Here’s What the French Proposal for Trump and Iran Actually Entails
A new report in the Daily Beast exclaims that Trump is flirting with a “$15 billion bailout for Iran.” But the mechanics of the proposal Trump is considering, put forward by French President Emmanuel Macron, are far more limited and reasonable than this and other reports may have you believe. What is being deliberated is a plan that does nothing more than restore Iran economic benefits it was already receiving under the Joint Comprehensive Plan of Action (JCPOA), until Trump withdrew from the agreement, reinstating U.S. secondary sanctions.
Back in 2017, French, Italian, and Spanish refiners were importing around 600,000 bpd of Iranian oil on an annual basis. When the U.S. reimposed sanctions on Iran in November of 2018, it provided waivers for eight of Iran’s oil customers to sustain their imports at limited volumes. Italy was the only European customer to receive a waiver, but given the complicated nature of U.S. sanctions, the waiver itself was insufficient to give Italian state oil company ENI enough comfort to continue buying Iranian oil.
Eventually, in May of 2019, the oil waivers were fully eliminated, causing Iran’s oil exports to plummet further. Only China and Syria continue to buy Iranian oil in defiance of US sanctions. The cessation of European imports of Iranian oil has been the single greatest source of frustration for Iranian policymakers, who feel that Europe is failing to keep up its end of the bargain under the JCPOA nuclear deal. Iran imports a large volume of machinery and medicines from Europe—the loss of euro denominated revenues makes it much harder and more expensive for Iran to sustain these crucial imports, putting a strain on the Iranian economy.
In the face of these challenges, Europe established INSTEX, a state owned trade intermediary that would allow trade in non-sanctioned goods to flow without the need for cross-border financial transactions, and by extension, Iranian use of its now precious reserves of euros. But INSTEX has been hampered by the fact that it offers Iran no solution to sustain its oil sales to Europe. Not only is Iran ceding market share, but in its current form INSTEX will be unable to facilitate the billions of euros worth of imports from Europe that are currently left vulnerable without Iranian oil being sold to Europe in tandem.
This is the problem the French proposal seeks to solve. It is basically a riff on a proposal first put forward by the Iranians. The Iranians argued that if Europe is unable to purchase Iranian oil due to the reticence of European tanker companies and refiners to handle the crude, then Iran should “pre-sell” oil to Europe. Iran would be provided a line of credit today guaranteed against future oil sales to Europe to be completed when sanctions relief allows.
The figure that has been associated with the French plan—$15 billion—is a direct reflection of what it would take for Europe to restore the financial component of their oil purchases under the JCPOA. Over the course of a year, the value of 700,000 bpd in oil exports at a price of $58 per barrel is approximately $15 billion dollars. For context, in 2017, Europe imported 29,035,298 metric tonnes of crude oil, which is the equivalent of approximately 583,092 bpd. At the then still low oil prices, the value of those imports was just over EUR 10 billion. Accounting for a higher oil price and the need for round numbers, a $15 billion commitment is reflective of a normal state of affairs for European purchases of Iranian oil.
In short, the French are not aiming to provide any new money to Iran. Their plan is designed to provide Iran a financial benefit it was already receiving—in accordance with US sanctions relief—back in 2017. In this sense, the French are merely seeking permission from the Trump administration to restore their own compliance with the implementation of economic benefits of the JCPOA—a request growing more urgent as Iran loosens its own compliance with its nuclear commitments under the deal.
In some respects it is surprising that the French would embrace this plan given their relatively tepid push to sustain the economic benefits of the deal for Iran to date. But it would appear that President Macron believes a more substantial move is necessary to bring about a “ceasefire” in the economic war waged by Trump, and the Iranian escalations being pursued in response.
Crucially, the French plan does not call upon the U.S. to lend a single cent to Iran. The reason the Macron has appealed to Trump reflects both the political reality that he needs to de-escalate tensions between the U.S. and Iran as well as the practical reality that Europe is unable to provide the envisioned financial support without a sanctions waiver from the Treasury Department, either for the credit line itself, or for resumed oil sales.
The creation of new credit facilities for Iran was actually first considered in the summer of 2018 prior to the creation of INSTEX. European central banks were asked to consider opening a direct financial channel to Iran’s central bank to ease payment difficulties and enable the provision of export credit. But the central banks balked at the idea, both because Iran has yet to fully implement the financial crime regulations required by its FATF action plan (reforms which have still not been fully implemented) and also because of concerns about U.S. retaliation. Close advisors to the Trump administration were publicly calling for European central bankers to be sanctioned if such faculties were extended to Iran.
So some consent from the U.S. will be required to operationalized the French proposal. That may irk the Iranians, but it also makes the plan more feasible. European and Iranian policy makers alike have been disabused of the idea that direct defiance of U.S. sanctions is possible for France and the other EU member states. Macron has therefore decided to try and coax Trump towards a negotiated solution, dangling in front of him the prospect of talks with Iranian President Hassan Rouhani.
But importantly, the U.S. would be making a minimal concession to secure such talks. Any waiver granted to the Europeans could be revoked and the financial benefit Iran would receive is only part of the full financial benefits they were receiving prior to Trump’s withdrawal from the JCPOA and the reimposition of U.S. secondary sanctions.