Following the announcement of US ‘snap-back sanctions’ on Iran, the European Union quickly pledged to mitigate the economic shortfall from frozen deals with Boeing, Airbus, Total and the like. Part of said mitigation is talk of euro-denominated Iranian oil sales to the Union. Other countries have already expressed interest in such a trade agreement, namely India. Given the potential implications of this move, I think this is a good time to talk realpolitik.

The Nixon Shock of the early 70s, caused by a move away from the gold standard, was relieved only by the introduction of a new, black-gold standard, otherwise known as the Petrodollar. Following an OPEC consortium agreement in 1973, the US Dollar became the de facto medium of exchange in the oil industry. For the past fifty years, it has been the status quo that the sale of oil is, almost exclusively, conducted in USD, whether it directly involves the United States or not. In so doing, there is a dependency on the US dollar the world over, for micro and macro actors alike. Whether it is the energy used to power your television or, ironically, the Russian SU-57 stealth fighter striking US-backed targets in Syria, it is reliant on the US dollar. This lends a great amount of power to the Federal Reserve, US financial institutions and, most importantly, the US government. There is leverage and influence to be gained from this relationship, in that the USD dictates a country’s ability to buy energy that is essential for every sector in it’s economy to function. For as long as this status quo is maintained, it fuels the United States economy and gives Washington the ability to exercise policy influence abroad to considerable effect.

Whilst it was argued at the time that the conflicts of Iraq and Libya, to mention a few contemporary examples, were absolutely not driven by economic interests, with the benefit of hindsight it now appears to be the most pragmatic and rational explanation. Moves to euro – and gold – denominated oil sales respectively posed to undermine the dollar-denominated hegemony and in so doing, the US position of power in the international system. Power is a relative concept, the possession of it is facilitated by others’ lack thereof. For as long as there is reliance on a currency, power is instilled in the house that prints it.

This balance of power is what makes this recent development from the JCPOA so interesting. Granted, the euro-denomination is in talks behind closed-doors and is likely to experience vehement opposition from the US, however, it does hold the potential to devalue the USD and significantly disrupt the imposed status-quo. This suggestion is served credence by neighbouring Iraq’s newly elected Sairoun government. The new leader, Muqtada al-Sadr, is suggesting a willingness to prioritise relations with China, Iran, and Russia. It cannot be ruled out that this prioritisation could take the form of following Iran in trade-deals negotiated using euro, ruble or yuan denominations, something international partners are inevitably aware of.

This development will tell us a lot about the future of the JCPOA and the international balance of power more generally. Firstly, this will demonstrate how serious the EU is about upholding the JCPOA. Along with Euro-denominated credit lines and sanctions waivers to the likes of Airbus, this is integral if Iran is to see any economic benefit of this deal. If there is no effective sanctions-relief to Iran, Tehran can, rationally, question why they should continue to uphold their part of the agreement. Furthermore, should it materialise, it will demonstrate a tangible fissure in EU-US relations beyond the mere policy disagreement we see now and be indicative of waning US power in the international system.