Russia wants in on INSTEX

Kremlin has thrown its weight behind the EU’s efforts to boost trade with Iran in the wake of US sanctions. Brussels says it will bring the mechanism online before other members can join it.

20 July 2019
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Kremlin has thrown its weight behind the EU’s efforts to boost trade with Iran in the wake of US sanctions. Brussels says it will bring the mechanism online before other members can join it.

Russian President Vladimir Putin, left, shakes hands with his Iranian counterpart Hassan Rouhani in Tehran on 24 November, 2015. TASNIM NEWS AGENCY/Hamed Malekpour

Russia has signalled its willingness to join an EU payments channel designed to circumvent US sanctions banning trade with Iran and has called on Brussels to expand the new mechanism to cover oil exports.

Moscow’s involvement in the channel, known as Instex, would mark a significant step forward in attempts by the EU and Russia to rescue a 2015 Iran nuclear deal that has been unravelling since the Trump administration abandoned it last year, Financial Times reports. 

“Russia is interested in close co-ordination with the European Union on Instex,” the Russian foreign ministry told the Financial Times. “The more countries and continents involved, the more effective will the mechanism be as a whole.”

“This is an important project,” Dmitry Peskov, Vladimir Putin’s spokesman, told reporters on Thursday. “When it is activated, we cannot rule out interaction in this regard.” The new payment system was designed to help European companies fend off “illegal attempts to restrict their activities,” he added.

Iran has expressed frustration that the remaining signatories to the nuclear deal have not done more to give it relief from economic sanctions reimposed by the US, particularly restrictions on its ability to export oil. 

Mohammad Javad Zarif, Iran’s foreign minister, has described Instex as “not sufficient”. Speaking in New York on Thursday, Mr Zarif said Instex “may not resolve our problem” because it could not facilitate oil exports.

“Unless oil goes into Instex, it can’t be substantial . . . without oil, there is no substantial trade,” Mr Zarif told reporters at the Iranian mission to the UN.

Moscow’s support for Instex prompted a warning from US Treasury secretary Steven Mnuchin, who attended a G7 financial meeting in France.

“If you want to participate in the dollar system you abide by US sanctions,” Mr Mnuchin said, after discussing Iran with his French counterpart Bruno Le Maire. “We want to make sure that Instex is very careful on diligence and not doing anything that would run into issues of our sanctions.” He noted that exports to Iran for humanitarian purposes were still permitted.

The US is unhappy that the European nations are moving ahead with Instex but officials are confident the mechanism cannot provide serious relief for Iran.

“One of the most painful . . . impacts on the Iranian economy is the lack of what they thought was going to be very, very significant European investment,” said one senior US official, who added that the Trump administration was happy that the European companies had decided that it was not worth taking the risk.

The landmark nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), lifted a series of punishing international sanctions on Iran in return for Tehran’s agreement to curb its nuclear programme.

Sanctions have devastated the Iranian economy since they were reimposed by Washington, in part by halting a big portion of Iran’s oil exports, its most valuable commodity.

Russia has strengthened its ties with Iran in recent years as part of Moscow’s increased geopolitical importance in the Middle East, including its role of propping up the Assad regime in the war in Syria.

At a meeting with Iran’s president Hassan Rouhani last month, Russian president Vladimir Putin vowed to continue developing trade ties with Tehran and said Moscow was committed to a project to expand the Bushehr nuclear plant in Iran.

Efforts to rescue the nuclear deal have been a rare area of co-operation between Brussels and Moscow, whose relations soured after Russia’s 2014 annexation of Crimea, the attempted murder of a former Russian double agent in the UK and alleged attempts to meddle in EU elections.

Since US president Donald Trump pulled out of the deal last May, its other signatories — Germany, France, UK, China and Russia — have scrambled to find ways to maintain trade with Iran. But they have been stymied by companies’ reluctance to risk Washington’s wrath.

Instex was launched in January but subsequently delayed by bureaucratic hurdles and the complications caused by the US sanctions. It only became operational last month and has been criticised by Tehran for having big limitations.

The idea is to set up a so-called mirror image transaction system that replaces potentially sanctionable payments between Europe and Iran with ones that do not cross Iran’s borders.

Just 10 EU states are members and the mechanism’s initial credit line of several million euros is a fraction of EU-Iran trade, which stood at more than €20bn annually before the US sanctions.

Brussels is interested in bringing Russia into Instex, two EU officials told the Financial Times, but they said that it would first seek to get the channel up and running with humanitarian aid trades before potentially expanding its scope or membership.

Federica Mogherini, the EU’s foreign policy head, said this week that the trade mechanism “has always been conceived to be open to third countries.” 

“The issue of whether or not Instex will deal with oil is a discussion that is ongoing among the shareholders,” she added.

Iran wants Europe to buy its oil so that it can use the hard currency earnings to import basic commodities and medicines through Instex.

Moscow has previously said that it would look into ways to facilitate or finance Iranian oil exports if Instex was not launched or proved to be ineffective.

Analysts said China, which has shown a willingness to defy US sanctions, has greater potential to hand Tehran an economic lifeline by continuing to purchase Iranian crude exports.

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