Divesting From Iran

A couple of items in the nature of an update on my Creators Syndicate column on the widespread move by state governments to divest from companies that do business in Iran. Emanuel Lenain, the press counselor at the French Embassy, E-mailed me with a statement claiming that French investment in Iran is decreasing. Let me just present it without checking on its accuracy:

Steep Decline in French Economic Ties to Iran

Fact Sheet compiled by the French Embassy

(July 10, 2007)

The available figures concerning the bilateral economic relationship between France and Iran are modest and show a steep decline.

This is the result of the efforts undertaken by France and the international community to address the Iranian nuclear crisis.

Trade:

Direct investment:

According to the last available figures released by the Bank of France, the stock of French Foreign Investment in Iran in 2004 amounted to 397 million Euros (0.1% of the stock of French FDI abroad). France divested 186 million Euros from Iran in 2004 and 168 million Euros in 2005.

Exposure of French Banks to Iran:

According to the last available figures released by the Bank of France, the consolidated exposure of French banks towards Iranian debtors has decreased from 4 billion Euros in December 2005 to 2.7 billion Euros in December 2006 (ultimate risk). This trend will certainly be confirmed in 2007.

This situation is the result of the efforts undertaken by the international community to address the Iranian nuclear crisis.

The robust diplomatic initiative launched by the E3/EU is based on very simple but key principles, now enshrined in two Chapter VII resolutions of the United Nations Security Council, adopted unanimously: Iran shall suspend all its sensitive nuclear activities and seize the opportunity the P5 Countries and Germany have offered to negotiate in good faith; otherwise, it will face increasing pressure and sanctions.

The measures adopted by the UNSC have been powerful because they show the unity of the international community. France and its European partners have played a leading role in that context. But the European Union has decided to go further:

-- the EU has decided to add 23 names to the UNSC lists of individuals and entities because of their links with the Iranian programs of concern;

-- the EU has decided to refuse completely to grant visas to and freeze the assets of these individuals and entities;

-- the EU has decided to put in place a complete embargo on all arms and related materials of all types, including weapons and ammunitions, military vehicles and equipment, para-military equipment and spare parts;

-- the EU has decided to extend the list of sensitive items subject to restrictive measures, because of their potential contribution to the Iranian programs of concern, beyond the lists adopted by the UNSC.

France has also already taken national measures in that context.

On February 8, 2007, France changed its export credit policy towards Iran in a restrictive sense: we have decided to significantly reduce in 2007 our exposure limit on this country and to strengthen dramatically the conditions to grant these credits. And it is clear that this policy will remain under close scrutiny, depending on the evolutions of the nuclear crisis.

At the same time, the French Government has extensively informed the companies of the political and security situation in Iran, making clear to them the risks they were incurring. As a consequence of these actions, French banks, for example, have reduced their exposure in Iran by almost half in one year.

This may be part of a larger trend. My American Enterprise Institute colleague Danielle Pletka in a Washingto Post opinion article earlier this week argued against bills being advanced in Congress to require the president to waive sanctions on firms that invest more than $20 million in Iran's energy sector under the Iran-Libya Sanctions Act of 1996. Her argument is that European and other countries are cutting back on export credits (a form of subsidy) for investments in Iran:

Yet, just as lawmakers have gotten riled about enforcing the law, European nations are beginning to grasp the importance of curtailing their economic ties with Tehran. Since early last year, France, Germany and Britain, among other European Union nations, have cut back export credits--essentially taxpayer subsidies--to companies doing business in Iran. Germany's export credit agency, Hermes, has reportedly cut guarantees 30 percent and aims to cut a further 10 percent this year. Deutsche Bank last month announced that it is ceasing to do business with Iran. Two major British banks, HSBC and Standard Chartered, have cut back significantly. The French Embassy touts hundreds of millions in French divestment from Iran in recent years.

On principle, many European foreign and finance ministries continue to resent American hectoring on trade with Iran. A senior German Foreign Ministry official recently characterized Treasury Department lobbying against business with Iran as "outrageous." Such protestations notwithstanding, word has quietly spread from Paris, London and Berlin that banks and companies now do business with Iran at their own risk.

Japan, once Iran's top trading partner, has also begun to cool its once warm relations, though not to the same extent as the Europeans.

Put on top of this French President Nicolas Sarkozy's statement that we are facing either "an Iranian bomb or bombing Iran." Here's a link to a website compiled by another AEI colleague, Omeed Jafari, on investment in Iran. It shows rising French exports to Iran in 2000-04 and a fall in 2004-05 and rising French imports from Iran from 2001-05, but does not have figures for 2006 and 2007.

Consider all this in light of a statement August 27, by Sarkozy, who said Iran can choose between dialogue with the international community or more U.N. sanctions. "This tactic is the only one that allows us to escape from a catastrophic alternative: an Iranian bomb, or the bombing of Iran," he said.

We seem to be seeing a change in attitude and behaviors by the Europeans. In the first half of this decade, the EU trio of Britain, France, and Germany engaged in what turned out to be fruitless negotiations with the Iranian regime while European and other companies increased their economic ties to Iran. Now they see a need for a more aggressive diplomatic approach, with the United States involved, while they are cutting back, or at least want to be perceived as cutting back, their economic ties with Iran.

My analysis: They're scared, and rightfully so. This owes something to changes in personnel--with Angela Merkel in Germany and Sarkozy in France replacing Gerhard Schroeder and Jacques Chirac, and Gordon Brown evidently holding steadily to Tony Blair's approach in Britain. And it probably owes something to the fact that the EU diplomatic effort proved fruitless. There's no guarantee that the changed approach can prevent the Iranians from getting nuclear weapons. But at least pressure from sources as diverse as European governments and American state legislatures and officials is putting an economic squeeze on the mullahs. It's a positive development worth watching.

By Michael Barone