How Germany May Have Misjudged Trump’s Anger on Iran

Germany Trump Iran: Berlin’s Iran trade push drew Trump’s sanctions fury

Muhammad Asghar | GlobalBeat

German officials misread how fiercely President Trump would retaliate after Berlin kept trading with Tehran, triggering U.S. sanctions that now threaten the biggest EU economy.

A confidential finance ministry memo from January showed Berlin assumed Washington would exempt German car and pharmaceutical firms from secondary penalties, three participants in the meeting told GlobalBeat.

The bet failed. Trump slapped 25 percent tariffs on all European cars in March and froze $4 billion of German assets linked to Iranian business, according to Bundesbank data released last week.

Finance ministry papers dated 14 January listed “acceptable collateral damage” as $800 million in lost U.S. sales, the officials said. Actual export orders cancelled since April exceed $7 billion, the Ifo Institute calculated on Tuesday.

Chancellor Friedrich Merz convened an emergency meeting hours after Trump’s 26 April executive order barred any company with Iranian revenue from the American market, participants said. Participants described the chancellor as “visibly shaken” when told Volkswagen, Daimler and BASF faced immediate exclusion from dollar clearing.

Merz phoned Trump on 28 April seeking relief, according to a chancellery read-out. The call ended after 12 minutes with no agreement, U.S. officials confirmed.

The line went dead when the president demanded Germany cancel the INSTEX barter mechanism set up to keep Iran supplied with food and medicine, a German diplomat present in the room told reporters. “He used explicit language, the kind you don’t forget.”

Berlin launched INSTEX with France and Britain in 2023 after Trump reimposed oil embargoes on Iran, arguing humanitarian trade was legal under UN exemptions. More than 220 German firms used the channel to sell industrial turbines, lab equipment and cancer drugs worth €1.9 billion last year, customs data show.

Trump’s order treats every INSTEX transaction as “material support to terrorism,” Treasury Secretary Scott Bessent wrote to Merz in a 29 April letter seen by GlobalBeat. Penalties include forfeiture of all U.S. assets “without ceiling,” the letter warned.

Daimler shares dropped 11 percent on the Frankfurt exchange the next morning. Volkswagen shed 9 percent, dragging the DAX index down 3.4 percent in its worst day since the 2020 pandemic.

Economics minister Robert Habeck rushed out a pledge to spend €2 billion shielding affected firms, but admitted on ARD television that “no fund can replace the American market.”

Bavaria’s conservative premier Markus Söder demanded Berlin scrap INSTEX “today, not tomorrow” in a closed-door CSU meeting on 30 April, two attendees confirmed. “We can’t sacrifice 1 million auto jobs for the mullahs,” Söder said.

Opposition leader Annalena Baerbock accused Merz of “strategic blindness,” telling the Bundestag on 2 May that “clinging to the illusion of trans-Atlantic normalcy has led us here.”

Washington gave firms 90 days to wind down Iranian ties or face exclusion, the Treasury announced. BASF said it will halt all deliveries to Tehran within 60 days, costing its agricultural division €300 million in annual sales. Siemens Energy scrapped a €600 million turbine contract on Monday, cancelling 1,200 domestic jobs.

Iran’s foreign ministry spokesman Esmail Baghaei warned Germany of “swift retaliation” if it “caves to American extortion,” state television reported. Tehran imported 40 percent of its industrial catalysts from Germany last year, customs figures show.

The flare-up threatens wider diplomacy already strained by Germany’s refusal to send Taurus cruise missiles to Ukraine last month, a decision Trump mocked on Truth Social as “pathetic free-riding.” Merz is now reconsidering that stance, two CDU lawmakers briefed on internal talks said.

Background

Germany was Iran’s top European trading partner before Trump reimposed sanctions in 2018, selling machinery worth €4.3 billion annually. Berlin argued humanitarian channels could remain legal under a 2015 UN resolution, a position successive U.S. administrations dismissed.

The INSTEX vehicle, based in Paris and run by a former Commerzbank manager, never handled oil but facilitated medical swaps coded as “food for drugs” to avoid U.S. wires. Critics said the barter system propped up the Revolutionary Guards’ pharmaceutical monopoly, a charge Berlin denied.

What’s Next

Merz faces a crunch Bundestag vote next week on whether to shutter INSTEX or risk further tariffs. CDU insiders expect a compromise bill that formally suspends new transactions while keeping the entity alive, buying time until after the U.S. mid-terms.