The European-sponsored financial mechanism to maintain trade with Iran despite American sanctions needs to ultimately include major Asian trade partners instead of remaining limited to Iran-Europe economic ties, an expert said.
The trade channel, formally called INSTEX (Instrument in Support of Trade Exchanges) was officially registered last week by Germany, France and the United Kingdom (known as E3).
Its purpose is to facilitate commercial transactions with Iran while the country is under strict sanctions imposed by the United States after its withdrawal from the 2015 nuclear deal last May.
According to the E3 statement, the vehicle initially aims to “facilitate legitimate trade between European economic operators and Iran”, but would be open to third countries in the long run.
In a recent interview with the Iranian Diplomacy website, Mohsen Rouhsefat, an expert on South Asia affairs, said the system should essentially work for countries such as India and China “with which we have the largest volume of trade and from which we import a major portion of our essential goods”.
“We need the mechanism to secure our trade ties with Southeast Asia and the subcontinent more than helping retain our relations with Europe,” he said.
The European-sponsored special trade vehicle should essentially work for countries such as India and China “with which we have the largest volume of trade and from which we import a major portion of our essential goods,” an experts says
He stressed that the trade vehicle should be expanded to enable oil exports to India and China, the top clients of Iranian crude.
According to Rouhsefat, whether INSTEX can serve such interests is uncertain since neither the details of the mechanism nor its capability to counter the sanctions is clear yet.
“It seems that E3 have adopted a step-by-step policy to both avoid a hostile reaction by the US and to be able to adapt to international economy,” he said.
"It is possible that subsequently, the system would enable oil sales and help circumvent financial and banking sanctions, depending on Tehran’s performance."
Essential Consideration
An important move on the part of Iran, according to the expert, is the passage of four bills that aim to make the country conform to the guidelines of the Financial Action Task Force, an international body in charge of monitoring money laundering and terrorism financing worldwide.
“If we can adopt these laws, they can pave the way for the operationalization of this mechanism. Consequently, other countries will be able to use it for business with Iran, otherwise it will be efficient neither for Europe nor for China, the subcontinent or any other country,” Rouhsefat said.
The E3 statement mentions that INSTEX will function under the international standards with regard to anti-money laundering and combating the financing of terrorism, therefore, Iran is expected to “swiftly implement all elements of its FATF action plan".
This stipulation has given rise to domestic criticism by those who say the launch of INSTEX is a European Union obligation under the nuclear agreement to ensure Iran enjoy the deal’s economic benefits and it cannot impose conditions.
The expert, however, pointed out that the four legislative measures have nothing to do with the 2015 accord and are general requisities for the country’s international transactions.
“Whether sanctioned or not, having signed the nuclear deal or not, we need to pass these laws to facilitate our monetary and banking relations with the world,” he said.
Rouhsefat called on Iranian officials to take the FATF-related reforms more seriously, as they have become more sensitive with the launch of INSTEX.
“I do not mean that they should be approved without review and assessment, but the critical conditions of the country should be taken into account [while considering them],” he said.
