Before President Donald Trump announced that the United States would withdraw from the Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal, I was invited by the French multinational oil and gas company Total to speak about the prospects, risks and rewards of doing business with Iran. 

Extrapolating from the dynamics of Iran’s domestic politics, as well as the geopolitical landscapes of Iran-Arab and Iran-US relationships, I came to the conclusion that, even when there exists a multinational agreement with the ruling clerics of Tehran, the risks of doing business with the regime often surpass the rewards when one meticulously calculates the costs and benefits. This risk is much higher for EU companies and non-American financial institutions and their subsidiaries.

One of the fundamental miscalculations that some Western companies made was the failure to recognize the fact that, from the perspective of the Iranian leaders, any agreement with the West was only temporary. The mullahs were in desperate need of cash to safeguard their hold on power and to be able to afford to pay their proxies around the region. Unfortunately, from the understanding of some Western firms, the multinational nuclear agreement with Iran was lasting because they believed that Tehran was going through a fundamental change in its foreign policy. 

As a result, thrilled by the investment opportunities that the Iranian regime was offering, Total, like many other Western companies, rushed into signing business deals with Tehran. The reason for such a rush is understandable, as many companies feared falling behind their competitors and desired to reap the profits from Tehran’s market — one of the world’s largest untapped markets. Total, one of the seven “supermajor” oil companies in the world, signed a deal worth an estimated $5 billion for the development of Iran’s South Pars, which would be the largest natural gas field in the world after completion.

It did not take long before Total found the significant time and resources that it spent did not bear fruit, thanks to the failure of the nuclear agreement. But Total took immediate action to back out of Iran’s market. In a calculated and wise move, it has announced it is making preparations to pull out of the gas project in the face of the new developments regarding the nuclear deal. 

This ought to be a lesson for other EU companies and non-American financial institutions. Whether or not they agree with the latest setback for the nuclear deal, they should contend with this indisputable fact: Companies and investors should immediately back out of Iran’s market because continuing to conduct business with the Iranian regime will have a critical legal and financial impact on them. As Secretary of State Mike Pompeo said on Monday, the US is planning to implement the "strongest sanctions in history."

If a European company is caught violating US financial sanctions on Iran, they can lose a significant venue for acquiring capital when needed.

Dr. Majid Rafizadeh

One such negative consequence is to find oneself being dragged into a legal battle with American financial institutions for doing business with Iran. First of all, this would hinder any company’s future trade with the US. It is also worth noting that many Western companies that have previously signed deals with the Iranian regime gain more profit from operating in the American market than in Iran. This means they have to choose between the two. But would Western firms really run the risk of losing the $18 trillion US market for the sake of Iran’s $400 billion market?

Secondly, putting the American market aside, it will be difficult for companies to easily conduct transactions in the West since the US plays a critical role in the global financial system. In addition, if a European company is caught violating US financial sanctions on Iran, they can lose a significant venue for acquiring capital when needed. In other words, their investment advantage of obtaining credit or borrowing money from US monetary institutions would also be in danger. 

EU companies and non-American financial organizations and their subsidiaries that deal with the regime could also face the danger of being barred from using the US dollar. This is a “death penalty for any international bank,” as former Treasury Under Secretary David Cohen once put it.

Finally, the issue comes down to the cost-benefit question. As illustrated above, the cost of doing business with the Iranian regime is much higher than the profits available. The only approach through which a corporation could somewhat safely do business with Tehran is to obtain a waiver from the US Treasury Department. 

But time is short as the dates — Aug. 6 and Nov. 4 —  when the Treasury Department will re-impose sanctions on Iran’s oil, energy sector, transactions by foreign financial organizations with the Central Bank of Iran, and Iran’s shipping industry, among other industries, are fast approaching. 

Companies dealing with the Iranian regime should immediately implement an effective exit strategy from Iran’s market in order to safeguard their capital, future trades and transactions in the global market. The risks of dealing with the Iranian regime are too high to be financially justified. EU companies and non-American financial organizations and their subsidiaries ought to follow the footsteps of the multinational French corporation Total by immediately pulling out of Iran’s market. 

  • Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist. He is a leading expert on Iran and US foreign policy, a businessman and president of the International American Council. Twitter: @Dr_Rafizadeh