Tehran Tug o' War Iran Remains Unimpressed by Sanctions

The trade restrictions against Iran have disappointed the Israelis, angered the German business community and made the Iranians even more defiant. The government in Berlin is now preparing to encourage President-elect Barack Obama to impose a fresh round of sanctions against Tehran.

By and

Martin Herrenknecht is difficult to stop. In only 30 years, he has turned a small engineering firm in southwestern Germany into the world market leader in tunnel construction. His enormous drilling machines have driven pipes into the ground for subways in Hamburg, car tunnels in Shanghai and water pipelines in California. His drill heads are currently carving what will be the world's longest railroad tunnel into the rock beneath the Saint Gotthard mountain group in the Swiss Alps.

Iranian President Mahmoud Ahmadinejad is pushing ahead with Tehran's nuclear program.

Iranian President Mahmoud Ahmadinejad is pushing ahead with Tehran's nuclear program.

But there is one place where Herrenknecht is making no headway at all -- Iran. Two lucrative contracts are in play there: the drilling of tunnel tubes for the Tehran subway and for a water pipeline in the countryside. Together, the projects are worth a sum totaling in the upper double-digit millions, says Herrenknecht. And about 200 jobs.

He has spent the last six months waiting for approval of his export applications by Germany's Federal Office of Economics and Export Control (BAFA) in Eschborn, outside Frankfurt. "It's difficult," he says. "You don't even get an answer."

Before submitting his application, Herrenknecht, a 66-year-old member of the conservative Christian Democratic Union (CDU), contacted the office of German Chancellor Angela Merkel to determine whether the shipment of his "full face boring machine," a device used in drilling tunnels, could be politically sensitive. He was told that it was not. He has heard nothing more since then. "A subway is clearly not for military purposes," says Herrenknecht, sounding baffled.

Indeed, nothing is clear in the dispute over the Tehran tunnel. Because Iran is pushing ahead with its nuclear program and refuses to abandon its uranium enrichment activities, the United Nations imposed targeted sanctions against the regime that are intended to prevent the military use of nuclear technology. The European Union then issued directives that list in detail which contacts with Iran are prohibited.

Tunnel drilling equipment is not on the lists. Nevertheless, Herrenknecht's business venture is piquant. A contract coming from Tehran worth a sum in the double-digit millions would quickly send the message that the Germans are not pursuing sanctions against Iran with the necessary seriousness. In addition, it is hard to rule out the possibility that underground structures could be used for military purposes. For these reasons, Herrenknecht's export applications have been put on ice.

The Iran sanctions have placed Germany in a delicate position. The limited punitive measures did not achieve their goal of convincing Iran to give up its controversial nuclear program. In fact, they are even doing harm, the director-general of the International Atomic Energy Agency (IAEA), Mohamed ElBaradei, said last week. "Many Iranians who even dislike the regime (are) gathering around the regime because they feel that country is under siege," ElBaradei said.

German Chancellor Angela Merkel during an appearance before the Israeli parliament, the Knesset: "Israel's security will never be open to negotiation."
Getty Images

German Chancellor Angela Merkel during an appearance before the Israeli parliament, the Knesset: "Israel's security will never be open to negotiation."

Germany's closest allies are criticizing the government in Berlin for not having imposed a total embargo on a country that questions Israel's right to exist. Meanwhile, German businessmen like Herrenknecht complain that the expansion of sanctions harms their business interests.

On the issue of Iran, no country is as much in the spotlight as Germany. It has strong economic ties to Iran, but it is also especially uncompromising in its support of Israel's right to exist -- which is being threatened by Iran. In a speech to the Israeli parliament, the Knesset, in March, German Chancellor Angela Merkel said: "For me, as Germany's chancellor, Israel's security will never be open to negotiation." With reference to Iran's nuclear program, she added that this obligation is especially important "at this critical point."

Since then, the Israelis have been asking themselves how much longer the chancellor intends to postpone that critical point. Yoram Ben-Zeev, the Israeli ambassador to Germany, was thoroughly undiplomatic last week when he made it clear to the public that his government is outraged. "Germany is doing something to isolate Iran, but apparently it is not doing enough." The usefulness of Germany's sanction efforts is "doubtful," the Israeli newspaper Haaretz quoted the ambassador as saying. "There are things that are not legitimate, period."

German trade with Iran

German trade with Iran

Germany will remain vulnerable to criticism for as long as exports to Iran continue at full steam ahead. Unlike Martin Herrenknecht's drilling equipment, the vast majority of export applications are not impeded and are approved by BAFA. Close to 2,600 export applications have been approved to date in 2008, while only 90 have been rejected. In the first three quarters of the year, German trade with Iran grew by about 10 percent over the same period in 2007, to €2.8 billion ($3.7 billion). "We see the numbers, and the numbers are rising," says Ben-Zeev.

The Israeli ambassador is not alone in his criticism. The Wall Street Journal has launched a small series entitled "Germany loves Iran," which sharply criticizes German business relations with the mullah-controlled country. Germany's greatest concern, the paper writes, is "not over an Islamic bomb, but over the risk of tougher UN sanctions."

Berlin has been trying for some time to shed the reputation of being a boycotter of sanctions. One step taken by the government was to dramatically reduce the Hermes export credit guarantees for business with Iran. Chancellor Merkel has had her staff calculate that the sum of new guarantees declined by 90 percent between 2004 and 2008. In 2004, Iran, the recipient of €2.3 billion ($3.1 billion) in German exports, was in second place on the Hermes list. Today the country is roughly in 25th place.

The German government is also inspecting exports more thoroughly now. Even the Bundesnachrichtendienst (BND), Germany's foreign intelligence agency, is becoming more involved in vetting recipients of German goods in Iran. The government wants to avoid scenarios in which, for example, a harmless truck engine could be used in a truck operated by the Revolutionary Guard.


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