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  Germany Inc. in Tehran: Berlin Faces Hurdles in Push to Get Business Out of Iran

Germany Inc. in Tehran Berlin Faces Hurdles in Push to Get Business Out of Iran

Part 2: Many German Companies Are Playing it Safe

The new lack of political and legal clarity when it comes to doing business in Iran has led to a general feeling of ambiguity among German executives. What is allowed, what isn't allowed and what will soon be banned? Applications for export permits are piling up at Germany's Federal Office of Economics and Export Control (BAFA) in Eschborn, outside Frankfurt.

To play it safe, German companies are now even reporting harmless Iranian business deals. The number of permits issued by BAFA for products that can be exported without restrictions has jumped from 377 to 1,300 currently, while another 600 applications have been submitted to the agency but not yet processed.

"We're paying special attention to applications involving Iran, which of course increases the processing time," says a BAFA spokeswoman. To complicate matters, sensitive cases must first be cleared with the Federal Economics Ministry, the Foreign Ministry and, in some cases, the BND.

The lengthy processing times act as an indirect embargo. Wilfried Kroppen has been trying unsuccessfully for months to ship three tunnel-drilling machines to Iran for use in water projects. "The worst thing is that you don't get a clear answer," says Kroppen, the managing director of Wirth, a manufacturer of high-tech drilling equipment based in Erkelenz in northwest Germany. "This sort of uncertainty is very difficult for small to mid-sized businesses to handle financially, and it also jeopardizes jobs."

The German government-owned development bank, the Kreditanstalt für Wiederaufbau (KfW), has also drastically reduced its Iran business. "The KfW did not enter into any new business relationships in Iran in 2006 and 2007," says a spokesman, adding that the bank's only current dealings with Iran involve old export financing agreements worth about €350 million.

Major suppliers of industrial services such as MAN Ferrostaal have been especially hard-hit by the new policies. The company, based in the western German city of Essen, is currently involved in three major construction projects in Iran: a power plant and two facilities for the petroleum industry. "The banks' withdrawal from Iran makes it more difficult for MAN Ferrostaal to do business in this country," says a spokesman for the company. According to the spokesman, these difficulties apply to both new projects and the completion of current contracts. MAN is now using the services of the Iran-Europe Commercial Bank.

Other large German corporations are now demonstratively downplaying the scope of their involvement in Iran. For electronics conglomerate Siemens, "it only amounts to a few hundred million in sales," say officials at the company's Munich headquarters. A spokesman for steel giant ThyssenKrupp says that the company's annual shipments to Iran amount to "less than €100 million euros."

But what the spokesman fails to mention is that the Iranian government still holds a large packet of shares in ThyssenKrupp. The securities are held by the Iran Foreign Investment Company (IFIC), a holding company set up to invest the country's oil revenues around the world.

After the Americans intervened, Tehran was forced to give up its seat on the ThyssenKrupp supervisory board years ago and reduce its holding in the company. But, as the 2006 financial report of IFIC's Düsseldorf office reveals, the Iranians have far from divested their holdings in ThyssenKrupp.

For its current 4.5-percent share in the company, the Iranian state collected €18.5 million in dividends for this year alone. It uses some of its German stock earnings to finance loans to companies with business in Iran, including a German charter airline that received a $55 million loan in 2005.

Meanwhile, the reaction to pressure from Washington has been met with gallows humor in many Western capitals. A senior European diplomat in Berlin recently insisted that his government would strongly advocate the expansion of sanctions on Iran. But when asked whether he believed the sanctions would work, the diplomat sighed and said: "Well, I wouldn't exactly bet my salary on it."

During an earlier visit to the White House, the chancellor was more strongly opposed to such far-reaching sanctions. To reinforce her argument, she told Bush about her experiences in the former East Germany. Everyone was in favor of sanctions against the bigwigs at the SED, East Germany's ruling communist party, said Merkel. But when the sanctions affected ordinary citizens and oranges started disappearing from store shelves, it became clear that the effort was not having its desired effect. Bush's insightful response to Merkel's story? "Really, you got no oranges?"

BEAT BALZLI, KONSTANTIN VON HAMMERSTEIN, CHRISTIAN REIERMANN, WOLFGANG REUTER

Translated from the German by Christopher Sultan