Europe and the Mullahs

How the EU subsidizes trade with Iran.

Tuesday, February 20, 2007 12:01 a.m.
Wall Street Journal

On the record, Europe claims to be as concerned as America about a nuclear-armed Iran. The record also shows, however, that Europe's biggest countries do a booming business with the Islamic Republic. And so far for the Continentals, manna trumps security.

The European Union--led by Germany, France and Italy--has long been Iran's largest trading partner. Its share of Iran's total imports is about 35%. Even more notable: Its trade with Tehran has expanded since Iran's secret nuclear program was exposed. Between 2003 and 2005, Europe's exports rose 29% to €12.9 billion; machinery, transport equipment and chemicals make up the bulk of the sales. Imports from Iran, predominantly oil, increased 62% to €11.4 billion in that period.

In the absence of an official embargo against Tehran, private EU companies have sought commercial opportunities in Iran. But the real story here is that these businesses are subsidized by European taxpayers. Government-backed export guarantees have fueled the expansion in trade. That, in turn, has boosted Iran's economy and--indirectly by filling government coffers with revenues--its nuclear program. The German record stands out. In its 2004 annual report on export guarantees, Berlin's Economics Ministry dedicated a special section to Iran that captures its giddy excitement about business with Tehran.


"Federal Government export credit guarantees played a crucial role for German exports to Iran; the volume of coverage of Iranian buyers rose by a factor of almost 3.5 to some €2.3 billion compared to the previous year," the report said. "The Federal Government thus insured something like 65% of total German exports to the country. Iran lies second in the league of countries with the highest coverage in 2004, hot on the heels of China."

Iran tops Germany's list of countries with the largest outstanding export guarantees, totaling €5.5 billion. France's export guarantees to Iran amount to about €1 billion. Italy's come to €4.5 billion, accounting for 20% of Rome's overall guarantee portfolio. Little Austria had, at the end of 2005, €800 million of its exports to Iran covered by guarantees.

The Europeans aren't simply facilitating business between private companies. The vast majority of Iranian industry is state-controlled, while even private companies have been known to act as fronts for the country's nuclear program. EU taxpayers underwrite trade and investment that would otherwise be deterred by the risks of doing business with a rogue regime.


It's also hard not to see a connection between Europe's commercial interests and its lenient diplomacy. The U.N.'s December sanctions resolution orders countries to freeze the assets of only 10 specific companies and 12 individuals with ties to Iran's nuclear program. Europe's governments continue to resist U.S. calls for financial sanctions, and the German Chamber of Commerce recently estimated that tougher economic sanctions would cost 10,000 German jobs.
As if on cue, Foreign Minister Frank-Walter Steinmeier last week detected in Tehran a "new ambition" to resume talks. The last time the Europeans promoted such diplomatic negotiations, Iran won two more years to get closer to its goal of becoming a nuclear power. In 2004, according to the Frankfurter Allgemeine Zeitung daily, then-Foreign Minister Joschka Fischer told Iranians to consider Europe a "protective shield" against U.S. pressure. The EU continues to provide a shield for its business interests in Iran, and thus a lifeline to a regime that is unpopular at home and sponsors terror abroad.