Europe-Iran trade mechanism completes landmark Iran sale

Bourse and Bazaar | Esfandyar Batmanghelidj: The Germany foreign ministry announced on Tuesday that INSTEX, the Iran trade mechanism backed by nine European states, has completed its first transaction.

“France, Germany and the United Kingdom confirm that INSTEX has successfully concluded its first transaction, facilitating the export of medical goods from Europe to Iran. These goods are now in Iran,” the ministry said in a statement.

An individual with knowledge of the transaction, speaking on background, said that a German exporter had used the INSTEX mechanism to receive payment for the sale of medication to an Iranian private sector importer. The transactions was later reported to be worth EUR 500,000.

The sale is consistent with INSTEX’s initial mission to facilitate humanitarian trade, currently impinged by the impact of U.S. secondary sanctions on banking ties between Europe and Iran.

Officially launched in January 2019, INSTEX was slow to operationalize as French, German, and British officials grappled with the political and technical challenges of establishing a novel state-owned trade mechanism.

But in the summer of last year, INSTEX hired its first managing director and expanded its team, leading to a step-change in the company’s operations.

The new management resisted pressure to conclude an initial transaction as soon as possible—European officials had explored providing a factoring service as a stopgap—and instead sought facilitate a sale that would utilize the cross-border clearing mechanism. Through this mechanism, INSTEX makes payments to European exporters on behalf of Iranian importers, reducing the transaction costs associated with Europe-Iran trade. These sales are netted against exports made by Iranian companies, who are paid in turn by INSTEX’s Iranian counterpart, STFI.

INSTEX management has been working on several transactions in parallel, on the back of strong interest from European exporters to engage the mechanism. The German foreign ministry statement concludes, “INSTEX and its Iranian counterpart STFI will work on more transactions and enhancing the mechanism.”