Special purpose entity instex established: eu wants to continue trade with iran

Germany, France and Britain want to save the nuclear agreement with Iran. They have developed a system to circumvent US sanctions.

With special purpose vehicle INSTEX, EU wants to resume trade with Iran

Germany, France and Britain want to launch this Thursday the planned system to circumvent U.S. economic sanctions against Iran, according to information from Deutsche Presse-Agentur. Specifically, it is to be officially confirmed that a company has been established through which payment transactions for Iranian business can be processed if private banks no longer agree to do so due to the threat of U.S. penalties.

With this action, Germany, France and Great Britain want to help save the international nuclear agreement with Iran. This is threatening to fail due to the reintroduction of U.S. sanctions, because Iran had been promised the lifting of economic sanctions in return for abandoning its nuclear program.

The special purpose vehicle for circumventing U.S. sanctions is now intended to ensure that European companies can do business with Iran despite the strict U.S. sanctions. To this end, it acts as a kind of intermediary in which the claims of European and Iranian companies can be offset against each other.

For example, Iran could continue to supply oil or other products to Europe. However, the money for this would then not flow into Iran via banks, but to European companies that sell, for example, medicines, food or industrial goods to Iran. The U.S. sanctions against the payment transaction system with Iran would thus be nullified.

Reaction from Washington still pending

According to information from the radio station NDR Info, the special purpose vehicle will be managed by an experienced banking expert from Frankfurt and will bear the name Instex. The abbreviation stands for "Instrument in Support of Trade Exchanges". Great Britain is to chair the supervisory board.

The official announcement of the establishment of the company is to be made this Thursday on the fringes of the EU foreign ministers’ meeting in Bucharest, which German Foreign Minister Heiko Maas (SPD) is also expected to attend. He had already said in Brussels on Monday that the implementation of the plans was imminent.

It is unclear so far how Washington will react. U.S. Secretary of State Mike Pompeo had already announced last September that his country would not tolerate any circumvention of Iran sanctions. Last year, the United States unilaterally withdrew from the nuclear agreement, despite major concerns expressed by Europeans. President Donald Trump had justified the decision, among other things, by saying that it had not brought peace to the Middle East. He also accused Tehran of working to develop nuclear weapons despite the deal.

Success of special purpose vehicle is uncertain

Like the United States, the Europeans are highly critical of Iran’s role in the region. They point out, however, that the agreement deals with this only indirectly and that Iran has so far complied with all written commitments. The International Atomic Energy Agency (IAEA) has already confirmed the latter 13 times after independent investigations.

Iran recently put renewed pressure on the EU and again threatened to withdraw from the 2015 Vienna nuclear agreement. "Before it becomes too late, we call on the Europeans not to let this important achievement for the international community fail," Vice President and nuclear chief Ali-Akbar Salehi said Wednesday. If the EU fails to meet its obligations under the deal, he said, Iran would be able to pull out of the agreement at any time.

Meanwhile, whether the Paris-based special purpose vehicle can really have an impact is considered uncertain. This is because it cannot protect European companies from U.S. sanctions. It is therefore of particular interest to companies that would rather do business in Iran than in the United States and therefore do not fear market exclusion in the United States.