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On January 31st, the EU unveiled its new trade mechanism with Iran: the Instrument in Support of Trade Exchanges (INSTEX). French, German and UK Foreign Ministers announced the long-awaited mechanism.
“The E3 together with INSTEX will continue to work on concrete and operational details to define the way the company will operate; the E3 will also work with Iran to create an effective and transparent corresponding entity that is required to be able to operationalise INSTEX,” the statement read.
Foreign Minister @HeikoMaas and his British & French colleagues on the creation of the #SPV: #INSTEX will support European trade with Iran. Focus is initially on goods essential to the Iranian population: pharmaceutical, medical devices and agri-food goods.#JCPoA https://t.co/SqejDOSXkU
— GermanForeignOffice (@GermanyDiplo) January 31, 2019
The Twitter Account of the French Foreign Ministry posted a video explaining the mechanism:
The Iranian nuclear agreement is working.
To maintain the agreement despite the US withdrawal, France, Germany and the UK have created #INSTEX
Here's what that means. pic.twitter.com/7VfbQEV2m5— France Diplomacy?? (@francediplo_EN) February 1, 2019
Overall, INSTEX allegedly enables EU companies to trade with Iran. Payments will be made between importers and exports from the same country, there will be no direct financial flows with Iran. To make it operational Iran must also mirror the structure.
France, Germany and the UK are working to extend the mechanism to other EU states. INSTEX will initially focus on the sectors such as pharmaceutical, medical devices and agri-food goods.
Federica Mogherini, the High Representative of the EU for Foreign Affairs and Security Policy also said that the EU is fully behind the implementation of the Iran Nuclear Deal and that INSTEX reinforces that.
#IranDeal "The EU is fully behind the full implementation of the nuclear deal with Iran" @FedericaMog ahead of informal #FAC meeting in Gymnich pic.twitter.com/xWq7VpboM4
— European External Action Service – EEAS ?? (@eu_eeas) January 31, 2019
“INSTEX aims in the long term to be open to economic operators from third countries who wish to trade with Iran and the E3 continue to explore how to achieve this objective.”
According to the statement, INSTEX will function under the highest international standards with regards to anti-money laundering, combating the financing of terrorism (AML/CFT) and EU and UN sanctions compliance. In this respect, the E3 expects Iran to swiftly implement all elements of its FATF action plan.
The announcement faced mixed reactions from Iran.
Iran welcomes #INSTEX—a long overdue 1st step—in E3 implementation of May 2018 commitments to save JCPOA by ensuring dividends for Iranians after US’ illegal reimposition of sanctions. We remain ready for constructive engagement with Europe on equal footing & with mutual respect.
— Javad Zarif (@JZarif) January 31, 2019
Abbas Araghchi, Iran deputy foreign minister also welcomed the step as a “first step” by the EU in fulfilling its commitments toward Iran. Araghchi told the State TV that while the channel is initially used for non-sanctioned trade with EU, Iran expects it to cover other trade as well which is why the mechanism was launched in the first place.
However, on February 4th, Iranian top judge Sadeq Amoli Larijani said that Iran would never accept conditions set by EU countries for financial transactions bypassing US sanctions.
“The countries should be aware that Iran will by no means accept these humiliating conditions and will not accede to any demand at the expense of opening a small waterway such as INSTEX,” Larijani said.
The European countries have reportedly set two “strange conditions” for INSTEX, he added. The first condition is that Iran should join the FATF and the other is that the country should enter the negotiations on its missile program, the judiciary chief stated.
“The countries should be aware that Iran will by no means accept these humiliating conditions and will not accede to any demand at the expense of opening a small waterway such as INSTEX,” he said.
Hamid Baeidinejad, Iran’s Ambassador to the UK also condemned the conditions set out around INSTEX.
“Europe has no right to set conditions for implementing the new financial channel,” he said on Twitter on February 3rd.
He said that the EU3 joint statement didn’t define Iran’s accession to the FATF as a necessary condition to implement INSTEX, “but as “an expectation” from Iran, which he linked to the role of banking systems in the process of payment to Iran.”
He cited the following clause “INSTEX will function under the highest international standards with regards to anti-money laundering, combating the financing of terrorism (AML/CFT) and EU and UN sanctions compliance. In this respect, the E3 expect Iran to swiftly implement all elements of its FATF action plan.”
Chinese Foreign Ministry spokesman Geng Shuang expressed China’s praise of the efforts made by the EU.
“The Chinese side highly appreciates these efforts made by the European countries in upholding the JCPOA and supports the creation of the Instrument for Supporting Trade Exchanges (INSTEX). This showcases the European side’s determination to safeguard multilateralism. China supports their efforts in sustaining cooperation with Iran, getting INSTEX up and running at an early date, and opening it to third parties to promote normal economic and trade cooperation between the international community and Iran. We also firmly support the EU’s leading role in upholding the JCPOA through political and diplomatic means.”
Russia also appears to be more sceptic regarding the trade mechanism. On February 4th, Russian news outlet RBC cited Russian Ambassador to Tehran Levan Dzhagaryan who said that INSTEX raises more questions rather than providing answers.
“This step is more like a political signal, namely, a call for Iran to remain committed to the implementation of the JCPOA (Joint Comprehensive Plan of Action). Moreover, at the initial stage, it will only work for the product line, not affected by the US sanctions restrictions — food, medicine and medical equipment will fall into the scope of INSTEX,” the diplomat said.
As Dzhagaryan noted that the main product for Iran is oil, and if whether Europe will be able to provide the volumes of oil exports and revenues that the Iranians need.
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