Reuters - A new European Union mechanism to facilitate payments for Iranian exports should be legally in place by Nov. 4, when the next phase of U.S. sanctions hit, but it will not be operational until early next year, three diplomats said.

The mechanism, a so-called special purpose vehicle, is designed to circumvent the sanctions, under which Washington can cut off any bank that facilitates oil transactions with Iran.

The SPV would work as a barter system, avoiding the U.S. financial system by using an EU intermediary to handle trade with Iran. It would ensure that Iranian oil bought by Europeans could be paid for with EU goods and services of the same value.

�We�re trying to put the SPV in place before Nov. 4 and are pretty confident we can do it,� one EU diplomat said. �It won�t be operational immediately. It will take time and the time that takes will be months.�

The physical location of a head office and other issues still had to be worked out, the diplomat added.

A second diplomat said everything was in place to have a symbolic start date to show Tehran that the EU was meeting its promises. The bloc�s foreign policy chief, Federica Mogherini, announced the plan at the United Nations General Assembly in New York in September.

The EU, with support from China and Russia, hopes to keep Tehran in a 2015 nuclear arms control deal by allowing trade to flow despite U.S. penalties.

�We need to demonstrate to the Iranians that we are working to uphold the (nuclear) agreement in the face of U.S. sanctions, to keep them in, but also saying that we can only move so far, so fast,� a third diplomat said.

EU diplomats said the SPV would not be enough to preserve all trade. The aim was to convince Iran to keep its commitments under the Iran nuclear agreement signed by world powers in Vienna, from which U.S. President Trump in May.

The SPV will follow several other EU initiatives to try to shield European business with Iran from U.S. sanctions that Trump is re-imposing, as he seeks to punish Tehran for what the West says is Iran�s role in Syria�s war and in Yemen.

The EU agrees with Washington that Iran has failed to contain its ballistic missile arsenal and is supporting proxies across the Middle East. But France, Britain and Germany say the 2015 nuclear accord is separate and should be upheld because it prevents Iran from developing a nuclear bomb.

�It�s an important signal and they can see we�re doing it,� They saw the blocking statute and other efforts, so it sends them a signal,� the first diplomat said, referring to an EU law that makes it illegal for EU companies to comply with U.S sanctions.

Editing by Larry King