The Trump administration’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and imposition of such sanctions have harmed European countries’ interests in nuclear non-proliferation and laid bare their limited ability to implement an independent strategy on Iran. This approach not only provided minimal, piecemeal US waivers on oil imports in November 2018 but also ran against other EU members’ call for collective rather than bilateral negotiation of exemptions. And it has proved effective at doing so – as seen in its success in resisting some of the Trump administration’s planned tariffs without damaging transatlantic relations, which helped reopen negotiations between the sides. European countries need to reassure companies that they can conduct business within the contours of EU law and policy. The strongest euro-denominated investments come from German bonds. Rather, this is about Europe’s ability to freely determine its foreign policy without being coerced, or seeing its economic actors being coerced, into following another power’s policy.In responding to secondary sanctions, the union needs to understand how it can use interdependence to rebalance the relationship without undermining transatlantic relations, and to share risks between member states in a fashion that promotes European unity. For example, after promising to establish INSTEX, they appeared weak in taking months to agree on which country would host the mechanism.

On June 5, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued four new frequently asked questions (“FAQs”) that define key terms used in secondary sanctions added to the Iran sanctions program earlier this year. Europeans should take this risk all the more seriously because China, while Europe would also be especially vulnerable to a sanctions war between great powers due to its reliance on the global economy and a rules-based international order. Yet, in response to the latest wave of US secondary sanctions on Iran, each of these countries has felt more exposed to US sanctions – even though they (especially Russia and China) have less exposure to the US than Europe. And, politically, member states are unlikely to relinquish what they see as a core function of national sovereignty. This will gradually socialise the risk associated with secondary sanctions among European capitals. According to one former senior US Treasury official, US district and appeals court rulings imply that the executive branch has significant discretion in this area.The uncertainty surrounding the operation of secondary sanctions has also enhanced their impact. Europe should treat the steps discussed above as a mixture of medium- and long-term measures. Moscow’s attempts to set up an electronic payments system to rival Visa and Mastercard, as well as its own financial system, have been significantly hampered by the weakness of the Russian rouble, which has prevented its efforts from gaining much traction with major commercial actors. One way to do so is for the European Commission to strengthen existing measures, and to investigate instances in which a European entity makes a reasonable case that it has been discriminated against or denied services by another European entity on the basis of US secondary sanctions. And, in any case, there are already active cases in which the scope of the “national security exemption” will be litigated. Rather, the issue is how to persuade the US that escalating its sanctions dispute with European countries is not in its interests.

But if Washington were to impose secondary sanctions on a far more important European trade partner, such as Russia or China, the hit to Europe would be far harder.Washington maintains that its secondary sanctions are not extraterritorial but rather present foreign companies with a choice between access to markets in the US or in the targeted country.The importance of the US market, in both absolute and relative terms, is enough to change the business decisions of most major European companies. Similarly, French state-owned bank Bpifrance initially declared that it would establish this type of financial mechanism, but eventually decided not to proceed with its plan. In combination, these measures could create more liquid capital markets, reducing Europe’s dependency on the US dollar and thereby limiting its exposure to US sanctions.Still, even if the euro gains strength globally, it will not replace the dollar but rather coexist with it in a more multipolar monetary system for many years to come.European countries are now beginning to realise how much they would benefit from reduced dependence on the dollar.
More importantly, most cryptocurrencies are pseudonymous rather than completely anonymous and, therefore, the long arm of US sanctions will eventually reach those who use them.There are also major regulatory and transparency questions about the use of cryptocurrencies.