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Four things to know about the US sanctions dodger INSTEX

  • 1 Feb 2019

The leading countries of the European Union leading, Germany, France and the UK, have introduced a new special purpose vehicle called INSTEX to bypass US sanctions and save the nuclear agreement with Iran.

German Foreign Minister Heiko Maas speaks to the media next to Britain's Foreign Secretary Jeremy Hunt and French Foreign Minister Jean-Yves Le Drian during the informal meeting of the European Union foreign ministers in Bucharest, Romania, January 31, 2019. ( Reuters )

The European Union member states — France, Germany and the UK —  announced on Thursday that they have set up a new special purpose vehicle (SPV) to avoid US sanctions on Iran.

The new transaction channel is called the Instrument in Support of Trade Exchanges (INSTEX).

The EU intends to bypass the US-influenced Society for Worldwide Interbank Financial Telecommunication (SWIFT) and continue its trading activities with Iran via INSTEX.

The foreign ministers of France and Germany had previously made multiple statements about working on creating the new SPV.

Under the Donald Trump administration, the US withdrew from the Iran nuclear agreement signed in 2015 by Iran, the US and the EU. Soon after, the US imposed new sanctions on Iran and instructed EU companies to abandon business with Iran.

Washington’s major European allies opposed Trump's decision to abandon the 2015 nuclear deal, under which international sanctions on Iran were lifted in return of Tehran accepting curbs on its nuclear program.

European countries promised to save the nuclear agreement with Iran.

Here are four things you should know about the EU-introduced special purpose vehicle INSTEX, the system that aims to bypass the US sanctions.

Bypassing the US sanction on Iran

The EU’s new payment system, INSTEX, is independent of the US-dominated SWIFT, which is currently being used worldwide. SWIFT enables users to send and receive information about financial transactions.

It is used by more than 11,000 institutions across the world, preventing the funding of terror networks and drug cartels. However, it is also used for banning transactions with Iranian and Cuban banks as it is heavily influenced by the US.

With the help of the INSTEX, companies that were threatened by the US before can easily continue business with Iran.

Management of INSTEX

INSTEX will be run by a trio of countries, with the hope that other states will join later and share the responsibility of running the SPV.

The headquarters of INSTEX will be located in Paris. Germany is responsible for the management with the former manager of Commerzbank Per Fischer. British officials will also head the supervisory board.

European food and medicine in return for Iranian oil

By using INSTEX, European companies are initially going to sell food, medicine and medical devices to Iran in return for oil.

There is an account between the Iran and European sides that companies can use to sell goods. 

It is expected that the move will begin with a low trading volume, but may be expanded in the future.

Political tool for the EU

Thanks to INSTEX, the EU has made a symbolic gesture to save the nuclear deal with Iran, effectively bypassing US sanctions on the country.

Together with saving the nuclear deal with Iran, the EU has also responded to the latest US policies by choosing to stand on its own.

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