Date :Friday, February 1st, 2019 | Time : 10:12 |ID: 85251 | Print

Europeans launched a trade mechanism to bypass US sanctions on Iran

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SHAFAQNA | By Leila Yazdani : The UK, Germany and France have officially set up a European mechanism to enable non-dollar trade with Iran, thereby circumventing US sanctions against the nation. A joint statement from three countries (E3) foreign ministers said the platform would be strictly focused on commercial contracts between Europe and Iran.

France, Germany and the United Kingdom, in accordance with their resolute commitment and continued efforts to preserve the Joint Comprehensive Plan of Action (JCPOA) endorsed by United Nations Security Council resolution 2231, announce the creation of INSTEX SAS (Instrument for Supporting Trade Exchanges), a Special Purpose Vehicle aimed at facilitating legitimate trade between European economic operators and Iran.

INSTEX is located in France and has a German managing director.

INSTEX will support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population – such as pharmaceutical, medical devices and agri-food goods. INSTEX aims in the long term to be open to economic operators from third countries who wish to trade with Iran and the E3 continue to explore how to achieve this objective, according to diplomatie.

The creation of INSTEX is a major first step taken by E3 countries. The operationalisation of INSTEX will follow a step-by-step approach:

  • The E3 together with INSTEX will continue to work on concrete and operational details to define the way the company will operate.
  • The E3 will also work with Iran to create an effective and transparent corresponding entity that is required to be able to operationalise INSTEX.

INSTEX will function under the highest international standards with regards to anti-money laundering, combating the financing of terrorism (AML/CFT) and EU and UN sanctions compliance. In this respect, the E3 expect Iran to swiftly implement all elements of its FATF action plan. The E3 underline their commitment to pursue the further development of INSTEX with interested European countries to make this instrument in support of trade exchanges with Iran operational by following the steps set out above.

The Special Purpose Vehicle (SPV) trade intermediary has been in the planning for four months, following a declaration from EU Foreign affairs leader Federica Mogherini in September, thenational told.

Iran welcomed the news as a “first step” but US officials dismissed the idea that the new entity would have any impact on efforts to exert economic pressure on Tehran, and fired a fresh warning at anyone thinking of trading with the Islamic republic, spacewar mentioned.

In this regard, Iranian Foreign minister Mohammad Javad Zarif tweeted:

Iran welcomes #INSTEX—a long overdue 1st step—in E3 implementation of May 2018 commitments to save JCPOA by ensuring dividends for Iranians after US’ illegal reimposition of sanctions. We remain ready for constructive engagement with Europe on equal footing & with mutual respect.

— Javad Zarif (@JZarif) January 31, 2019

What is INSTEX?

The Instrument In Support Of Trade Exchanges (INSTEX) registered after months of negotiations and technical talks in the wake of the Trump administration’s unilateral exit last year from the 2015 Iran nuclear deal.

How does INSTEX work?

The new entity acts as a sort of euro-denominated clearing house for Iran to conduct trade with European companies. In effect, INSTEX works as a barter arrangement operating outside of the US-dominated global financial system.


The European Union disagrees with the US unilateral decision to pull out of the 2015 nuclear deal with Iran. Trump argued the deal was too generous towards Iran and pulled his country out, giving international companies just a few months to leave Iran or risk being hit by US sanctions, which impact any companies trading in dollars, euronews told.

The bloc has been working on this financial mechanism for months in an effort to reassure European companies. It enabled multinationals including Renault, Airbus and Total to venture in and Iran to sell its oil and gas to the world market.

Why Britain, France and Germany?

The three EU countries were among the eight signatories of the 2015 nuclear deal, which also included China, the EU and Russia.

As the European signatories to the nuclear accord, Germany, France and Britain set up and will manage the clearing house, DW told.

INSTEX, is to have its headquarters in Paris and will be run by a German banker. The three European powers will be its main shareholders although they hope other member states will join.

The three countries have sought broader support for the mechanism from all 28 EU member states to show European good faith in implementing commitments under the nuclear accord and to present a united front against any retaliation from Washington.

Will it be effective?

There are still technical details to be worked out following the entity’s official registration. But, according to reports, the use of INSTEX will be limited to non-sanctionable trade including humanitarian goods and food, thus excluding oil and gas — a cornerstone of the Iranian economy.

A European diplomat told Reuters that it therefore “won’t change things dramatically but it’s an important message to Iran to show that we are determined to save the JCPOA (Iran deal) and also the United States to show we defend our interests despite their extraterritorial sanctions.”

Theoretically, the payment channel would shield European companies from US sanction-related penalties. However, European companies and banks that do business with the US may still be hesitant to trade with Iran over concerns they could be hit with US penalties. Many European companies have already pulled out of Iran in response to US sanctions.

US response

The US has kept a close eye on what the EU was trying to do to mitigate the impact of its pullout and could interpret INSTEX as open defiance, thus exacerbating already-tense trade relations between the two parties.

The White House has warned European banks and firms that they could face stiff fines and penalties if they violate US sanctions. However, it is questionable whether Washington would directly target the European governments backing the new entity, a move that would strain ties with key allies and trigger financial turbulence.


Read more from Shafaqna:

Bahram Qasemi warned that Iran’s patience on SPV was running thin

Mogherini: EU’s SPV could be in place by year’s end

EU must act soon if it wants to keep the nuclear agreement alive

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