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EU Has to Fine-Tune New Payment Mechanism to Trade With Iran Under US Sanctions

© AP Photo / Vahid Salemi, FileThis Nov. 17, 2007, file photo, shows a portion of the Tehran oil refinery, in Tehran, Iran
This Nov. 17, 2007, file photo, shows a portion of the Tehran oil refinery, in Tehran, Iran - Sputnik International
BRUSSELS (Sputnik) - It took European countries four months to establish a payment channel with Iran that would enable the European Union to continue trade with the Islamic republic in the face of US sanctions, but it is still unknown when this mechanism will become fully operational and indeed manage to protect EU businesses from US pressure.

The European Union officially announced its intention to create a so-called special mechanism for trade with Iran on the sidelines of the United Nations General Assembly at the end of September. Despite the fact that it was originally planned that the mechanism would be brought into life by November, its establishment was repeatedly postponed due to unresolved issues. Tehran, meanwhile, has persistently urged Europe to speed up the process.

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Only on Thursday did France, Germany and the United Kingdom, known as the E3 group, officially confirm the creation of INSTEX SAS (Instrument for Supporting Trade Exchanges) trading system. According to the bloc's plan, this mechanism should protect the trade between the bloc and Iran from US restrictions and save the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, from collapse.

A statement issued by the three countries' foreign ministers suggested that the mechanism was at the primary stage of its practical implementation and still needed fine-tuning. In addition, conditions for the involvement of other EU members and countries outside the bloc in the instrument's work should be created.

Iran welcomed the decision, while Russia announced its intention to cooperate with the European Union for the sake of "the successful implementation" of the initiative. The United States, for its part, expressed confidence that the new trading system would not prevent it from putting further pressure on Iran.

Trial Balloon

EU foreign policy chief Federica Mogherini decided to give Berlin, London and Paris the opportunity to announce the results of their work, although journalists had expected that it would be she who would make the first statement on Thursday.

The three-party statement revealed that "INSTEX 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".

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According to UK Foreign Secretary Jeremy Hunt, there was still much work to be done to refine the special settlement mechanism, which at the current stage was intended to settle the legal issues relating to trade with Iran and ensure smooth deliveries of goods needed by Iranian citizens.

German Foreign Minister Heiko Maas, for his part, said that by creating the special purpose vehicle (SPV) with Iran, the European Union wanted to keep the JCPOA alive and meet its obligations to Iran as part of the deal.

The E3 statement also highlighted that the three countries intended "to pursue the further development of INSTEX with interested European countries."

Strengthen and Involve

In this frame grab from Iranian state TV, a video, a rocket carrying a Payam satellite is launched at Imam Khomeini Space Center, a facility under the control of the country's Defense Ministry, in Semnan province, Iran, Tuesday, Jan. 15, 2019. According to Telecommunications Minister Mohammad Javad Azari Jahromi, the rocket failed to reach the necessary speed in the third stage of its launch. - Sputnik International
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Mogherini promised, on behalf of the European Union, to continue to aid in the E3 group's efforts to speed up the mechanism's launch as soon as possible in close coordination with Iran. These efforts, according to her, would have to ensure that it opens up to economic operators from third countries at a later stage.

"I welcome today’s registration of INSTEX SAS, a Special Purpose Vehicle with France, Germany and the United Kingdom as initial shareholders … The instrument launched today will provide economic operators with the necessary framework to pursue legitimate trade with Iran", Mogherini said in a statement.

According to the EU foreign policy chief, the European Union will continue to assist in the E3 group's work to make the instrument operational in the near future in close coordination with Tehran.

Remaining Questions

Commenting on the mechanism's launch, Russian Ambassador to Iran Levan Dzhagaryan said that it was difficult to predict at the moment how the EU-created mechanism would work in the future.

"It seems to me that the European partners launched this mechanism with considerable delay. The Iranians expected this step to be made much sooner. There are a lot of questions: is there a possibility to involve third countries in its work? If there is, then what are the conditions [for joining it] and so on. There are currently more questions than answers", the ambassador said.

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The diplomat reiterated that there were many uncertainties and refrained from making concrete predictions.

Russia’s Permanent Representative to International Organizations in Vienna Mikhail Ulyanov also said that it was too early to assess the effectiveness of the mechanism.

"It is still too early to evaluate the economic efficiency of the created mechanism. It is clear that it will take some time to fine-tune it", Ulyanov indicated.

Ulyanov added that Russia would actively cooperate with the European countries to ensure successful work of the mechanism.

"At the first stage, [we will cooperate with Europe] politically. Then, when they open [the mechanism] to third countries, lots of our [Russian] companies will surely want to use such a secure channel for making transactions [with Iran]. And not only ours", Ulyanov said, adding that the involvement of non-European countries in the process would help strengthen the capacity of the payment mechanism.

Iran Awaits Results

Tehran hopes that the coverage of the financial instrument will be expanded in the future. According to Iranian Deputy Foreign Minister Abbas Araqchi, the mechanism will fully benefit Tehran when other countries and non-European companies start using it.

"When other states and non-European companies have an opportunity to use this mechanism, then it will be completely beneficial for us, and it is planned that this will be the next step", Araqchi told the Iranian IRIB TV1 broadcaster in an interview.

Iranian Foreign Minister Javad Zarif also welcomed the creation of INSTEX.

"Iran welcomes #INSTEX — a long overdue 1st step — in E3 implementation of May 2018 commitments to save JCPOA [Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal] 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", Zarif said on his Twitter blog.

US Not Impressed

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A spokeswoman for the US State Department has already said that the new payment mechanism would not affect the campaign of maximum economic pressure it is waging against the Islamic republic.

The diplomat noted that the United States was closely monitoring reports about the new mechanism to receive more details about it.

"We do not expect the SPV will in any way impact our maximum economic pressure campaign", the spokesperson said in a statement.

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The spokesperson added that, as stated by US President Donald Trump, "entities that continue to engage in a sanctionable activity involving Iran risk severe consequences" and specified that it included losing access to the US financial system and the ability to conduct business with the United States or US companies.

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