France, Germany, and the United Kingdom have opened a new channel for non-dollar transactions with Iran, a move that is designed to circumvent US sanctions on the Islamic Republic and which will likely cause further tensions between the European Union and the White House at a time when Washington is trying to reign in Tehran’s aggressive activities in the Middle East and Europe.
The US’ major European allies opposed the Trump Administration’s decision to abandon the 2015 nuclear deal with Iran over the Islamic Republic’s continued support for terrorist groups across the Greater Near East, including Hamas and Hezbollah, and its backing of the Houthi rebels in Yemen and the Russia-allied Bashar al Assad regime in Syria.
Iran has also threatened to pull out the nuclear deal unless Europe steps in to provide Tehran with economic assistance as a way to lessen the crippling blow of the US’ sanctions. Washington has threatened a secondary round of sanctions against European countries if they attempt to step-in and assist Iran.
In response to the situation, and with billions of euros at stake due to the massive investments into Iran since the 2015 nuclear dead was signed, the EU has launched a so-called Special Purpose Vehicle (SPV), which the US State Department does not expect will “in any way, impact our maximum economic pressure campaign.”
The idea of an SPV has been floated for months, but none of the 28 members of the European Union was willing to host the special purpose vehicle out of fear that they would be subject to Washington’s harsh reprisals.
With the launch of what is being called the Instrument In Support Of Trade Exchanges (INSTEX) the EU has taken a step towards protecting some of its business assets in Iran while also keeping the now-threatened nuclear deal alive long enough to buy time for a new agreement to be reached.
The INSTEX was registered in France and will be headed by German banker Per Fischer, a former Commerzbank director, with a budget for the vehicle expected in the coming weeks.
The SPV will operate as a clearinghouse via mirror-image financial transactions, essentially facilitating barter trade, such as the exchange of Iranian oil for medicine or food exports from Europe.
The EU has signalled that the SPV could facilitate humanitarian transactions, such as food. Iran’s foreign minister, Abbas Araqchi, hailed this “first step” and said Iran would set up a similar vehicle to facilitate transactions in Iranian rials.
The UK’s Foreign Secretary Jeremy Hunt says the UK was working with Germany and France to finalise the arrangements and the EU moved to introduce a “blocking statute” in 2018 that forbade EU firms from complying with US sanctions, but only concerned companies without US exports.
The worry about the new SPV is that without having been properly tested for loopholes that it could become a game-changer for sanctions-busting third parties from Russia and China.
In an effort to help boost the perception that the EU has no interest in undermining Western policy against a hostile Iran, the EU moved to impose its first sanctions against Tehran in January in response to illegal ballistic missile tests and a series assassination plots by Iran’s Revolutionary Guard Corps that were to be carried out on European soil.
Brussels added two Iranian individuals to its terrorist list and European officials have repeatedly said that the bloc wants to continue to pressure Iran in order to curb the Islamic Republic’s ballistic missile programme.