France, Germany and Britain have set up a financial mechanism designed to avoid US sanctions against Iran and keep the 2015 nuclear deal afloat.
Through the Instex trade vehicle, they hope to assert European economic sovereignty in the face of Washington’s determination to impose its foreign policy on Europe.
The strategy would initially focus on trying to ease the flow of humanitarian supplies to Iran, the German foreign minister, Heiko Maas, said. Such supplies, including medicines and foodstuffs, are not supposed to be subject to US sanctions.
Eventually, the plan is for the vehicle to expand to allow European firms to trade more freely with Iran in a range of goods, including those subject to US sanctions, the EU foreign affairs chief, Federica Mogherini, said.
Instex, which stands for “instrument for support of trade exchanges”, was registered this week, and will act as a proposed payment channel from Europe to Iran, and vice versa. It will not be fully operational until later this year. Iran will be expected to establish a parallel organisation. If the scheme works, it is likely to be most useful to small- and medium-sized firms with no links in the US.
The body is being designed and run by Britain, France and Germany but will receive the endorsement of the entire EU on Thursday. Further details are expected to be unveiled at a meeting of European foreign and defence ministers in Bucharest.
The UK foreign secretary, Jeremy Hunt, said: “The entity will facilitate legitimate trade under European and international law. Its immediate focus will be on enabling trade in goods where the immediate need of the Iranian people is greatest, ie foodstuffs, pharmaceuticals and consumer goods.”
Hunt said the nuclear deal was “crucial for the security of the region”, but stressed the initiative did not in any way absolve Iran from needing to end its other hostile and destabilising activities.
The EU refused to follow Donald Trump last year in pulling out of the 2015 nuclear deal. Washington says that, although Iran has met the terms, the accord was too generous, failing to rein in Iran’s ballistic missile programmeor curb its regional meddling.
Ever since, European firms have been faced with ever more assertive, and broadly effective US treasury measures to scare them off trading with Iran. Many multinationals have pulled investments from Iran, plunging an already struggling Iranian economy into further difficulty.
Tehran has been pressing for progress on the payment channel for months, occasionally threatening to pull out of the deal unless the EU showed greater urgency on what is a highly technical banking and legal exercise.
A key question is whether the US will see Instex, as initially constructed, as a legitimate target for sanctions by the US treasury, since it has warned any European entity trading with Iran with US connections or using dollars can be subject to punitive fines.
Instex’s initial purpose of easing the flow of supplies such as food and medicines to Iran might protect the body since the US sanctions net is not meant to extend to humanitarian supplies.
In 2017, the export of drugs from Europe to Iran was worth $884m compared with $194m from China and $52m from India, according to UN data.
Esfandyar Batmanghelidj, the founder of a Europe-Iran business forum said the mechanism, even if limited, could eventually pave the way for something more ambitious.
“It could turn into a pilot that the US would find difficult to target with political legitimacy given its humanitarian focus,” he said.
The US embassy in Berlin said Washington did not expect the payment system to reduce economic pressure on Iran. An embassy spokesperson repeated Trump’s threat that all who continued to do business with Iran would be subject to US sanctions.
A high-level European diplomatic representation on the Instex supervisory board may act as a firewall preventing the Trump administration from imposing sanctions.
Iran’s deputy foreign minister, Abbas Araghchi, said the success of the vehicle would depend on expert meetings that Iran would subsequently have with the Europeans, including between central banks.
With the UK planning to leave the EU, London is less motivated than French and German politicians to see the vehicle as the start of a wider drive to establish a euro-based rival for the dollar. The French finance minister, Bruno Le Maire, has repeatedly called for greater European autonomy, and the EU is studying plans to challenge dollar dominance.