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Wary of Trump, EU courts Iran to bolster moderates ahead of polls

News 29 Apr 2017

left right Iran's Supreme Leader Ayatollah Ali Khamenei speaks during a meeting with Iranian officials and ambassadors of Islamic countries, in Tehran, Iran, April 25, 2017. Leader.ir/Handout via REUTERS 1/2 left right FILE PHOTO: Iranian President Hassan Rouhani takes part in a news conference near the United Nations General Assembly in the Manhattan borough of New York, U.S., September 22, 2016. REUTERS/Lucas Jackson/File Photo 2/2 By Alissa de Carbonnel | TEHRAN

TEHRAN Wary of U.S. President Donald Trump's tough talk on Iran, the European Union is courting Tehran to signal to its commitment to a nuclear deal and holding out the promise of its economic payoff ahead of May 19 presidential polls, EU diplomats say.

Europe's energy commissioner is leading more than 50 European firms in a business forum in Tehran over the weekend – the latest sally to help knit new trade ties in the 16 months since Iran curbed its nuclear program in exchange for relief from sanctions.

Of the six major powers who engineered the deal – the United

States, Britain, France, Germany, China and Russia – EU nations

bore the brunt of the oil embargo on Iran and stand to gain the most from a thaw they view as a victory for European diplomacy.

Meeting with Iran's atomic chief Ali Akbar Salehi, Commissioner Miguel Arias-Canete echoed the EU's mantra that it is "fully committed" to the 2015 deal and expects the same from all other parties.

But the bloc's leverage remains limited – particularly if it is not able to shield European firms from the risk of remaining U.S. sanctions and encourage big banks to reverse over a decade of Iran's exclusion from the international financial system.

The latter was a theme of another big conference in Tehran on Saturday attended by Germany and Iran's central banks.

Some Western companies have returned – planemakers Airbus and Boeing and carmakers Peugeot–Citroen and Renault – but many more have hung back, fearing Trump will tighten the screws on an already complex set of rules for engaging with Iran.

The pace and scale of Western investment is at the heart of

a challenge by hardline rivals of pragmatist President Hassan Rouhani, who is seeking a re-election in May.

Iran's ultimate authority, Supreme Leader Ayatollah Ali Khamenei and his hardline loyalists, have criticized Rouhani's policy of rapprochement with the West, arguing the 2015 nuclear accord had not yielded the benefits he promised.

EU diplomats voiced concern that a more confrontational stance by the Trump administration could empower Iran's hardliners ahead of the elections – although there is no sign the United States intends to walk away from the deal.

EU diplomats say they share U.S. concerns over Iran's human rights record, its ballistic missiles tests, its funding of blacklisted militant groups and its support for Syrian President Bashar al-Assad.

"We disagree that we have to address these issues by ditching the (nuclear) deal," one EU diplomat told Reuters. "This will only empower those (in Iran) with a more confrontational stance – bring out the worst in the system."

However, even as Tehran and Washington traded barbs over the deal last week, the State Department said Iran was complying with the so-called Joint Comprehensive Plan of Action (JCPOA) – the first such technical notification since Trump took office in January.

While former president Barack Obama sought to ring fence the JCPOA from clashes with Iran on other issues, EU diplomats say they fear Trump will try to provoke Iran to withdraw from it.

"The deal wasn't designed to build trust but it was certainly hoped for," said Joost Hiltermann, an expert with the Brussels-based think tank the International Crisis Group.

Even in the face of certain provocations the Iranians will not pull out but there is a limit."

For now, Iranian leaders have kept their cool, with Salehi saying Iran will only take "reciprocal action" if the U.S. is found in breach of the deal – leaving EU diplomats caught in a balancing act between the two long-time rivals.

In recent months, European leaders have been frequent visitors to Tehran with businessmen in toe – in an effort to keep alive the 2015 accord, which also has the support of Russia and China, rivals for influence in the Islamic Republic.

The bloc's trade with Iran has partially recovered – much of that due to oil exports from Iran in what one EU official called "a direct incentive to stick to the deal."

The International Monetary Fund this year applauded Iran's "impressive recovery", with growth expected over 6 percent for the last 12 months and low inflation – a record that Rouhani has been keen to defend.

But the hope for a boom since the EU and United Nations sanctions over Iran's nuclear program were lifted a year ago has been hampered by separate U.S. measures in place over Iran's missile program.

"The Europeans want to at least create the optical impression they are politically invested in this deal working," said Ellie Geranmayeh of the European Council on Foreign Relations. "Even if from a commercial perspective, companies are essentially on hold."

The risk of falling afoul of U.S. measures has been enough to persuade major Western banks to stay away from Iran, and Tehran accuses Washington of undermining the nuclear deal by scaring investors away from Iran.

While acknowledging domestic criticism, Salehi told reporters Tehran will remain committed to the JCPOA regardless of the outcome of next month's vote.

There are also signs that the EU's firm stance has given U.S. officials pause, with senators saying they delayed a bill to slap new sanctions on Iran due to worries over how the bloc would react and the Iranian presidential elections.

(Writing by Parisa Hafezi; Editing by Bernard Orr)

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