Give Angela Merkel credit. For all her rhetoric to the contrary, Germany's Chancellor has not always been an ardent supporter of international pressure on Iran. In fact, over the past half-decade, her government has perpetuated Germany's historic Janus-faced policy toward the Islamic Republic, supporting UN and European sanctions against Iran's ayatollahs while simultaneously nurturing a thriving economic partnership with them. Of late, however, Merkel and her administration seem to have had a change of heart. In recent days, Germany has signaled its willingness to sign on to a European Union effort to sanction the European-Iranian Trade Bank, or EIH. (A formal designation by the EU is expected on Monday).
The move is deeply significant. The Iranian-controlled, Hamburg-based bank is widely known to be a key financial conduit for the Islamic Republic, facilitating billions of dollars in trade between Iran and Europe—and contributing substantially to Iran's nuclear and ballistic missile programs in the process. According to U.S. and international intelligence assessments, EIH serves as a pass-through for arms deals involving Iran's acquisition of WMD-related components; as a financial lifeline for Iran's feared clerical army, the Iranian Revolutionary Guard Corps; and as an economic conduit which has facilitated the transfer of millions of dollars in ballistic missile technology to the Islamic Republic in recent years. This role led the U.S. Treasury Department to formally blacklist EIH in September of 2010.
Until recently, however, Germany has been reluctant to follow America's lead. For years, the Merkel government has dragged its feet on similarly proscribing EIH, citing its potential financial liability to investors that could be disadvantaged if the bank were shuttered. It has also nixed proposals to do so put forth by other nations; as recently as February, Berlin reportedly blocked a French bid to designate EIH as a potential target for future EU sanctions.
The hesitance is understandable. The partnership that has developed between Berlin and Tehran over the past three decades isn't just politically expedient, it's highly lucrative. Germany represents Iran's top trade partner in the European Union. And, according to official data from the German Federal Statistics Office, bilateral trade between Berlin and Tehran last year actually rose by some five percent (to just over $4.17 billion), despite multilateral efforts to economically isolate the Islamic Republic. German firms have gotten the message; although some (like Siemens) have at least pledged to curtail their trade with Iran, a great many—including ThyussenKrupp and Daimler—still do a booming business with, and within, the Islamic Republic.
Germany is helping Iran in other ways as well. By some estimates, the country provides as much as 60 percent of the critical technology used by Iran to exploit its massive natural gas reserves. With U.S. sanctions now beginning to squeeze Iran's oil industry, such assistance is nothing short of a lifeline for Iran's beleaguered energy economy. It also puts Berlin very much on the wrong side of the widening international effort to derail Iran's march toward the bomb.
Perhaps this realization has contributed to the Merkel government's more critical stance. But timing likely plays a large role as well. Germany's hardening of policy against EIH comes amid new movement within the European Union for sanctions aimed both at Iran's atomic endeavor and its repressive domestic conduct. And it precedes Merkel's early-June visit to Washington, where the global drive to frustrate Iran's nuclear ambitions is sure to take center stage in her discussions with White House officials.
Still, the German-Iranian alliance is liable to prove resilient. The economic bonds between Berlin and Tehran run deep, and there is bound to be no shortage of German companies agitating for a return to "business as usual" in bilateral trade with the Islamic Republic in the months ahead. Indeed, Germany's recent (and distinctly unhelpful) role in temporarily helping India circumvent international restrictions on oil trade with Iran suggests that its status as an enabler of the Iranian regime is far from a thing from the past.
Nevertheless, Germany's support of sanctions against EIH should be seen for what it is: a significant evolution in Berlin's Iran policy, and a major step forward for international efforts to cut off a critical conduit for Iran's burgeoning strategic arsenal. When she comes to Washington, American policymakers should commend Chancellor Merkel for facilitating both. But they also should make clear that they expect these changes to be more than simply temporary.