How Europe Can Help Iran Fight COVID-19

This analysis was originally published by the European Council on Foreign Relations.

Iran became an early epicentre of the COVID-19 outbreak due to its close political and economic relations with China. Yet the Iranian healthcare sector overwhelmingly depends on European medicine and medical devices—products that China has been unable to replace. While the European Union and its member states must prioritize their own fight against the virus, they should also protect this important humanitarian connection with Iran.

The Iranian healthcare system is reliant on long-standing relations with European suppliers to see it through the crisis. If there is a grave breakdown in either this supply chain or Iran’s healthcare sector, it will spell trouble for Europe. Given that Iran continues to be the epicenter of the pandemic in a fragile Middle East, the coronavirus is likely to lead to increased refugee flows (particularly among Afghan communities) to Europe. Despite their conflicting opinions on the leadership in Tehran, Europe’s Iranian diaspora community – who, until recently, often travelled to Iran – broadly agree on the need for enhanced humanitarian assistance to Iran, which could save hundreds of thousands of people.

Following two years of recession linked to systematic mismanagement, falling oil prices, and the unique pressure created by US sanctions, Iran’s government is facing extreme trade-offs between the optimal public healthcare response and the need to prevent a full-blown economic crisis. These sanctions hamper Iran’s immediate response to COVID-19.. Despite their humanitarian exemptions, the measures make the import of medicine and medical equipment – as well as the raw materials needed to produce many of these goods in Iran – both slower and more expensive. This erodes the capacity of the Iranian healthcare system to replenish its inventories as Iran’s outbreak moves into its third month. Moreover, the Iranian government cannot afford the type of economic stimulus packages that governments across the globe have implemented to reduce the impact of lockdowns.

While the US has made general offers to send aid to Iran, leaders in Tehran will perceivethem as disingenuous for so long as the sanctions are in place. Given the sharp downturn in US-Iranian relations under the Trump administration, it is unrealistic to think that either the United States will provide full sanctions relief or that Iran will accept aid from a country it believes to be pursuing regime change in Tehran. Although the more hard-line elements within the Iranian system are suspicious of European assistance (as recently reflected in Iran’s sudden rejection of aid from Médecins Sans Frontières), there is some breathing room for the country to cooperate with Europe on this front.

Building on recent announcements by the EU, France, the United Kingdom, and Germany, European governments should continue to provide financial assistance and other aid to Iran’s public healthcare system and trusted NGO partners working in the country. European companies can also boost humanitarian trade via the Instrument in Support of Trade Exchanges (INSTEX) – which has now processed its first transaction, targeting Iran’s core public healthcare needs in the fight against COVID-19..

The European Commission has implemented export controls on key items in the fight against COVID-19, to minimize shortages in Europe. This move puts Iran and other low-income and developing countries at even greater risk, given their significant reliance on European exports. Rather than cut these supply chains, which forces Iran to turn to China and Russia, the EU should explore whether Iran could ramp up its production of basic medical equipment, such as surgical masks, to help meet demand in Europe. This would allow European manufacturers to focus on the production of more advanced items, such as face shields – the surplus of which it could/ sell to Iran.

Most importantly, European governments and the EU should press the US to strengthen the humanitarian exemptions in its sanctions. European leaders should urge the US Treasury to expand and clarify the scope of these exemptions to directly include products Iran needs to combat COVID-19 effectively. Such clarification, which could take the form of a “white list” of goods, should allow European companies to apply General License No. 8, under which the Central Bank of Iran can help facilitate humanitarian trade.

Given the unprecedented humanitarian fallout from the COVID-19 crisis, European governments should also urge the US administration to issue comfort letters to European banks that already conduct enhanced due diligence on trade with Iran. This would help reassure these banks that the US Office of Foreign Assets Control will not penalise them for providing payment channels to exporters of humanitarian goods. The Trump administration recently took the unprecedented step of issuing such a letter to Swiss bank BCP under the Swiss Humanitarian Trade Arrangement. As former US official Richard Newphew has argues, the US could provide similar letters to manufacturers and transport firms, helping reassure companies across the entire medical supply chain that they can facilitate sales to Iran.

While the International Monetary Fund reviews Iran’s $5 billion loan request, European governments should press the Trump administration to temporarily allow Tehran to access Iranian foreign currency reserves. In this, the administration could restore the escrow system that enabled Iran to use its accrued oil revenues to purchase humanitarian goods prior to May 2019. These funds (including those in Europe) could be subject to existing enhanced due diligence requirements and spent within the countries in which they are currently located. The funds in Europe could also be linked to INSTEX.

