Germany, France, and Britain have launched an EU-backed system to facilitate trade with Iran to help European businesses circumvent unilateral US sanctions on Iran.

The Instrument In Support Of Trade Exchanges (INSTEX) was 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. That pact agreed under former President Barack Obama, lifted international sanctions on Iran in exchange for Tehran imposing curbs on its nuclear program.

How does this work?

The new entity acts as a sort of euro-denominated clearinghouse 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. Trade is initially expected to focus on non-sanctionable essential goods such as humanitarian, medical and farm products. It is not expected to address oil-related transactions, which have dropped off since last year and are Iran’s primary source of foreign currency.

Iran has effectively been cut off from the US dollar-dominated financial system

Who is involved?

As the European signatories to the nuclear accord, Germany, France, and Britain set up and will manage the clearinghouse. The entity is based in France with German governance and financial support from all three countries. 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 work?

There are still technical details to be worked out following the entity’s official registration.

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.

The entity is initially aimed at small and medium-sized European companies and trade volume is likely to remain small.

The payment vehicle’s facilitation of trade in non-sanctionable essential products raises questions as to whether it will sufficiently benefit Iran’s struggling economy and help it curb runaway inflation and currency devaluation.

US response

The United States has vowed to continue its “maximum pressure” campaign on Iran over its ballistic missile program and growing influence in the Middle East. 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.

Iran

US sanctions on Iran target Tehran’s trade in gold and precious metals, block the sales of passenger jets and restrict Iran’s purchase of US dollars, among other punitive measures. The US has also blocked Iran’s key oil sales in a further tranche of sanctions, which came into force in November 2018.

Iran’s response

Tehran has grown frustrated with the slow European response to the reimposition of US sanctions but has pledged to maintain its nuclear deal commitments so long as it receives the promised economic benefits.

“If we cannot sell our oil and we don’t enjoy financial transactions, then I don’t think keeping the deal will benefit us anymore,” Ali Akbar Salehi, head of the Atomic Energy Organization of Iran, said earlier in January.

Iranian President Hassan Rouhani is under pressure from clerical and security hard-liners to exit a deal they opposed from the start. In the absence of economic benefits, questions remain about how long Iran’s patience will last.

Iran is also looking to Russia and China, the other signatories to the nuclear accord, to maintain trade flows in defiance of the United States. Oil trade with China has dropped off in recent months, reaching a three-year low.

Source: https://www.dw.com/en/what-is-the-eu-iran-payment-vehicle-instex/a-47306401

The post What is the EU-Iran payment vehicle INSTEX? first appeared on Garner Ted Armstrong Evangelistic Association.

The European Union announced that its INSTEX mechanism to facilitate trade with Iran was up and running on Friday.

“France, Germany, and the United Kingdom informed participants that INSTEX had been made operational and available to all EU member states, and that the first transactions are being processed,” said an EU statement.

INSTEX, which stands for Instrument in Support of Trade Exchanges, is a payment system that will allow companies to trade with Iran despite harsh US sanctions. It will function as a diplomatic shield allowing the exchange of goods without requiring direct transfers of money between Iran and EU companies.

Giving Iran a reason to stay in the nuclear deal

The move is an attempt by EU countries to show they are serious about alleviating the pain of sanctions on Iran in order to convince Tehran to remain in the 2015 Joint Comprehensive Plan of Action (JCPOA), more commonly known as the Iran nuclear deal.

The future of the agreement was put in jeopardy when US President Donald Trump unilaterally withdrew the US from the deal in May 2018. Since then, the US has continued to pile sanctions on Iran and threaten international companies that dare trade with Tehran via secondary sanctions.

Though the US has complained the deal did nothing to curb Iran’s nuclear capabilities, Europeans say it is working, a fact that the International Atomic Energy Agency (IAEA) has repeatedly confirmed.

In the face of rising tensions with the US and the crushing weight of sanctions, Iran has threatened to partially withdraw from the deal if the other signatories — Germany, France, the UK, Russia, China, and the EU — can not provide a concrete incentive for it to abide by JCPOA rules.

A virtual ledger to counter secondary sanctions

The new EU mechanism will coordinate import and export payments so that cash between partners need not be handled by banks, thus avoiding the risk of drawing Washington’s ire.

INSTEX will create a virtual ledger to offset balances. Thus payments will be exchanged between EU companies importing and exporting to Iran, and the same will happen on the Iranian side. Thus, all sides will be able to complete transactions without euros going to Iran, or rials to Europe.

The mechanism will initially focus on goods that are less likely to raise eyebrows in Washington, namely pharmaceutical products, medical devices, and food. US sanctions permit trade in humanitarian goods.

US ‘abusing its global financial dominance’

Cornelius Adebahr from the German Council on Foreign Relations said companies that will be involved in INSTEX represent: “a very reduced target group. It’s not about giant sums in the billions.”

Read more: Iran sanctions: 5 things to know

The United States has scoffed at the plan. US Special Representative for Iran Brian Hook, who is an advisor to Secretary of State Mike Pompeo, said: “We just don’t see any corporate demand for it because if a corporation is given the choice between doing business in the United States or doing business in Iran, it’s going to choose the United States every time. So that’s our current assessment of INSTEX.”

Analysts at the European Council on Foreign Relations say, “The US has set unilateral rules on secondary sanctions that abuse its global financial dominance.” Still, they say the fact that the three biggest economies in Europe are involved in the INSTEX scheme could make Washington think twice in its assessment of the plan.

Source: https://www.dw.com/en/eu-mechanism-for-trade-with-iran-now-operational/a-49407662

The post EU mechanism for trade with Iran ‘now operational’ first appeared on Garner Ted Armstrong Evangelistic Association.