France to Finance Exports to Iran

(Tuesday, February 6, 2018) 15:10

France will start offering euro-denominated credits to Iranian buyers of its goods later this year, a move to bolster trade while keeping it outside the reach of US sanctions, the head of state-owned investment bank Bpifrance said.

France and other European countries have been looking to increase trade with Iran since Paris, Washington and other world powers agreed in 2015 to lift many economic sanctions in exchange for controls on Iran’s nuclear program.

The plan is to offer dedicated, euro-denominated export guarantees to Iranian buyers of French goods and services. By structuring the financing through entities without any US link, whether to the currency or otherwise, the aim is to avoid the extraterritorial reach of US legislation, Reuters reported.        

The move could anger US President Donald Trump, who has threatened to pull out of the Iran nuclear agreement reached by his predecessor Barack Obama.

This is while on Oct. 20, 2017, US Secretary of State Rex Tillerson gave the reassurance that the Trump administration does not intend to disrupt European commerce with Iran.

“The president’s been pretty clear that it’s not his intent to interfere with business deals that the Europeans may have underway with Iran,” Tillerson told The Wall Street Journal.

Nevertheless, Washington has maintained some financial restrictions, leaving private banks—even those based outside the United States—wary of financing deals.

“We put a lot of preparation into this in 2017 and we keep on working, every single day, on the conditions of our entry into Iran,” Bpifrance’s chief executive, Nicolas Dufourcq, said on Wednesday, referring to the new loans.

“This is a completely separate flow [of money]. There is no [US] dollar in this scheme ... no one holding a US passport.”

There is a pipeline of about €1.5 billion in potential contracts from interested French exporters, Dufourcq told lawmakers on Wednesday.

     Risking Trump’s Ire

France, which has had close business ties with Iran since before the victory of the 1979 Islamic Revolution and still operates several large factories there, including Renault and PSA plants, is not alone in Europe in seeking to deepen trade ties.

A French banking source said Italy, Germany, Austria and Belgium were also working on mechanisms that would shield their companies from the risk of US sanctions. It was not immediately clear how closely coordinated the efforts are.

Earlier this month, Italy and Iran agreed a framework credit agreement to fund investments in Iran worth up to €5 billion. The accord was signed by Iran’s government-owned Bank of Industry and Mine and Middle East Bank, and the investment arm of Italian state-owned holding Invitalia.

The Rome government chose Invitalia over state lender Cassa Depositi and Prestiti because, unlike CDP, it has no exposure to US investors and no US footprint.

In October, Trump accused some signatories to the nuclear deal of profiteering from the accord. He later rowed back, saying he had told French President Emmanuel Macron and German Chancellor Angela Merkel they could “keep making money” in Iran.

French banks have been severely penalized by US financial authorities for their dealings with Iran before.

BNP Paribas received a $9-billion fine in 2014 for violating US financial sanctions-even though it was imposed before the nuclear agreement was reached.

European aerospace giant Airbus has complained about the banks’ wariness, which has cast a shadow over deals linked to rival Boeing.

Dufourcq said French export credits could be offered as soon as May or June.

Bpifrance’s total export credits jumped to €186 million ($231 million) in 2017 from €30 million a year earlier. It plans to more than double the amount to €400 million in 2018.

  An EU Frontrunner in Resuming Iran Business

Following the conclusion of the Joint Comprehensive Plan of Action–the formal name of the nuclear deal Iran signed with world powers in July 2015 and implemented in January 2016, France has arguably been the most proactive countries in the European Union to resume business ties with Iran.

Soon after the nuclear deal, Iran’s President Hassan Rouhani went to Paris. Afterwards, two foreign ministers, Laurent Fabius and Jean-Marc Ayrault, as well as ministers of economy, transport, foreign trade, agriculture and higher education, traveled to Tehran.

The biggest contract was signed by the oil giant Total: a more than 50% stake in an investment of about $4.8 billion for the development of an offshore gas field in the Persian Gulf.

