Officials in Tehran welcomed the creation of a channel with Iran called INSTEX by Europe, to help continue trade and circumvent unilateral US sanctions re-imposed after Washington withdrew from the international 2015 atomic deal signed with Iran in 2015.
French, German and UK foreign ministers announced the creation of 'INSTEX' on Thursday which they said was a new mechanism for "facilitating legitimate trade with Iran in order to preserve the Iran nuclear deal."
Releasing a joint statement, the E3 foreign ministers Jean-Yves Le Drian of France, Heiko Maas of Germany and the UK’s Jeremy Hunt said the measure had been announced in accordance with their resolute commitment and continued efforts to preserve the Joint Comprehensive Plan of Action (JCPOA) endorsed by United Nations Security Council.
INSTEX stands for Instrument for Supporting Trade Exchanges.
The move was long overdue as it was originally planned to be launched last November and Iranian officials had repeatedly expressed dissatisfaction with the delay.
The first official response came from deputy foreign minister Abbas Araghchi on Thursday. He welcomed the move as a “first step” by the EU in fulfilling its commitments to Iran.
Araghchi told state TV that while the channel is initially used for non-sanctioned trade with EU, Iran expects it to cover other trade because the philosophy of creating such a mechanism is to enable the trade of sanctionable goods by European companies.
Later Foreign Minister Javad Zarif tweeted: "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."
Foreign Ministry spokesman Bahran Qasemi also noted that Iran considers the EU move in registering its payment channel with Iran as "the first stride" in fulfilling its promises stated in their May 2018 statement. Qasemi called on the Europeans to make good on all their full commitments in the shortest possible time.
"Despite the political stance of the EU on the JCPOA and the necessity of Iran receiving the economic benefits after the US exit and limited measures like upgrading the Blocking Statute rules, unfortunately we have not witnessed any practical measures toward economic benefits for Iran," Qasemi said in a statement published on the Foreign Ministry website.
Qasemi added that EU's move in establishing the payment channel happened "very late" and that it is now necessary that the block ensure that it compensates part of the US sanctions.
Last year, Europe enacted its so-called Blocking Statute to honor the Joint Comprehensive Plan of Action – the Iran nuclear deal - after the US unilateral withdrawal from the deal. The statute allows EU operators to recover damages arising from the extraterritorial sanctions.
It also forbids EU persons from complying with those sanctions. The move only served as a symbolic gesture as it does not prevent massive exodus by European firms from Iran nor encourages lenders to handle Iran transactions.
Iran’s deputy parliamentary speaker, Ali Motahari, said however, that Europe's move in unveiling its payment channel was a telling sign that it wants to preserve the JCPOA.
According to the E3 statement, 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. 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.
"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 added.
A Central Bank of Iran official told the Financial Tribune on Friday that no formal discussions have started on creating the corresponding entity in Iran.
No Immediate Effect
The announcement for the launch of INSTEX came midday Thursday in Iran as markets were about to close and therefore no tangible impact was felt across the foreign exchange and gold market. The stock market is also closed on Thursdays.
Thus it remains to be seen how markets will react on Saturday and how investors will react.
Iran’s national currency lost more than 50% of its value in 2018 after Donald Trump announced that it was quitting the Iran nuclear deal after calling it the "worst deal of all time." The hawkish US leader promised a campaign of "maximum pressure" on Iran in order to bring it back to the negotiating table.
A CBI expert told the Tribune that INSTEX is unlikely to have much effect on the markets because there are still many "uncertainties about it."
According to the E3 statement, INSTEX will function under the highest international standards with regard 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.
The Paris-based FATF will decide later this month whether to remove Iran from the list of non-cooperative countries or not. Although Tehran has made tangible progress on its action plan, a main part of the related legislation has not been finalized.
The US Embassy in Germany said on Thursday it was seeking additional details about the new European mechanism but did not expect it to affect its effort to apply maximum economic pressure on Tehran.
