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Abu Dhabi, UAEMonday 22 October 2018

Volkswagen complies with sanctions on Iran undercutting EU efforts

Car maker’s presence in Iran is not large but the company’s decision is a symbolic blow

The Volkswagen Chattanooga Assembly Plant in Chattanooga, Tennessee, US. VW has agreed to US demands to adhere to sanctions imposed on Iran. Reuters
The Volkswagen Chattanooga Assembly Plant in Chattanooga, Tennessee, US. VW has agreed to US demands to adhere to sanctions imposed on Iran. Reuters

The Trump administration persuaded Volkswagen to comply with sanctions on Iran and end almost all of its business in the country, according to a US official, a symbolically charged step in undercutting European Union efforts to keep the 2015 nuclear deal alive.

The US and Volkswagen hammered out the final details on Tuesday after weeks of talks, according to US Ambassador to Germany Richard Grenell, who led discussions with the company. Volkswagen will still be allowed to do some business in Iran under a humanitarian exception, Mr Grenell added.

Officials at Volkswagen did not immediately respond to a request for comment.

“Volkswagen has told us they will comply with US sanctions on Iran,” Mr Grenell said. “We are pleased with this decision because Iran diverts its economic resources away from its people to spread violence and instability across the globe.”

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While Volkswagen’s exposure to the Iranian market is not large, the company’s decision is a symbolic blow that will only further undermine the EU's argument that Iran should remain in the nuclear agreement that lifted some economic restrictions on the country in exchange for limits on Tehran’s nuclear program.

President Donald Trump withdrew the US from the accord in May.

Volkswagen had announced in July 2017 that it planned to sell cars in Iran for the first time in 17 years, taking advantage of the removal of sanctions that accompanied the signing of the Joint Comprehensive Plan of Action, as the nuclear agreement is formally known. It signed a contract with local importer Mammut Khodro to offer the Tiguan compact SUV model as well as Passats at dealerships in and around Tehran.

Andreas Renschler, a Volkswagen board member who oversees the company’s commercial vehicle unit, announced on Tuesday that his division had suspended plans to expand into Iran.

Mr Trump has warned countries they had to choose between doing business with the United States, the world’s largest economy, or Iran. The administration sent teams of officials from the departments of Treasury and State to lay the groundwork for the reimposition of sanctions lifted under the deal, targeting industries ranging from energy to chemicals to apparel.

European leaders have argued that even without the US, Iran should abide by the terms of the deal, but a key challenge has been to ensure it continues to get some benefit from staying in. European companies ranging from oil giant Total to Adidas, and Daimler have all said they will scale back or abandon the market, and Iranian leaders have complained that the Europeans have not done enough.

The move will make it even harder for EU leaders led by Federica Mogherini, the high representative for foreign affairs, to persuade Iran to continue to abide by the terms of the deal. A senior State Department official, who asked not to be identified discussing American strategy toward Iran, said there was now no business left for the EU to protect in Iran and that the US had essentially won in its battle to persuade companies to leave.

The official said that European nations and businesses are far more closely aligned with the US than they are with the EU on that issue. The official pointed to an August deal in which the EU promised Iran $20 million (Dh73.4m) in aid to counter the effects of US sanctions as a clear sign of how little economic clout the bloc could bring to the struggle over US sanctions.

The other major factor is Iranian oil exports. Washington is pressing other countries to zero out their imports of Iranian oil by November 4, when sanctions related to Iran’s energy sector kick back into effect. Iranian oil exports have plunged by 35 per cent since April, the month before Mr Trump withdrew from the deal.