Europe Dissolves INSTEX Mechanism For Trade With Iran
The United Kingdom, France and Germany known as the E3 have decided to shut down the INSTEX mechanism, launched in 2019 to facilitate trade with Iran.
The United Kingdom, France and Germany known as the E3 have decided to shut down the INSTEX mechanism, launched in 2019 to facilitate trade with Iran.
The move by the group will be seen as another slap at the Islamic Republic amid souring ties.
The E3 set up INSTEX (Instrument in Support of Trade Exchanges) to help reduce the impact of US sanctions, particularly in relation to humanitarian goods.
However, in a harsh statement it cited Iran’s “continued obstruction” as the reason behind the mechanism’s liquidation this week.
The INSTEX shareholders – Belgium, Denmark, Finland, France, Germany, the Netherlands, Norway, Spain, Sweden, and the UK – voted in favor of the dissolution at the extraordinary general assembly on March 9 considering Iran’s persistent refusal to engage with the facility.
The group said it could no longer justify the INSTEX mechanism in spite of its demand from European exporters, as in the last four years, the Islamic Republic has systematically prevented INSTEX from fulfilling its mandate for political reasons.
“This was born from a political determination to impede the use of INSTEX under any circumstance,” the European countries said, highlighting that the Islamic Republic leadership has chosen “to act against the interests of its people by refusing to cooperate on the export of medicine and other life-saving goods”.
Reflecting the regime’s blatant disregard for its country’s needs, the group said it was clear Iran’s priorities were not in allowing humanitarian aid to reach its people.
“Iran only agreed to a single transaction, in early 2020, for the export of medical goods from Europe to Iran,” the group’s statement claimed. “After that, Iran consistently and deliberately blocked other proposals for transactions between the United Kingdom, Norway, the European Union and Iran.”
Considering the fact that Iran faces numerous difficulties for trade transactions with other countries and has been devising new methods to circumvent the US sanctions, the wording and timing of the E3 statement indicates the disappointment of the European states which have also been vocal in their condemnation of the violent suppression of protesters since September.
INSTEX was designed to reassure European companies that there was a safe mechanism for trade with Iran in the face of many fearing retaliation by the US where they had greater business interests than in Iran.
Major European companies left the Islamic Republic during the summer of 2018 when the Trump administration re-imposed Washington’s sanctions against Tehran following the pullout from the 2015 nuclear deal, the Joint Comprehensive Plan of Action (JCPOA).
At the time, Tehran was not so eager to use INSTEX because it seemed more of a symbolic gesture by the European parties of the JCPOA to make sure the Islamic Republic remains committed to the deal.
One Iran-born analyst in Germany said the reasons behind Iran’s reluctance is that INSTEX does not guarantee oil purchase from the regime, nor does it cover other countries such as China and India. Focusing on food, medicine and medical supplies, the regime felt it was not even a financial channel, more of an accounting company.
Responding to the announcement, Tehran said it never relied on the trade mechanism and has found other ways to safeguard its economic interests.
Foreign Ministry spokesman Nasser Kanaani said on Friday “Unfortunately, European governments failed in launching INSTEX effectively … and they did not implement the necessary measures for activating the instrument.”
He said that the main reasons for the failure of INSTEX are “lack of serious will” and “inability” on the part of the European governments to compensate for the US pullout from the JCPOA.
Masking the diplomatic setback, he said: “Tehran had never pinned hope on INSTEX as it has been conducting its international trade through other international financial and banking channels.”
US Department of the Treasury’s Office of Foreign Assets Control (OFAC) Thursday announced sanctions on 39 entities, including many based in the United Arab Emirates and Hong Kong, for helping Iran evading sanctions as well as designating a network of five companies and one individual for supporting Iran’s unmanned aerial vehicle (UAV) procurement efforts.
The Biden administration has accelerated its sanctions campaign against Iranian individuals and entities since September for three reasons. First, nuclear talks lasting 18 months reached a deadlock last September, exactly when popular protests erupted in Iran and were met with deadly force by the government. In addition to these factors, Russia began using killer drones provided by Iran, which alarmed the United States and its European allies.
Describing Thursday’s sanctioned entities as a "shadow banking" network that moves billions of dollars, Washington said the companies facilitate the Islamic Republic’s access to the global financial system. It added that those targeted had granted companies previously slapped with Iran-related sanctions, such as Persian Gulf Petrochemical Industry Commercial Co (PGPICC) -- which was sanctioned for aiding Revolutionary Guard’s Khatam al Anbiya construction base in 2019 -- and Triliance Petrochemical Co Ltd, access to the international financial system and helped them hide their trade with foreign customers.
