Europe announces SPV to circumvent Iran sanctions but feasibility in question

The Trump administration has repeatedly said it intended to fully enforce sanctions on European companies and countries that do business with Tehran.
Thursday 31/01/2019
US dollars and Iraqi dinars are shown at a currency exchange shop in Basra, Iraq, November 3, 2018. (Reuters)
Iranian rials, US dollars and Iraqi dinars are shown at a currency exchange shop in Basra, Iraq, November 3, 2018. (Reuters)

LONDON - Germany, France and Britain introduced a European mechanism to facilitate trade with Iran, circumventing US economic sanctions, diplomats said, but questions remain whether the scheme can save the Iran nuclear deal.

The European Union has been preparing the system, known as a special purpose vehicle (SPV), since the United States withdrew from the Iran nuclear deal, officially known as the Joint Comprehensive Plan of Action (JCPOA), last May.

The SPV is effectively a clearinghouse designed to avoid monetary transfers in US dollars between European countries and Iran, avoiding US sanctions imposed on Iran in November.

German broadcaster NDR reported the SPV would be called the Instrument in Support of Trade Exchanges (INSTEX). INSTEX has reportedly been registered in France and is to be headed by German banker Per Fischer, a former Commerzbank director.

European diplomats acknowledged the SPV was unlikely to allow big commercial transactions Tehran said are necessary to keep the nuclear deal afloat.

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

INSTEX, which is an unprecedented state-owned trade intermediary, would initially facilitate only “essential goods,” mostly European exports of food and medicine to Iran. These are goods that have not technically been sanctioned by the United States but have become increasingly restricted due to the reluctance of European banks to facilitate payment for fear of inciting Washington’s ire.

“This SPV is at most going to be a baby step towards international financial structures that would give the EU more independence but people associated with the Trump administration would surely like to strangle it in its cradle,” Henry Farrell, a professor of political science at George Washington University, said on Twitter.

“The US was incredibly successful in weaponising the global financial system for its own purposes… It succeeded in large part thanks to acquiescence & support of its European allies… The US has not only sanctioned Iran by blocking access to US markets, it has penalised non-US firms doing business with Iran,” he said.

While the plan is to later expand INSTEX to include more profitable sanctioned goods, scepticism remains over whether the financial mechanism will reach that stage, particularly because European countries are likely to link any enhancement to Tehran’s conduct in Europe.

Relations between Tehran and Europe continue to worsen after the European Union earlier this year imposed its first sanctions on Iran since the signing of the JCPOA, citing Iran’s ballistic missile tests and various alleged assassination plots in Europe.

The European Union added Iranian officials and an Iranian intelligence unit to its terrorist list and European countries, including France and Germany, have imposed direct sanctions over espionage and assassination claims.

Germany imposed sanctions on Iran’s Mahan Air, citing Tehran’s suspected illegal activities in Europe and specifically the discovery of an Iranian spy working as a translator for Germany’s armed forces.

The Trump administration has repeatedly said it intended to fully enforce sanctions on European companies and countries that do business with Tehran.

Aftermath of the SPV announcement, the United States said it was seeking additional details but did not expect INSTEX to affect its application of “maximum economic pressure” on Tehran.

“As the president has made clear, entities that continue to engage in sanctionable activity involving Iran risk severe consequences that could include losing access to the US financial system and the ability to do business with the United States or US companies,” a spokesman for the US Embassy in Germany said.

“The choice is whether to do business with Iran or the United States,” US Senator Tom Cotton, a Republican from Arkansas, told the Associated Press. “I hope our European allies choose wisely.”