The French company has agreed to collaborate with China National Petroleum Corp and Iran’s state-owned firm Petropars to produce 2 billion cubic feet, or 56 million cubic meters per day of natural gas from Phase 11 of the gas field, which is shared by Iran and Qatar.

Though Total Chief Executive Officer Patrick Pouyanne has said the company could abandon the gas deal if new US restrictions prevent it from doing business with Tehran, Iran’s Oil Minister Bijan Namdar Zanganeh recently said in a statement: “The gas deal with Total is moving ahead with no delay and all the subcontracts, except those related to drilling, are taking place.”

Other important contracts have also been signed or are under negotiation: The sale of more than 100 Airbus aircraft, ongoing negotiations for the sale of about 40 medium-haul aircraft, PSA (Peugeot-Citroen) contracts with top Iranian automakers Iran Khodro and SAIPA, that of Alstom with Iranian companies IDRO and IRICO, as well as Renault Group’s joint-venture deal with Iranian carmakers on August 7, are among many other joint venture contracts in various fields.

  2nd Biggest European Trade Partner

The latest Eurostat figures shared with Financial Tribune show France exported more than €1.29 billion worth of commodities to Iran during the 11 months to Nov. 30, 2017, indicating a 118% upsurge compared with the corresponding period of last year.

Exports of Iran to France during the same period amounted to close to €2.16 billion, showing an 80% hike year-on-year.

Iran-France trade stood at over €3.45 billion, registering a 93% rise YOY. This made France Iran’s second biggest trade partner from among the 28 member states of the European Union over the 11-month period after Italy.

Meanwhile, Iran’s trade with the entire EU region during the 11 months stood at close to €18.56 billion, registering a 57% YOY increase.

Iran exported more than €9.22 billion worth of commodities to the EU over the period, showing a 100% rise YOY and imported €9.33 billion in return, indicating a 30% rise YOY.

French business group MEDEF and its local structure CFAT (French Business Center of Tehran) organized a business delegation to Tehran and Isfahan in September.

The delegation led by Yves-Thibault de Silguy, vice chairman and senior lead director of Vinci and chairman of the French-Iranian Business Council, comprised representatives of about 50 companies active in the fields of infrastructure, transportation, energy and environment. It was also accompanied by Jean-Baptiste Lemoyne, secretary of state to the minister for Europe and foreign affairs.

The mission’s aim, according to Medef, was “to meet with the recently appointed Iranian authorities and discuss the priorities of the new government”.

It was the second French delegation to visit Iran in 2017, the fifth since the first election of President Hassan Rouhani in August 2013 and the first major European delegation since the Iranian presidential elections of May 2017.

French shipping giant CMA CGM announced the resumption of CIMEX 9 service from China to Iran last month.

With CIMEX 9, CMA CGM now provides a third direct service between Asia and Iran on top of CIMEX 6 and CIMEX 8, Transportyweekly.com reported.

It also covers northeast Asia, loading at Taiwan, central and south China to Iran, which provides fast connections to Chabahar in transshipment via Bandar Abbas connecting CMA CGM’s Indiagulf service.

CIMEX 9 rotates through Kaohsiung, Shanghai, Ningbo, Xiamen, Shenzhen-Da Chan Bay, Bandar Abbas and Jebel Ali. The service in Kaohsiung and Shanghai-WGQ with Shanghai to Bandar Abbas transits in 19 days while the run from Ningbo to Bandar Abbas takes 17 days.

Moreover, French company Alstom entered a joint venture with Iran to manufacture 1,000 subway wagons in three years after it signed a trilateral “shareholders agreement” with the Industrial Development and Renovation Organization of Iran and Iranian Rail Industries Development Company in Tehran back in July 2017 to manufacture the wagons in IRICO facilities.

An IDRO source told Financial Tribune that about €1.3 billion will be invested in the joint venture whose main shareholder is Alstom with 60%, while each one of the Iranian companies will own a 20% stake.