Europeans plan to inject capital into INSTEX: Report

Three European signatories to the nuclear deal of 2015, Germany, France and the UK, are expected to inject capital into INSTEX to open credit lines for European companies that are interested in doing business with Iran.

27 June 2019
ID : 22073
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European governments will double down this week on their efforts to keep alive economic ties with Iran, officials said, providing a credit line to help a special mechanism establish a route for trade between Iran and the West, Wall Street Journal reports. 

The Europeans are planning to take the step despite Tehran’s threat to disregard some commitments under the 2015 nuclear deal and in the face of Washington’s demand to maximize economic pressure against Iran.

The European move highlights diverging Western policies toward Tehran at a time when tensions between Iran and the U.S. are threatening to spiral into a possible military conflict.

Europe has remained a staunch supporter of the nuclear deal which President Trump withdrew from in May 2018. While the U.S. has since placed strict economic sanctions on Iran, sending Iran’s economy into a deep recession, Europe has labored with little success to cushion the blow of the U.S. restrictions.

In recent days, facing Iranian threats to exceed the nuclear accord’s cap on the country’s stockpile of enriched uranium, European officials have intensified their work to kick-start efforts to maintain trade.

The centerpiece of those efforts is the move by France, Britain and Germany to set up a company, known as INSTEX, to allow European companies to import and export goods from and to Iran without the need for any direct financial flows.

The company was established in January but wasn’t operational and had carried out no transactions. Initially, European companies will be focused on trading humanitarian products like medicine, medical devices and food, which aren’t targeted by U.S. sanctions.

On Tuesday, European Union foreign policy chief Federica Mogherini said Instex was ready to be deployed. A formal announcement of this is expected in coming days, officials said.

France, Britain and Germany are set to announce by Friday that they will provide a capital injection of at least a few million euros to provide Instex with a credit line to hasten the first transactions.

The trade mechanism is designed to allow European companies which import Iranian goods to effectively pay European companies exporting goods to Iran, with Instex ensuring that payments are correctly offset.

However, one of the many technical problems facing Instex has been how to get it up and running since, at first, there might only be a few transactions and European imports may not offset the value of European exports to Iran. With the governments providing capital to Instex, the company could advance payments to European exporters to help get around that initial problem.

Iranian officials have been demanding that Instex show results soon, and European officials have said they hope the first transactions can take place over the next few weeks.

U.S. officials largely have been dismissive of the European trade mechanism. However, some U.S. lawmakers have called for sanctions to be prepared either against Instex or against a mirror Iranian company which is supposed to net out Iranian exports and imports in a similar way.

“I believe that this is now ready for being operational, and I hope that this is something that can help keep Iran compliant with the agreement as it has been so far,” Ms. Mogherini said of Instex on Tuesday.

On Friday, senior diplomats from the EU, France, Germany, Britain, Russia, China and Iran will meet in Vienna to discuss concerns about the nuclear deal.

The US special representative for Iran, Brian Hook, will meet with European officials in Paris on Thursday.

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