EU seeks to sidestep US sanctions on Iran

Although some small and medium-sized businesses could use the SPV to continue dealing with Iran, any international company that deals in US dollars or has US subsidiaries could face sanctions.
Sunday 30/09/2018
European Union High Representative for Foreign Affairs Federica Mogherini (L) and Iranian Foreign Minister Mohammad Javad Zarif wait for the start of a bilateral meeting in Vienna, on July 6. 				              (AP)
Wheeling and dealing. European Union High Representative for Foreign Affairs Federica Mogherini (L) and Iranian Foreign Minister Mohammad Javad Zarif wait for the start of a bilateral meeting in Vienna, on July 6. (AP)

LONDON - The European Union, backed by China and Russia, moved to sidestep US sanctions on Iran, hoping to save the Iran nuclear deal signed in 2015.

The measure, known as a special purpose vehicle (SPV), aims to circumvent US sanctions on Iran’s oil exports following US President Donald Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA).

“I was disturbed and indeed deeply disappointed to hear remaining parties in the Iran [nuclear] deal announce they are setting up a special payment system to bypass US sanctions, said US Secretary of State Mike Pompeo.

“This is one of the most counterproductive measures imaginable for regional global peace and security. By sustaining revenues to the regime, you are solidifying Iran’s ranking as the number one state sponsor of terror.”

A new wave of US sanctions is to go into effect November 4, hitting Iran’s oil exports and banking operations and potentially disconnecting Tehran from international financial channels.

The remaining parties of the JCPOA — China, France, Germany, the European Union, Iran, Russia and the United Kingdom — have agreed to work to maintain the deal despite increasing US pressure to void the agreement.

“Mindful of the urgency and the need for tangible results, the participants welcomed practical proposals to maintain and develop payment channels notably the initiative to establish a special purpose vehicle (SPV) to facilitate payments related to Iran’s exports, including oil,” the remaining members of the deal said in a statement.

The SPV aims to create a barter system, like the one used by the Soviet Union during the Cold War, to exchange Iranian oil for European goods without money, which would fall under US sanctions, changing hands.

“In practical terms this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world,” EU foreign policy chief Federica Mogherini said.

The move would augment a blocking statute passed in August by the European Union that theoretically makes European companies immune from US sanctions.

However, questions remain about whether the theoretical measures to bypass US sanctions will have any practical effect to save the Iran nuclear deal.

Richard Nephew, a former official in the Obama administration and author of “The Art of Sanctions,” said the SPV could not cover European firms with US subsidiaries. He warned that US sanctions could be applied to traded goods as much as actual cash transactions, predicting that few big firms would risk drawing US ire by engaging with Iran via the SPV.

“Creating a shell mechanism to potentially skirt US sanctions is shortsighted,” warned Samantha Sultoon, a senior fellow at the Atlantic Council’s Global Business and Economics Programme.

Although some small and medium-sized businesses could use the SPV to continue dealing with Iran, any international company that deals in US dollars or has US subsidiaries could face sanctions.

Airbus, a European aerospace corporation, recently cancelled a $40 billion contract with Iran Air to deliver 100 planes because the transaction was to be made in US dollars. Other big European firms, including Total, Peugeot and Volkswagen, have discontinued their operations and projects in Iran.

Trump spoke out strongly against Iran while leading a UN Security Council meeting, calling on other members of the Security Council to back Washington’s moves on Iran, which, he said, aim to “ensure the Iranian regime changes its behaviour and never acquires a nuclear bomb.”

He warned that any country that failed to comply with US sanctions would “face severe consequences.”

French President Emmanuel Macron seemed to suggest that US pressure, accompanied by the remaining JCPOA members seeking to circumvent an end of the nuclear deal, could secure renegotiation of the nuclear deal along lines that Washington would find acceptable.

“Perhaps because we’re able to keep this multilateral framework (nuclear deal), avoid the worst and act as a mediator, while the US sanctions create pressure and reduce the amount of money available for Iran’s expansionism, that can accelerate the process we want,” he said.

Iran warned that its patience is not infinite. “As long as the deal serves our interests, we will remain in the pact,” Iranian President Hassan Rohani said in New York. “Remaining members of the deal have taken very good steps forward but Iran has higher expectations.”

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