SPV Operationalization "to Take Months" After Nov. 4 Unveiling

EghtesadOnline: A new European Union mechanism to facilitate payments for Iranian exports should be legally in place by Nov. 4, when the next phase of US sanctions hit, but will not be operational until early next year, three diplomats said.

News ID: ۷۴۶۱۴۹

27 October 2018

The mechanism, a so-called special purpose vehicle (SPV), is designed to circumvent the sanctions, under which Washington can cut off any bank that enables oil transactions with Iran, Reuters reported.

The SPV, which could incorporate a barter system, aims to sidestep the US financial system by using an EU intermediary to handle trade with Iran. It could ensure, for example, that Iranian oil bought by Europeans could be paid for with EU goods and services of the same value, according to Financial Tribune.

“We’re trying to put the SPV in place before Nov. 4 and are pretty confident we can do it,” one EU diplomat said. “It won’t be operational immediately. It will take time and the time that takes will be months.”

The physical location of a head office and other issues still had to be worked out, the diplomat added.

A second diplomat said everything was in place to have a symbolic start date to show Tehran that the EU was meeting its promises. The bloc’s foreign policy chief, Federica Mogherini, announced the plan at the United Nations General Assembly in New York in September.

Latest Eurostat data show trade between Iran and the 28 member states of the European Union during the first half of 2018 amounted to more than €8.3 billion, registering a 12.8% decrease compared with last year’s corresponding period.

However, a third diplomat cautioned that while things were going in the right direction, choosing a location was proving difficult given no European states had volunteered, fearing possible US reprisals.

The entity would at one stage involve national central banks and there was no reason to think the Trump administration would not target them, the diplomat said.

The EU, with support from China and Russia, hopes to keep Tehran in a 2015 nuclear non-proliferation deal by allowing trade to flow despite US penalties.

“We need to demonstrate to the Iranians that we are working to uphold the (nuclear) agreement in the face of US sanctions, to keep them in, but also saying that we can only move so far, so fast,” a fourth diplomat said.

EU diplomats said the SPV would not be enough to preserve all trade. The aim was to convince Iran to keep its commitments under its nuclear agreement with world powers, from which US President Donald Trump withdrew in May.

Blocking Statute

The SPV will follow several other EU initiatives to try to shield European business with Iran from US sanctions that Trump is reimposing.

The mechanism will operate, in addition to the Blocking Statute that Brussels passed in August, which stops European companies from complying with the US sanctions unless they have authorization from the commission.

National governments could impose effective, proportionate and dissuasive penalties on any of their companies that cave in.

The statute also blocks the effects of US court actions in Europe and allows European firms to recover damages arising from the sanctions from anyone who causes them.

“It [the Blocking Statute] also forbids EU persons from complying with those [US] sanctions unless exceptionally authorized to do so by the commission,” European Commission Spokeswoman Mina Andreeva said on August 6.

She said such exceptions can be made in cases where “non-compliance seriously damages their interests or the interests of the European Union”.

The commission says US sanctions are illegal, stressing that it intends to maintain trade and economic relations with Iran.

The Blocking Statute also means that EU firms won’t be able to react to the American threat without facing penalties at home.

The European Commission said it will grant exceptions, if the company can prove that it is leaving Iran for reasons not linked to the US threat.

“If the authorization is rejected, then the company shall not comply with US law and if it does, it is subject to the penalties foreseen by each member state,” an EU senior official has been quoted as saying.

The Blocking Statute applies to anyone, foreign or otherwise, who is a resident in the European Union and also does business in Iran. This includes companies incorporated in the EU and ships registered in an EU state or fly an EU member state flag.

Nathalie Tocci, an aide to EU foreign policy chief, has characterized the measures as an attempt to “protect European companies”.

Tocci said the move was “necessary in order to signal, diplomatically, to the Iranians that Europeans are serious” about trying to salvage the Iran nuclear deal.

According to Mogherini, trade between Iran and the EU “is a fundamental aspect of the Iranian right to have an economic advantage in exchange for what they have done so far, which is being compliant with all their nuclear-related commitments”.

Iran exported €4.68 billion worth of commodities to EU member states during the period, indicating a 2.2% fall and imported €3.61 billion in return, down 23.7% year-on-year.