Germany Picks Up the Slack on Iran

By Stratfor

U.S. PRESIDENT BARACK OBAMA presented the nation with his first ever State of the Union address on Wednesday. The speech focused almost entirely on domestic affairs, revealing the world's sole superpower to be wholly engrossed in domestic politics and economic concerns. Barely one out of the approximately 16 and a half pages of the address looked beyond U.S. shores. There were no profound challenges to U.S. rivals as we have seen in previous speeches.

Geopolitically speaking, a global hegemon preoccupied with domestic concerns is significant in and of itself. Simply put, it means that its challengers can take note of the acrimonious political debates on the home front and hope to catch America distracted on a number of global issues. One such front is Iran, where the United States is engaged with its Western allies in trying to prevent Tehran from developing a nuclear weapon. There was barely a mention of Iran in Obama's State of the Union, aside from a fleeting reference to "growing consequences." But this does not mean that Wednesday carried no developments on the issue of Iranian nuclear ambition; it just means that they did not occur in Washington.

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We therefore turn to Berlin where German Chancellor Angela Merkel made her most forceful statement to date on the question of sanctions against the Iranian regime. Standing next to Israeli President Shimon Peres on Tuesday, Merkel said, "Iran's time is up. It is now time to discuss widespread international sanctions. We have shown much patience and that patience is up."

Tehran responded to the change in tone almost immediately, issuing a statement through the Iranian Deputy Minister of Intelligence on Wednesday that claimed that two German diplomats were involved in the December Ashura anti-government protests in Iran and were promptly arrested. The statement further alluded that "Western intelligence networks" were responsible for the protests. This leads one to wonder if Tehran was publicly linking the protests and covert activity on the part of the German government.

The spat between Iran and Germany makes for some interesting geopolitical drama. First, Germany's relationship with Iran is not a recent phenomenon. Historically, Germany has always felt more comfortable expanding via the continental route. For example, it attempted to use the Berlin-Istanbul-Baghdad-Tehran path to compensate for its inability to break through the Skagerrak Strait and into the Atlantic due to the presence of the British navy. Furthermore, arriving late to the colonial game, Germany looked to expand its influence in the Ottoman and Persian territories where local rulers saw Berlin as a benign European power due to its status as the challenger nation.

Fast forward to today. Tehran has relied on Germany as one of its most consistent supporters in the West. German businesses, particularly in the heavy industrial sector, exported nearly $6 billion worth of goods in 2008, a marked increase from barely $1 billion in 2000, especially considering the worsening relations between Tehran and the rest of the West's powers. While trade with Iran only makes up around 0.4 percent of total German exports - on par with Berlin's exports to Slovenia - industrial giants such as ThyssenKrupp and Siemens do a lot of business with Tehran, particularly in the steel pipe sector. Exports of steel pipe to Iran make up a sizable 18 percent of total global German exports of that particular sector and are valued at around $400 million, a sum Germany cannot ignore amidst rising unemployment and uncertain economic times.

As such, Germany has repeatedly looked to avoid cracking down on Tehran, keeping sanctions language constrained to the United Nations arena where it is clear that no progress can be made without a change in Russian and Chinese positions. However, Merkel's comments seem to suggest that change may actually be afoot. This is particularly true when one puts them in the context of the announcement from Siemens on Wednesday that it plans to cut future trade relations with Iran, and by Hamburg-based ports company HHLA that it will cancel its planned agreement to modernize Iran's Bandar-Abbas port. It should be noted that both companies have close ties to the German state.

To explain Germany's change in tone we can point to two factors. One is increased pressure from the United States. STRATFOR sources have reported that German banks were facing up to $1 billion in fines from the United States for doing business with Iran. German banks - which are already hurting from the economic crisis and are almost certain to experience more pain in 2010 - are key in financing German exporters. A crackdown on their operations would have effectively forced them to stop providing credit to any business intending to export to Tehran. The second pressure came from Israel, whose intelligence services have close ties to German intelligence services, and whose entire Cabinet held a joint session with German intelligence officials last week. President Peres also came to Berlin to commemorate the 65th anniversary of the liberation of Auschwitz, not the time for Berlin to eschew cracking down on Tehran's Holocaust-denying government. The image of modern Germany being a friend to the state of Israel is very important to Berlin.

Merkel may have ultimately decided that with the elections in Germany behind her, the time to protect businesses in the face of American and Israeli pressure was over. On the other hand, she may have calculated that changing her tone on Iran would save German businesses that export to Tehran because the United States would then not crack down on banks that deal with export financing.

Whatever Berlin's reasoning may be, it is important for us to determine whether it is merely a change in tone or a concrete change of policy. It is therefore going to require a careful study of Berlin's moves in the coming weeks as the approaching February deadline - set by the international community for Tehran to comply with demands on its nuclear program - reveals just how serious Merkel is and whether she is willing to impose sanctions against Iran without a U.N. agreement. If Germany is serious about enforcing sanctions against Iran, it will place concrete pressure on Tehran, the kind of pressure that an entire U.S. State of the Union address dedicated to the Iranian nuclear program would not have been able to bear.

A Stratfor Intelligence Report.

© Copyright 2010 Stratfor. All rights reserved.

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