Germany, Inc. Heads to Tehran

Sanctions relief has corporations in Berlin salivating at the chance to make money in the Islamic Republic.

As the world's most powerful countries loosen the sanctions regime on Iran, European companies are looking to turn a profit from the international détente. Information uncovered by Foreign Policy shows that over 100 German companies are currently doing business in Iran -- and their European rivals are scrambling to catch up. As these corporations flood into Iran, their new investments could inject as much as $20 billion into the Iranian economy.

This has been one of the effects of the interim deal between Iran and the P5+1 countries (the U.N. Security Council's five permanent members plus Germany), which was signed in Geneva in November. In return for a freeze of some aspects of the Islamic Republic's nuclear program, the world powers suspended sanctions related to Iran's petrochemical exports, imports for its automotive sector, and its trade in precious metals. Core E.U. sanctions blocking imports of Iranian gas and oil remain in place, and restrictions on Iranian banks have not been completely suspended. But even though these restrictions are still in place -- and are nearly as stringent as U.S. sanctions -- the deal has nevertheless raised the possibility of a conflict-ending agreement that would remove all restrictions on doing business in Iran. As a result, many European companies are rushing to get in on the ground floor.

The White House has claimed that sanctions relief is only worth $7 billion, and U.S. officials have attempted to dissuade companies from beating a path to Iran's door. "Our message to all of these companies is the same: Iran is not open for business," Treasury Undersecretary David Cohen said recently. "Now is not the time to re-engage with Iran. That day may come, but it's not today."

European businesses, however, aren't listening -- and Germany, Iran's most important trade partner within the European Union, is taking the lead. German businesses never really left Iran: Even after the E.U. imposed sweeping oil and gas sanctions on Iran, Germany exported goods valued at $3.4 billion there in 2012, and exports totaled $1.8 billion in between January and September 2013.

These "made in Germany" goods are not Birkenstock sandals and gummy bears, but engineering equipment critical to Iran's infrastructure. A confidential booklet published by the Tehran-based German-Iranian Chamber of Industry and Commerce in late 2012, and obtained by Foreign Policy, lists 136 German companies active in the Islamic Republic. The chamber's work is designed to assist companies' entry into the Iranian market "with advice and practical support," according to the booklet. The large number of businesses it lists highlights the vital role German enterprise continues to play in Iran, even after the imposition of sweeping sanctions in 2010.

Daniel Bernbeck, director of the German-Iranian Chamber of Industry and Commerce, has long been an energetic cheerleader of boosting business with the Islamic Republic. He sparked controversy in the wake of the allegedly doctored 2009 Iranian presidential election, saying that he saw "no moral question here at all" in conducting business during the period of authoritarian repression.

German businesses have supplied the Islamic Republic with the sort of specialized equipment needed for large industrial projects. For example, BOMAFA, a company headquartered in the gritty industrial city of Bochum, delivers high-tech valves to conventional areas of the Iranian economy, according to a spokesman. GEMÜ, an engineering company specializing in valves and measurement systems, was also cited on the German-Iranian Chamber of Industry and Commerce's trade list. A spokeswoman, Eva Zink, told me that the company refuses to provide any information about its work in Iran.

Other German businesses have helped Iran with massive urban infrastructure projects that the Islamic Republic may have lacked the capacity to handle on its own. Herrenknecht, a tunnel-boring machine supplier, has worked in Iran on the construction of metro lines, as well as on sewage and water projects. According to a company spokeswoman, Herrenknecht's sales in Iran totaled roughly $680,000 in 2013.

German officials have tried to cool some of the corporate enthusiasm about doing business in Iran, but have had no more success than their colleagues in Washington. Chancellor Angela Merkel implemented a nonbinding "discouragement" policy meant to curtail high-visibility German-Iranian trade events and commercial deals with Iran. However, it has had little effect: Promoting business with Iran is now respectable in the Federal Republic.

Some politicians have even attempted to play matchmaker between German businesses and Tehran -- and in the process, have gotten themselves entangled with some unsavory characters. In late January, Berlin's former mayor, Walter Momper, moderated an event at the Iranian Embassy under the sponsorship of "Berlin Business Talks," which focused on developing business contacts on an informal level. Iranian state media later reported that Momper called for the complete lifting of sanctions on Iran.

In holding the event at the Iranian Embassy, however, Momper and German businessmen were rubbing elbows with an Iranian diplomat with a checkered past. Iran's ambassador to Germany, Ali Reza Sheikh Attar, was appointed by former President Mahmoud Ahmadinejad and has been sharply criticized by Iranian dissidents for his unconditional loyalty to the hard-line politician. Iranian Kurdish groups have also accused him of responsibility for the massacre of Kurds during his tenure as governor of Kurdistan and West Azerbaijan provinces.

