EU under pressure over Iran trade

EU states are expected to come under pressure from the US to scrap or severely cut export credit guarantees to Iran worth more than €10 billion.

The credits are essentially government-underwritten insurance policies that lower the risks for firms doing business abroad.

Washington has pressed the EU, particularly Germany, France and Italy, the largest granters of export credits, to scale back incentives for trading with Iran. But the EU resisted pressure, arguing that its firms would be disproport-ionately affected by sanctions because of the US’ long-standing trade embargo against Iran.

In 2005, Germany’s underwriting commitment for export credits totalled €5.8bn. In Italy the figure was €4.5bn, France €1bn, Austria €800 million and the UK €111m. Many credits cover goods and equipment for use in Iran’s petrochemicals industry.

Sources say that while Germany and the UK could be willing to reduce export credits to Iran, there is little sign of Italy or France doing the same.

Stopping credits altogether is seen by EU diplomats as an option that would be used only as a way of avoiding US or Israeli military action.

In March, the US secured a reference to export credits in a United Nations Security Council resolution establishing sanctions against Iran. But EU member states avoided any firm commit-ment to cut credits.

"That was perhaps the least developed aspect to the last resolution," said one EU diplomat, who added that the issue would come up again if new sanctions are discussed, as expected, in a month.

Although the Bush administration has shown some understanding of the EU’s concern, it is coming under pressure from Congress to employ a tougher line.

A recent bill sponsored by Democrat senator Chris Dodd and Republican Tom Lantos would allow sanctions on foreign firms dealing with Iran.

A senior EU official said: "We are very worried about that. We will take action through the World Trade Organization if we get there, but we know the administration understands our concerns."

The political tensions with Iran and the prospect of an end to export credits are starting to hurt business.

French energy giant Total recently announced it was delaying a decision on a multi-million euro investment in Iran’s South Pars gas field by up to three months. According to industry sources, Total bosses want to wait to see how the tensions with Iran play out.

In April Total’s CEO Christophe de Margerie appeared before the US Securities and Exchange Commission to explain the company’s activities in Iran and to answer allegations of bribery.

"At the moment there is a significant but manageable risk," said one industry insider, voicing concern about new sanctions which might be coming, including pressure on Iranian banks.

On Monday (23 April) EU foreign ministers adopted sanctions against Iran which go beyond the UN resolution by placing a complete embargo on military exports to Iran and expanding the list of individuals subject to the ban. Senior EU diplomats are concerned about the impact sanctions could have on ordinary Iranians and are pledging to continue talks.

EU foreign policy chief Javier Solana met chief Iranian negotiator Ali Larijani in Turkey on Wednesday (25 April) in an effort to restart negotiations.

EU states are expected to come under pressure from the US to scrap or severely cut export credit guarantees to Iran worth more than €10 billion.