In 2022 alone, PGPICC marketed millions of dollars of high-density polyethylene (HDPE) produced by Mehr Petrochemical Company (Mehr) to third-party buyers for delivery to Turkey and Asia. UAE-based Bavi General Trading CO L.L.C (Bavi General) and Iran-based Kambiz Nabizadeh and Partners Exchange (Nabizadeh Exchange) play a key intermediary role in these transactions. Late last year, a $170 million apparent embezzlement case left Mehr Petrochemicals, which produces the highest-grade polyethylene in the Middle East, in serious trouble.
"Iran cultivates complex sanctions evasion networks where foreign buyers, exchange houses, and dozens of front companies cooperatively help sanctioned Iranian companies to continue to trade," said Deputy Treasury Secretary Wally Adeyemo, adding that the new measures showed the US "ability to disrupt Iran's foreign financial networks, which it uses to launder funds."
Among those designated on Thursday were two Turkey-based entities, as well as Iran-based Mehr Petrochemical Company. Brian O'Toole, a former Treasury Department official, said Thursday's action would put a dent in Iran's ability to keep moving oil and get paid for it. "This is a pretty big deal, because this kind of thing should have an impact on what Iran is able to sell," he said.
The Treasury Department's top sanctions official, Brian Nelson, traveled to the UAE earlier this year, where he planned to warn officials about "poor sanctions compliance", a department spokesperson said at the time.
Also on Thursday, OFAC designated entities for supporting Iran’s UAV procurement efforts. This People’s Republic of China-based network is responsible for the sale and shipment of thousands of aerospace components, including components that can be used for UAV applications, to the Iran Aircraft Manufacturing Industrial Company (HESA), it said. HESA – designated on September 17, 2008, by the US for being owned or controlled by Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) and for having provided support to the IRGC -- has been involved in the production of the Shahed-136 UAV model that the Islamic Republic has used to attack oil tankers and has exported to Russia.
“Iran is directly implicated in the Ukrainian civilian casualties that result from Russia’s use of Iranian UAVs in Ukraine,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “The United States will continue to target global Iranian procurement networks that supply Russia with deadly UAVs for use in its illegal war in Ukraine.”
Amid a deep economic crisis, commentaries about the impact of foreign policy, meaning isolation and sanctions, on the country’s well-being have become more frequent.
Mohammad Hossein Adeli told Ham-Mihan Daily that by using these networks, Iran circumvents US sanctions. "As long as we are doing this, our situation is not normal. This is a costly way that entails high inflation for Iran."
Adeli who was the governor of Iran's Central Bank under President Akbar Hashemi Rafsanjani and the country's ambassador to several key countries under the reformist government of President Mohammad Khatami, said Iran is a country that cannot remain isolated.
He maintained that although some “revolutionaries” advocate isolation as a way of growth, they need to know that even China owes its growth to foreign investment and a $760 billion per annum trade with the United States. Adeli added that "isolation will drag Iran into collapse and instability and its economic development depends on national power and stable and intelligent interaction with the world. That is how China, India, Indonesia, Brazil, South Africa and Vietnam have successfully survived and their economies grew."
Adeli further stressed that economic sanctions cause a bigger loss for Iran than any war. He added that Iran is under the pressure of a series of deep and complicated sanctions. The added cost of domestic and international trade under sanctions disrupts Iran's economy and increases the cost of everything.
"People are in trouble for their everyday livelihood and the country cannot develop. When there is no prospect for future, people lose their hope. As a result, law breaking becomes a norm and social relations are disrupted. That, eventually causes revolt in the country," Adeli said.
Meanwhile, a commentary in the moderate news website Faraz daily maintained that IAEA Director General Rafael Grossi's visit to Tehran quickly helped Iran’s currency to rise after the media quoted a few lines from his statement about agreement over cooperation. The commentary asked whether this would bring the government in Tehran to its senses and encourage it to recognize the link between foreign policy and people's livelihood.
According to Faraz Daily, this development clearly highlighted the importance of foreign policy on the country's economy, while Iranian officials have been insisting that their isolationist foreign policy has no impact on the people's livelihood.
At the same time, the commentary observed, that not interacting with the world during several years of economic sanctions has led to a crisis for Iran's people and government.
There are indications that at least some politicians in Iran who are usually trusted by Supreme Leader Ali Khamenei are encouraging the government, and in fact Khamenei, who single-handedly makes all decisions on all matters including the economy and foreign policy, to be more flexible in their interactions with the West and particularly the United States.
Iran's former nuclear chief Ali Akbar Salehi said on Tuesday that Iran should show flexibility in its negotiations with the West in order to end its international isolation.
Salehi said during a speech at the Iranian Foreign Ministry, "Resistance should come along with prudence. When we face serious obstacles, we need to show intelligent flexibility in order to end our isolation." This, Salehi said, is a wise reaction. He also warned Iranian diplomats, "not to create political or diplomatic deadlocks."