Opinion: EU taking a stand through legal trading with Iran

The idea of circumventing American sanctions in dealings with Iran is a nice thought. Whether it works or not remains to be seen, writes guest contributor Rainer Hermann, but Brussels is taking a highly symbolic step.
Rainer Hermann
Rainer Hermann

The creation of a European special purpose vehicle to facilitate legal trade with Iran is the expected political signal that Europe is not willing to bow to US extraterritorial sanctions. Three European leaders — Germany, France and Great Britain — came together to found the Paris-based "Instrument for the Support of Trade Exchange" (INSTEX). If it takes shape, more states will join. This political act of will is needed in order to convince Tehran that the EU is sticking to the July 2015 nuclear agreement with Iran so that it will continue to exist, despite America's withdrawal.

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New financial mechanism means European businesses

Complicated preparation

The project is no small feat. Before the special purpose vehicle can conduct business between European companies and Iran — that is, before it can become operational — its founding members, as well as Per Fischer, the German director of INSTEX, will have to carry out complicated preparatory work to set the stage for its rollout.

INSTEX must first concretely formulate which services it will offer interested companies. For this, INSTEX will need to determine how great a need there is and who is interested, not least in order to give the Iranians time to implement necessary steps. Tehran must deliver goods that are suitable for such an exchange.

Protection mechanisms crucial

But INSTEX cannot only function as an exchange platform that somehow offsets goods between each side. The companies will want to secure their deliveries, for example against the insolvency risk of the company involved in the exchange. Will INSTEX also cover this?

DW guest contributor Rainer Hermann is an editor for the German daily "Frankfurter Allgemeine Zeitung"

Crucial for INSTEX's success will be whether participating states also develop mechanisms for European companies and their employees that protect them from the expected American sanctions and compensate for any damages incurred. The legislative instrument for this exists: The EU's blocking statute. It just needs to be updated to meet the new requirements.

Read more: US welcomes German firms' compliance on Iran sanctions

International transactions independent of the dollar

The knowledge and experience gained in the process could later be transferred to other areas, such as European initiatives in international monetary transactions. This expertise could then come in handy for establishing payment channels independent of the American financial system and the dollar, which the US also uses as a lever in its sanctions policy.

Read more: Iranians feel the pressure of new US sanctions

That's why the establishment of the special purpose vehicle for contravening US sanctions holds considerable significance that goes beyond the current case of Iran. Today, it's Tehran — but with it, Europe is for the first time testing its capabilities in terms of not bowing to the extraterritorial sanctions of other governments. 

US sanctions and who they target

Iran

US sanctions on Iran target Tehran's trade in gold and precious metals, block the sales of passenger jets and restrict Iran's purchase of US dollars, among other punitive measures. The US has also blocked Iran's key oil sales in a further tranche of sanctions, which came into force in November 2018.

US sanctions and who they target

North Korea

Impoverished North Korea is under a UN-backed embargo, but Washington also maintains an extensive regime of sanctions of its own. For example, the US strictly bans exporting weapons to the pariah state. Washington also uses its global clout to penalize non-US banks and companies that do business with Pyongyang.

US sanctions and who they target

Syria

Washington trade restrictions prevent the regime of President Bashar Assad from exporting Syrian oil to the US. All property and assets of the Syrian government in the US have been frozen. Americans, wherever in the world they might be, are banned from "new investment" in the war-torn country, according to the US Treasury.

US sanctions and who they target

Russia

The US blacklisted scores of high-ranking Russian officials and businessmen after the 2014 Crimea crisis, stopping them from traveling to the US and freezing their assets. The comprehensive sanctions list includes goods from the Russian-annexed region, such as wine. New sanctions imposed in the aftermath of the Skripal poisoning in March 2018 target sensitive national security and defense goods.

US sanctions and who they target

Cuba

American tourists began flocking to Cuba immediately after the Obama administration initiated a thaw in relations in 2016. Under Donald Trump, however, the White House reimposed travel restrictions for US citizens, making it much harder for Americans to travel to the island. At least one Obama-era concession is still in place, however: it is still legal to bring Cuban cigars and rum to the US.

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