Germany, France and the UK have set up a payment channel with Iran called INSTEX to help continue trade and circumvent US sanctions on Iran.
The trade mechanism that became operational on 28 June was proposed last summer, following a meeting in Vienna between Iran, China, France, Russia, United Kingdom, United States and Germany who signed the Iran nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA), on 14 July 2015. U.S. President Donald Trump pulled the US out of the 2015 Iran nuclear deal and reimposed sanctions last year.
The lifting of sanctions is an essential dimension of the JCPOA. As Europe’s “Special Purpose Vehicle,” the Instrument In Support Of Trade Exchanges (INSTEX) is intended to bypass SWIFT so that businesses in Europe could maintain a financial relationship with Iran in circumvention of US sanctions on Iran.
The implementation of the trade mechanism cannot be vetoed by the US, and European companies that will continue buying Iranian goods will not be subject to any punitive measures by US authorities. The payment balancing system will allow companies in Europe and Iran transact without actual money-transfers between European and Iranian banks.
Frances Coppola explains how exactly INSTEX is going to facilitate trade with Iran without making sanctions-busting cross-border payments. She says the procedure will resemble barter. INSTEX would match the Euro payments of companies buying goods from Iran with the Euro receipts of companies selling goods to Iran. The goods would still travel to and from Iran, but the money would stay entirely within the EU.
Example
Imagine a company based in France wants to sell transport equipment to a buyer in Iran. Receiving Euro payments directly from that buyer would break U.S. sanctions.
So instead, the French company would register the sale documentation with INSTEX. INSTEX would look on its own books for a company buying foodstuffs from Iran. It would match the two cash flows so that in effect the two European companies pay each other.
On the Iranian side, INSTEX is mirrored by a similar SPV, known as STFI. STFI would likewise match incoming and outgoing transactions. So the two Iranian entities would also effectively pay each other.
Thus, everyone would receive their goods and payments, but no money would cross the Iranian border.
INSTEX is available to all EU Member States. France, Germany and the United Kingdom are initial shareholders. Some other EU Member States are in the process of joining INSTEX as shareholders, and the trade mechanism will soon be open to economic operators from third countries. Ongoing complementary cooperation with the Iranian corresponding entity (STFI), which has already been established, will speed up.
As Deutsche Welle reports, INSTEX will be based in Paris and will be managed by German banking expert Per Fischer, a former manager at Commerzbank. The UK will head the supervisory board. The European side intends to use the channel initially only to sell food, medicine and medical devices in Iran, but the product list can be expanded in the future.
Until yesterday, Tehran was skeptical about EU’s commitment to the deal and threatened to exceed the maximum amount of enriched uranium allowed it by the deal after US had imposed a series of sanctions on the country. In a statement on INSTEX in January 2019, Federica Mogherini underlined the key role played by the International Atomic Energy Agency (IAEA) in advancing regional and international security. In fact, the IAEA is the only impartial body in charge of the monitoring of the implementation by Iran of its nuclear-related commitments under the JCPOA and UN Security Council Resolution 2231 in order to verify the exclusive peaceful nature of the Iranian nuclear programme.
As Federica Mogherini said, “The European Union continues to be committed to the full and effective implementation of the JCPOA in all its aspects as long as Iran continues to implement in full all its nuclear commitments, as set out by the agreement.” So far, the IAEA has confirmed in thirteen consecutive reports that Iran is fully abiding by its commitments under the JCPOA.
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