EU's Iran Payments Vehicle Ready, But Hurdles Remain

EghtesadOnline: A payment mechanism the EU hopes will save the Iran nuclear deal by bypassing US sanctions is ready, diplomats said on Monday, but is held up by disagreements among European countries.

News ID: ۷۴۶۵۹۵

30 January 2019

The "special purpose vehicle" is being put together by Germany, France and Britain, the European signatories to the 2015 accord that limited the scope of Tehran's nuclear program in return for sanctions relief, AFP reported.

The entity, to be based in France with German governance and finance from all three countries, will allow Iran to receive payments despite Washington reimposing sanctions after ditching the deal.

"It will be registered; it is not yet registered. I would say that we are immediately before the point of the implementation of our plan," German Foreign Minister Heiko Maas said at a meeting in Brussels organized by the Belgian government, according to Financial Tribune.

While the vehicle is the work of the three governments, the EU wants to launch it along with a formal statement on Iran endorsed by all 28 member states and addressing the whole spectrum of European concerns about the Islamic Republic.

The EU has commended Iran for sticking to its commitments under the nuclear deal, but has growing concerns about Tehran's ballistic missile program among other issues.

Diplomatic sources said Italy and Spain have so far blocked the adoption of the statement, meaning it may have to wait until the next formal meeting of EU ministers on Feb. 12.

It is not clear whether Germany, France and Britain will wait for consensus on the statement or go ahead and launch the vehicle without it.

Growing Criticism

Iran's criticism about Europe's delay in launching the special purpose vehicle (as the payment system is known) has increased in recent days. The crucial mechanism was meant to be in place before the new year, but nothing has happened yet.

Officials in Tehran have expressed frustration with European procrastination in launching the SPV. Foreign Minister Mohammed Javad Zarif has said that while the Europeans ascribe the delays to the claim that they want to really make the mechanism "operational", the underlying reason is that “they are not yet ready to pay the cost of defying the US”.

During his recent trip to India, Zarif said Iran will not wait for Europe and build relations with its traditional partners like India, China and Russia.

The EU's ability to push back on the US sanctions is limited, as many companies are already complying for fear of losing access to the bigger and more lucrative US market.

But the special purpose vehicle will preserve at least some economic activity, officials said, and it is viewed as an extremely important symbolic step for the Iranian government, allowing it to answer domestic critics who say that Iran should retaliate by abandoning the deal.

US Warning

The Trump administration is closely eying efforts in Europe to set up an alternative money payment channel to ease doing business with Iran and avoid running afoul of sanctions the US has levied on the Islamic Republic.

The White House is putting the Europeans on notice, saying that if they try to do an end-run around US sanctions on Iran, they will be subject to stiff fines and penalties. Unfazed, the European Union is marching forward with the plan which, if implemented, could further strain trans-Atlantic relations, AP reported on Monday.

Getting out ahead of a possible announcement, a senior administration official told AP on Friday that the US will fully enforce its sanctions and hold individuals and entities accountable for undermining them. The official spoke on condition of anonymity to discuss the issue.

“The choice is whether to do business with Iran or the United States,” Sen. Tom Cotton, R-Ark., told the AP. “I hope our European allies choose wisely.”

The US has many concerns about the alternative payment system, according to an outside Trump administration adviser. The adviser spoke on condition of anonymity to discuss the key US worries.

Long-term, the US worries that the alternative money payment system could become successful enough to compete with the international bank transfer system known as SWIFT. The fear is that it could eventually supplant SWIFT as the leading global vehicle for financial institutions to send and receive information about banking transactions.

Secondly, the US is concerned that other countries might try to route transactions through the European system just to circumvent US sanctions, the adviser said.

Thirdly, while the Europeans have signaled that the alternative money transfer system would be used only for humanitarian transactions, the US is suspicious that it could be used for non-humanitarian transactions to evade US sanctions, the adviser said.

“We should oppose efforts to create foreign financial channels that Iran could use to circumvent America’s maximum pressure campaign against it, especially when humanitarian exceptions are already in US sanctions laws,” Sen. Marco Rubio, R-Fla., told AP.

As the administration prepares for the potential fallout from the possible European move, it is pressing ahead with its sanctions campaign against Iran by preparing to co-host a conference with Poland next month.

Sinking Trade

Trade between Iran and the 28 member states of the European Union declined by 66.02% year-on-year to stand at €679.55 million in November 2018.

According to Eurostat, Iran’s exports during the one-month period amounted to €209.98 million, registering a 78.12% downfall as imports fell by 54.86% to reach €469.56 million.

November was in fact when the United States began to impose the second tranche of sanctions described as "toughest sanctions ever" against the Islamic Republic after the first wave hit back in August, effectively impeding Iran's trade with major countries.

Total trade between Iran and the European Union members from January to November 2018 amounted to more than €17.25 billion, which shows a 1.66% fall compared with the similar period of last year.

Iran’s top five trade partners over the 11-month period were Italy, Germany, Spain, France and Greece with more than €4.48 billion, €2.88 billion, €2.54 billion, €2.39 billion and €1.26 billion worth of commercial exchanges respectively.

Iran exported more than €9.09 billion worth of commodities to EU member states during the 11-month period, which shows a 6.43% rise YOY.

As for Iran's imports from the EU during the period, they decreased by 9.34% YOY to stand at more than €8.15 billion.

The Trade Promotion Organization of Iran has called on Europe to abolish tariffs imposed on the import of Iranian goods, saying the move would send a message that Europe is serious about expanding trade with Iran.

Mohammad Reza Modoudi, the acting head of TPO, recently made the remarks in a meeting with Swiss Ambassador to Tehran Markus Leitner.

“We expect European governments to take full advantage of their capacities to develop trade ties with Iran and we propose that they reconsider their tariffs on the import of Iranian goods,” he said.

“This may not make much difference to their trade figures with Iran, but it can send a message to the world, especially the US, that Europe is committed to its cooperation with Iran within the framework of JCPOA.”

Modoudi said the economic war waged by the US does not only target Iran, but marks the start of future economic wars that could affect the rest of the world.