German companies aren't alone within the E.U. in rushing to do business with Iran. Even the Netherlands, a rare European country that has spoken out vocally against Tehran's human rights abuses, is getting in on the game. In 2011, the Netherlands withdrew its ambassador after Iran hanged Zahra Bahrami, an Iranian-Dutch woman involved in the Green Movement protests. The Dutch foreign minister, meanwhile, denounced the execution as a "shocking act by a barbaric regime."

By 2014, however, all that seemed to have been forgotten. The Dutch ambassador to Iran, Jos Douma, tweeted in mid-January that he participated in "speeddate sessions to meet business[es] interested in Iran." One topic of discussion was the export of spare parts to Iran's aviation and agriculture industries. While Douma explained that sanctions were still in place, he wrote that old business hands were "cautiously optimistic" about opportunities there.

Iran's energy industry, while still under tight sanctions, represents a potential gold mine for European countries. And companies are already exploring how they might enter this sector: Royal Dutch Shell, Italy's Eni oil and gas company, and the giant Austrian oil and gas company OMV met with Iran's oil minister in Vienna in December to discuss potential future investments in developing Iran's oil fields.

That same month, Vienna sent a delegation from the Austrian Federal Economic Chamber (WKÖ), which represents the interests of Austrian businesses, to Iran. The WKÖ meeting appears to be Austria's first large-scale contact with the Islamic Republic in a number of years. And Vienna seems determined to get its share of Iranian business: According to the Austrian daily Kurier, Richard Schenz, a vice president of WKÖ, announced in January, "There is no reason to adhere to U.S. laws" regarding trade with Iran.

France is also strengthening its economic relationship with Iran. The Wall Street Journal confirmed that representatives of some of the largest companies in Paris will travel to Iran in early February to discuss possible new business ties. The companies that are sending representatives include GDF Suez, an electric utility company; Alstom, a power generation and transport company; Safran, an aerospace and defense firm; French automakers PSA Peugeot Citroën and Renault; and BNP Paribas, a financial services company.

Considerable obstacles still remain for European businesses hoping to make a buck in Iran. In addition to the sanctions still in place on Iran, the current window of opportunity could slam shut in six short months -- when the interim agreement signed in Geneva expires -- if there is no comprehensive deal over Iran's nuclear program. But European companies' willingness to invest considerable time and resources in Iran, despite the risk, is a sign of their intense interest in turning the current rapprochement into a permanent reality.

Iranian officials, meanwhile, are crowing about finding a partner that provides them with a path to overcome their economic underdevelopment, and political isolation.

"Right now many European companies have contacted Iranian firms and expressed their willingness for the expansion of mutual cooperation," Iranian First Vice President Eshaq Jahangiri said recently. "Iran is in a situation in the region and on the international arena that obstacles to its development should be removed."

Photo: Miguel Villagran/Getty Images


Palestine's Peace Bomb

What will happen when one million refugees have the right to return -- to the West Bank?

One of the key arguments of Israel's "peace camp" is that, without a two-state solution, the state faces a "demographic time-bomb." The contention is that perpetuating Israeli control over the growing Arab population of the West Bank will dilute Israel's Jewish majority, until it is a de facto bi-national state. Therefore, proponents of this line of thinking argue, Secretary of State John Kerry's push for a two-state solution is imperative if Israel hopes to remain both Jewish and democratic.

Some Israeli policymakers have bought into the threat of a ticking demographic time bomb. In 2007, Prime Minister Ehud Olmert warned the Knesset of "a demographic battle" if a Palestinian state is not created. Similarly, the current government's chief peace negotiator, Tzipi Livni, argued that "time works to our disadvantage" because of "demographic numbers...[and] a higher Palestinian birth rate that could mean the end of a Jewish majority."

But Israelis on the right see a different demographic time bomb -- one that Kerry's plan will produce, rather than prevent. By opening the West Bank to a flood of refugees from the neighboring Arab countries, Kerry's plan could throw the Palestinian territories into chaos and sow the seeds for the rise of further extremism and terrorism on Israel's borders.

"Imagine an independent Palestinian state that does not need to ask our consent to absorb Palestinian refugees," Foreign Minister Avigdor Liberman said on Jan. 5. "Will the economy in Judea and Samaria, which is not the economy of Norway or Switzerland, be able to absorb 3 million additional Palestinians?...Where will they live?...Where will they work?"

