Europe Sets Up Payment Vehicle For Iran Trade To Sidestep US Sanctions

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The launch of INSTEX - or "Instrument in Support of Trade Exchanges" - by France, Germany, and the United Kingdom will allow non-dollar trade with Iran and is being described as facilitating humanitarian goods-related transactions only, including food, medicine, and medical equipment.

Diplomats acknowledge that the mechanism may not allow the scale of transactions that Iran says it needs to keep the deal alive but they hope that it will serve as a powerful symbol of their commitment to the agreement, which saw sanctions on Tehran lifted in return for curbs on its nuclear activities. Although only the three European signatories to the Iran deal are involved, all 28 countries of the EU are expected to endorse the project during the biannual informal meeting of EU foreign ministers, which is taking place Thursday and Friday in Bucharest, Romania. Iranian Deputy Foreign Minister Abbas Araghchi told state television it was "a first step taken by the European side".

Britain's Jeremy Hunt said the three countries were working closely with Tehran to finalize arrangements: "Registration is a big step, but there is still more work to be done", Hunt said.

"It won't change things dramatically, but it's an important political message to Iran to show that we are determined to save the JCPOA (Iran deal) and also the United States to show we defend our interests despite their extraterritorial sanctions", one European diplomat said. If the scheme works, it is likely to be most useful to small and medium-sized firms with no links in the US.

The painful road to INSTEX reflects Europe's desire to push back against Tehran's more disruptive behavior while still standing up to U.S. President Donald Trump's unilateral withdrawal from the deal, with which Iran has fully complied.

Washington has repeatedly warned the EU against trying to sidestep its sanctions on Tehran, while the Europeans - along with the deal's other signatories Russian Federation and China - say Iran has not broken its side of the deal and should be allowed to trade.

Iran cautiously welcomed the news as a "first step" but U.S. officials dismissed the idea that the new entity would have any impact on efforts to exert economic pressure on Tehran, and fired a fresh warning at anyone thinking of trading with the Islamic republic.

Oil, Iran's main source of foreign exchange, will not be covered.

Iran's economic crisis has led to sporadic protests against the government in the past year.

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A number of major global companies have already pulled out of Iran in the face of dire warnings that the USA will vigorously pursue any company breaching the sanctions regime.

On January 25, France said it was ready to impose new sanctions on Tehran if talks on its missile program make no progress.

"This is an important step and a political signal by E3, who feel duty bound to uphold the Iran nuclear deal as long as Iran fulfills all its obligations as set out in the treaty", German officials told German worldwide broadcaster DW.

The US embassy in Germany said on Thursday it was seeking additional details about the mechanism, but did not expect it to affect its effort to apply maximum economic pressure on Tehran.

Despite European efforts to preserve the nuclear deal, relations between Tehran and the EU have worsened.

The 2015 nuclear arms control treaty does not cover Iran's ballistic missile programme, human rights abuses, or other problems, such as Iran's recent attempts to assassinate regime opponents in Denmark and France.

In a symbolic move, the European Union added two Iranian individuals and an Iranian intelligence unit to its terrorist list.

The US has also threatened to punish British, Dutch, French and German companies taking part in Russia's plan to build a new gas pipeline to Germany, called Nord Stream 2.