February 4, The Iran Project – After months of preparations and following a summit in Bucharest on Thursday (Jan. 31), the European parties to the 2015 Iran nuclear deal formally launched a long-awaited direct financial mechanism meant – officially called the Instrument in Support of Trade Exchanges (INSTEX) -to facilitate their trade ties with Tehran in the face of the “toughest ever American unilateral sanctions.
INSTEX is designed by France, Germany and the UK to pave the way for European firms to do business with Iran while skirting the brutal sanctions the US re-imposed against the Islamic Republic last year after withdrawing from the multinational nuclear deal, formally called the Joint Comprehensive Plan of Action (JCPOA).
After negotiations with Iran, the E3 countries had planned to put INSTEX in place in November, but they struggled to find ways to minimize the risk of the US sanctions for firms involved.
INSTEX is registered in Paris and headquartered at the French Finance Ministry, with an initial 3,000 Euros (3,447 dollars) in the capital and a supervisory board with members from France and Germany and chaired by the UK and will be governed by a German banking expert, Per Fischer, a former manager at Germany’s Commerzbank. It will support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population such as pharmaceutical, medical devices and agri-food goods and it is primarily aimed at small and medium-sized companies.
However, there are still technical details to be worked out following the entity’s official registration.
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.
In a joint statement, the foreign ministers of E3 said, “France, Germany and the United Kingdom, in accordance with their resolute commitment and continued efforts to preserve the Joint Comprehensive Plan of Action (JCPOA) endorsed by United Nations Security Council resolution 2231, announce the creation of INSTEX SAS (Instrument for Supporting Trade Exchanges), a Special Purpose Vehicle (SPV) aimed at facilitating legitimate trade between European economic operators and Iran,” the three foreign ministers said in a joint statement.”
They also expressed their commitment “to pursue the further development of INSTEX with interested European countries to make this instrument in support of trade exchanges with Iran operational by following the steps set out above,” while adding that Iran will also need “to create an effective and transparent corresponding entity that is required to be able to operationalize” the mechanism.”
“INSTEX a political act and a big step”
French Foreign Minister Jean-Yves Le Drian told reporters that “It is a political act,” noting “It is a gesture to protect European companies.”
Meanwhile, British Foreign Secretary Jeremy Hunt stated that “Registration is a big step, but there is still more work to be done.”
The company’s formal objectives are to “support legitimate trade with Iran,” according to the entry in Petites Affiches, a French journal for official corporate announcements.
“INSTEX has ‘full EU support”
EU’s foreign policy chief, Federica Mogherini, who has been leading the bloc’s efforts to keep the Iran deal alive, issued a statement in support of INSTEX, and said, “The instrument launched today will provide economic operators with the necessary framework to pursue legitimate trade with Iran.”
Iran welcomes European INSTEX
Iranian Foreign Mohammad Javad Zarif was quick to welcome the trio’s trade measure and said Tehran’s European partners in the deal finally took a “long overdue first step.”
“We remain ready for constructive engagement with Europe on equal footing & with mutual respect,” the top Iranian diplomat wrote in a tweet.
Also, Iranian Foreign Ministry Spokesman Bahram Ghasemi said Tehran welcomes the EU’s move but considers it as a first step that should be followed by quicker implementation of other commitments.
In another reaction, Iranian Deputy Foreign Minister Seyyed Abbas Araqchi described the launch as “the first of a set of commitments to Iran that the Europeans must fulfill,” and voiced hope that mechanism will not be left incomplete.
The payment system, he said, could “fully meet our interests only when it is accessible to non-European firms and countries…so it could cover our entire international purchases,” adding that this feature “is apparently slated to be realized in the next phase.”
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 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.
Turkey and China welcomes EU’s mechanism
Speaking to reporters in the Romanian capital of Bucharest on January 31, Turkey’s Foreign Minister Mevlut Cavusoglu hailed the Instrument in Support of Trade Exchanges (INSTEX) as a positive step. He pointed to the US bans and said Turkey believes that dialogue and closer cooperation will resolve these problems, the Turkish-language Anadolu Agency reported.
Also, China praised the European Union’s “determination” to keep a historic 2015 nuclear agreement with Iran alive by establishing a mechanism to facilitate trade with the country despite the “toughest ever” sanctions imposed by the United States against the Islamic Republic.
According to the UN nuclear watchdog, the International Atomic Energy Agency (IAEA), Tehran has so far abided by the terms of the deal in regard to nuclear development despite the U.S. withdrawal.
However, it has continued to test its ballistic missiles, which Washington and many in Europe say could eventually be fitted with nuclear weapons. Tehran insists the program is purely defensive.