The Palestinian Authority (P.A.), which was created following the Oslo Accords to be the core of a future Palestinian state, already faces enormous problems serving the current population of the West Bank. Since the P.A.'s establishment in 1994, according to the International Monetary Fund, there has been an 11-point rise in unemployment, to 23 percent in 2012. The unemployment rate in the Hamas-run Gaza Strip is even higher, according to U.N. statistics -- over 45 percent, among the highest in the world. The World Bank, meanwhile, noted that the P.A. is "facing a grim fiscal situation," with ballooning budget deficits and shrinking foreign support.

Moreover, the refugees who are most likely to resettle in the West Bank and Gaza (or be forced to do so by Arab governments) are not the established families in Jordan who have citizenship and employable skills. The ones who are most likely to come are the legions who are kept wretched in Syria and Lebanon -- the ones who Arab governments have deliberately left unemployed and stateless for decades, the ones who are economically desperate and politically extreme. Palestinian President Mahmoud Abbas has acknowledged this, telling his advisors that while refugees in Jordan may prefer to stay where they are, "for refugees in Lebanon there is a need" to relocate.

Worst of all, from Israel's perspective, the refugees most likely to come are the ones who have decades of membership and training in the competing terrorist organizations that proliferate in the Palestinian camps in Syria and Lebanon. According to the State Department, at least nine designated terrorist organizations operate out of Lebanon's 12 refugee camps: Hamas, the Popular Front for the Liberation of Palestine, the Popular Front for the Liberation of Palestine General Command, Asbat al-Ansar, Fatah al-Islam, Fatah al-Intifada, Jund al-Sham, the Ziyad al-Jarrah Battalions, and Palestinian Islamic Jihad.

For example, Ain al-Helwe, Lebanon's largest camp and what some writers have called "the capital of the Palestinian diaspora," is home to 17 different armed political factions. The State Department says the camp is the "primary base of operations" of, among others, Asbat al-Ansar, "[a] Sunni extremist group composed primarily of Palestinians with links to al-Qa'ida." Asbat al-Ansar has "assassinated Lebanese religious leaders and bombed nightclubs, theaters, and liquor stores," and one of its members plotted to assassinate then-U.S. Ambassador to Lebanon David Satterfield in 2000. Hamas also has a growing presence in the camps, where it spreads its ideology of struggle unto death with Israel.

If refugees raised in this environment are brought to the West Bank, will they consider it their final home, or see it as merely a step on the road toward their final struggle with Israel? Palestinian leaders from across the political spectrum have refused to completely reject the possibility of a right of return to Israel proper: Hamas Prime Minister Ismail Haniyeh said in November that "it is not possible for any person, regardless of who he is ... to give up on Palestinian land or to give up the right of return to our homes," while even Abbas said in January that "neither the P.A., nor the state, nor the PLO, nor Abu Mazen [Abbas], nor any Palestinian or Arab leader has the right to deprive someone from his right to return."

Hamas won the last Palestinian Authority election in 2006, earning 76 of the 132 parliamentary seats. If the P.A. voter lists are doubled before the next election by bringing in a million new citizens from Lebanon and Syria, many of whom are steeped in fanatic ideologies, the results could be even less favorable to Abbas's more moderate Fatah Party.

Abbas may understand that immigration of refugees from Lebanon and Syria will strengthen his opponents. But no Palestinian leader could oppose citizenship for any of the dispossessed, because that would violate cardinal principles of Palestinian ideology and the interests of the Arab states. Any effort to deny entry to a class of refugees would confront a daunting array of U.N. and Arab League resolutions and fierce opposition from all factions on the Palestinian spectrum. It would also violate one of the precepts of the Kerry initiative -- that a comprehensive peace agreement must address the problem of the refugees in the Palestinian diaspora.

But bringing hundreds of thousands of Palestinians into the tiny area of the West Bank, which lies a few miles from the heartland of the Jewish state, alarms many Israelis almost as much as bringing them to Tel Aviv. If the new Palestinian state in the West Bank descends into the anarchy and factional warfare that exists today in Syria and in camps like Ain al-Helwe, how can this bring peace to Israel? If Jerusalem becomes the capital of both states and a city undivided by walls, how will the swarms of jihadists that the agreement will import to the West Bank be stopped from bringing violence to Israeli towns and villages?

President Barack Obama said in June 2011 that a "lasting peace will involve two states for two peoples: Israel as a Jewish state and the homeland for the Jewish people, and the state of Palestine as the homeland for the Palestinian people."

Now, John Kerry faces the tall task of implementing this well-intentioned principle without planting a Palestinian time bomb in the West Bank.