By: Danielle Hatch
Ever since President Trump withdrew from the Joint Comprehensive Plan of Action (JCPOA) last year EU companies have felt pressure to figure out a way to keep the deal going with Iran without breaking US sanctions. The biggest issue all EU companies are facing is that many transactions all over the world are conducted in US dollars (even if they don’t have any connection to the US) and run through US banks, exposing non-US companies to US sanctions. A perfect example: Belgian company, SWIFT, provides a messaging system that connects more than 11,000 banks all over the world with the ability to make universal money transfers. The Belgian company is not subject to US jurisdiction or direct US sanctions, but the US has already threatened SWIFT with sanctions if they do not remove sanctioned Iranian banks from its networks. SWIFT put up a fight, but eventually gave in, saying its compliance with the new 2018 Iran sanctions was “regrettable” and “taken in the interest of the stability and integrity of the wider global financial system.”
France, Germany, and the United Kingdom believe they have the answer to the US sanctions: The Instrument in Support of Trade Exchanges (INSTEX), a mechanism that they hope with allow them to continue to trade with Iran completely and independently of the US. INSTEX is essentially a barter system that would allow transactions to take place without using SWIFT or the typical payment system. The Financial Times described how the system would work: a European fuel trader buying Iranian oil could be matched with a European manufacturer selling machinery to an Iranian company. The European oil buyer would not pay the Iranian seller but would instead send its payment to the European manufacturer. At the same time in Iran, the Iranian machinery buyer would not pay the European seller but would instead send it money to the Iranian oil seller.
At this time, INSTEX looks to be a viable option for smaller business and for humanitarian efforts but more of a stretch for large multinational companies (especially those concerned with US sanctions). INSTEX is still very undefined and the EU is still working on an alternative payment system but is having issues because no EU country wants to risk being blacklisted by the US for being a “go around” and using a loop hole around US sanctions.
If the EU is able to get INSTEX up and running it could have a very dramatic effect on the US and its ability to use sanctions to completely cut off countries from international transactions and isolate economies.
Additional Articles: https://www.forbes.com/sites/annalisagirardi/2019/04/09/instex-a-new-channel-to-bypass-u-s-sanctions-and-trade-with-iran/#26d28846270f and https://uk.reuters.com/article/uk-usa-iran-oil-france/france-says-iran-instex-mechanism-is-making-positive-progress-idUKKCN1RZ14F