confidence in American leadership declined drastically as majorities of E.U. citizens favored a policy of greater independence from the United States. However, the inauguration of Obama caused this decline to vanish almost instantly as Europeans favored closer ties with the United States. Obama has since remained widely popular in Europe—there was even a campaign to draft him for the French presidency.
In the post-war era, the American presidency has usually flipped to a radically different figure every eight years or so. If the pattern holds, a president unpopular in Europe now is likely to be replaced by a popular one in a few years. This matters because European leaders have often framed their appeals to create policy in terms of a need to become independent from an unpopular American leadership. Angela Merkel may have announced that the United States was now a strategic rival and Emmanuel Macron may have called for a “European Way” but European leaders behaved similarly under the Bush administration. French President Chirac once denounced American policy as a “threat to global stability,” but that rhetoric lasted only as long as Bush did.
The upshot is simple: There is no reason to believe that European distaste for American leadership under Trump—and therefore the desire to battle the United States through mechanisms such as INSTEX—will last any longer than European distaste for American leadership under Bush. Today, the leaders who once urged a stronger and more autonomous European policy are mostly gone. Far from remaining the “Chancellor of the Free World,” Merkel has pledged to leave office. Macron’s “Grands Projets” have mostly failed—no longer Jupiter, the image that comes to mind instead is of Icarus. Yes, the E.U. remains incapable of making foreign policy because of the Common Foreign & Security Policy’s permanent paralysis, but the will to even attempt big ideas like INSTEX reflects pushback against an unpopular U.S. administration. Not all U.S. administrations will be unpopular, and European policy will not retain this uniting factor.
To criticize the ineffectiveness of European foreign policy is not necessarily to say that the E.U. is useless. Paradoxically, Brussels is a regulatory superpower without being a foreign policy superpower. It is Eurocrats in Brussels, not American regulators, who set many of the standards that govern the actions of American tech giants—from the General Data Protection Regulation to the vast powers alloted to the formidable Margrethe Vestager, the E.U.’s competition watchdog, who fined Google and Apple a combined $23 billion.
Indeed, Europe largely sets the regulations that govern international capitalism. This “Brussels effect” is so widely acknowledged that a book has recently been published on it. The E.U. has been remarkably successful in integrating the European continent through the Schengen free-movement area, rendering meaningless borders for which seas of blood were once expended. France and Germany spent 80 years dueling over a small wedge of Rhenish land, but today that border can be crossed in an instant. The E.U. 's success at regulatory and economic integration makes it seem like Europe should be a broader superpower.
Yet Europe, as an entity, still cannot carry out an autonomous foreign policy—especially not against the will of the United States. In her book “Eisenhower, Kennedy, and the United States of Europe,” Pascaline Winand describes how fifty years ago, the administration of President John F. Kennedy imagined a world in which a “United States of Europe” was an equal partner of the United States. However, grand visions of an Atlantic world of equal partners will remain merely a mirage. Unless Europe chooses to systematically invest in the machinery of great power politics and sees investment in power projection as fundamentally worthwhile, it will remain an economic power but not a strategic or military one.
Iran is only an example of this broader trend. INSTEX will likely continue to exist. Europe will likely continue to denounce American attempts to erode the Iran deal. However, Europe’s attempts did not succeed in changing Iran’s strategic calculus. Iran fears American, not European, actions. The world anxiously awaited the aftermath of the death of Qassem Solemani and Europe was almost irrelevant to the outcome. Iran has even returned to refining uranium, producing enough uranium for a bomb by March 3rd of this year.
Fundamentally, in the Iranian context, what Europe thinks does not matter.
John David Cobb is a staff writer at CPR and a first-year studying History and Political Science in Columbia College. He is from Knoxville, Tennessee, and also works with the Columbia Undergraduate Law Review and Matriculate, an organization that aims to help lower-income students get into college.