Such US measure could be connected to humanitarian steps by Iran, not least the release of American detainees. In particular, France and the UK – some of whose nationals Tehran has released from prison (either permanently or temporarily) in recent weeks – should stand ready to support these efforts. Europeans actors should emphasize that targeted relief need not change the substance of the Trump administration’s policy on Iran or reduce its leverage in potential negotiations with the country. Should Europe and the US fail to provide relief to Iran in such grave circumstances, this would turn the Iranian public against them for generations. And it would give ammunition to those in Iran who favor confrontation with the West.

Photo: IRNA

New European Limits on Medical Gear Exports Put Iranians at Risk

As the world grapples with shortages of the medical equipment needed to fight the COVID-19 pandemic, the European Commission has announced a new regulation that will establish export controls for Personal Protective Equipment (PPE), a category of goods that includes the face shields, gloves, masks, and other protective gear that help medical professionals limit their exposure to bacteria and viruses. The regulation will limit the sale of these PPE items to countries outside the European Union (EU)—exports of these items were valued at USD 12 billion last year. 

Analysis by Chad Bown of the Peterson Institute for International Economics makes clear how the European Commission’s move could have significant consequences for non-European countries that largely supply their healthcare systems with protective equipment made by European firms. Bown argues that the new policy could prove “self-defeating,” both because it may serve to “disrupt supply chains” and also because the new act could “block EU exports of vital equipment to the world’s poorest victims of the pandemic.”

The European Union is home to many of the world’s largest producers of medicine and medical equipment. With the support of their governments, these firms have encouraged “developing countries to open up their markets to imports, facilitating a system in which these countries have come to rely on EU suppliers for their essential medical equipment.” Iran is one such country. 

When looking at EU exports to Iran of the PPE items specifically covered under the new regulation, two things become clear. First, Iran was importing significantly more of these goods prior to the Trump administration’s reimposition of secondary sanctions beginning in May 2018. Total exports to Iran fell from EUR 39 million to just EUR 13 million last year, suggesting that Iran’s healthcare system was already grappling with limited inventories of face shields, gloves, and other protective equipment even before the COVID-19 outbreak. 

Second, despite the fall in trade, it is clear that EU is a significant supplier of PPE items to the Iranian healthcare system—a fact that leaves Iranian doctors and nurses vulnerable as the bloc begins to enforce the newly announced export controls. This vulnerability is made more clear when looking to EU exports in proportion to exports from Iran’s other leading trade partner: China. In the category of face shields, which account for around half the total value of world PPE exports to Iran, 35 percent of exports were dispatched from the EU. 

This figure is lower than the proportion identified by Bown for many countries that trade with Europe, reflecting how sanctions have deterred European suppliers from the Iranian market over the last decade, enabling Chinese suppliers to expand market share. Nonetheless, the EU accounts for about one-fifth of all PPE exports in value terms, meaning that Iran’s healthcare system will be hit as the new export controls are implemented. Already struggling to procure goods through existing supply chains, Iranian importers—and the hospitals that depend on them—may find the supply chains cut altogether.

Moreover, the administrative burden of complying not only with the new export control regime but also with new sanctions regulations will put Iranian buyers at the back of the line for any sales that are to be licensed. European manufacturers of personal protective equipment will want to get whatever limited inventory available for sale to third party countries to the buyers who can make payment and take delivery in the shortest amount of time—Iranian importers are not those buyers.

The new regulation does indicate that some accommodations will be made for the provision of European aid. The regulation states, “exports of certain quantities of specific products may be authorized under specific circumstances such as to ensure assistance provided to third countries.” Iran has already received aid from France, Germany, and the United Kingdom as well as assistance provided by the EU itself. But the regulation has the effect of cutting long-standing commercial relationships between European manufacturers and importers in countries like Iran, and replacing them with a highly political procurement channel. It is not clear how European policymakers will prioritize who receives aid including PPE items—will it be the countries currently facing the most acute outbreaks, such as Iran, or will it be the countries where Europe sees the most favorable political and economic relations, such as Norway. 

In the face of such uncertainty, China has mobilized resources to increase aid shipments and commercial sales of medical equipment to countries around the world, including Iran. But Chinese suppliers cannot replace European suppliers in each and every country as the COVID-19 pandemic spreads. As Bown, concludes, “to ensure the hospital equipment to fight the pandemic arrives where and when it is needed the most, policymakers must coordinate and cooperate globally.” The European Union is the only global actor that could effectively marshall such an approach.

As a country with a large manufacturing base, Iran can be part of the solution. Iranian firms have already taken steps to increase production of face masks, disinfectants, hospital beds and other products and equipment for which there is growing global demand. Rather than seek to cut its supply chains with non-EU countries, European authorities could seek to increase imports of basic PPE items such as surgical masks or gowns from countries like Iran, leaving European firms to focus on ramping up production of more advanced equipment such as face shields, generating a surplus for export. In short, the same notions of comparative advantage that led to the creation of today’s complex supply chains should inform their retooling during the COVID-19 crisis. Abandoning economic interdependence will put everyone at greater risk.

Photo: IRNA