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Analysts: EU Vehicle for Iran Trade Viable Only for Small Firms Unrelated to US

CC0 / / Euro banknotes
Euro banknotes - Sputnik International
BRUSSELS (Sputnik) - The legal entity which the European Union has proposed to facilitate its trade with Iran bypassing US sanctions on Iranian banking operations may only work for smaller companies having no relation to the United States, experts told Sputnik.

Earlier this week, EU foreign policy chief Federica Mogherini announced that the five states which had remained committed to the Iran nuclear deal decided on the sidelines of the UN General Assembly to establish a special purpose vehicle (SPV) that would facilitate legitimate trading of European companies with Iran amid US sanctions against Tehran.

No exact dates have been agreed for launching the mechanism though, according to the European Commission.

Following Mogherini's announcement, US Secretary of State Mike Pompeo said that he was "disturbed and indeed deeply disappointment" by the news, while US National Security Advisor John Bolton said that the United States would be "watching the development of this structure" and stressed that Washington would not allow "Europe or anybody else" to circumvent its sanctions.

Limitations of Mechanism

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On November 4, a new wave of US sanctions will directly hit Iran's oil exports and banking operations and de facto disconnect the Middle East state from international financial channels. If the Iran deal is to be saved, it is now urgent for the remaining JCPOA signatories to implement the SPV initiative.

"From what I understand, it would look like a clearing house, when Europe imports oil from Iran, the money will go to the SPV, and if a machine is sold by a European company in Iran, the payment will be made via the SPV. This mechanism would 'immunize' buyers and sellers by avoiding transactions in dollars that could expose them to US sanctions. Oil is the only counterpart that Iran can give. It allows oil revenues to be used to import goods," Karsten Brzeski, the chief analyst for the Dutch ING Bank, told Sputnik.

Such a mechanism could only work, however, for companies without any exposure to the United States, the analyst warned.

"As soon as there is exposure to the United States, I would guess that the US administration could impose direct or indirect pressure on companies not to use the SPV," Brzeski said.

Big Companies Already Out

"I cannot yet evaluate the potential efficiency of the sort of ‘clearing house’ that the Europeans want to create, based on the purchasing of Iranian oil, but I have great doubts that companies, especially the large ones would ever dare participate to such a scheme," Etienne de Callatay, the former chief analyst of Bank Degroof in Brussels, told Sputnik.

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Airbus had a $40-billion contract with Iran Air on the delivery of 100 planes, but the deal was now off since the transaction was to be made in US dollars.

"The same for all major companies, such as Total, Peugeot or Volkswagen. They have already discontinued all operations and projects in Iran. Maybe [small and medium-sized enterprises] could be interested, but there too, I have great doubts," Callatay added.

Drieu Godefridi, the founder of the l'Institut Hayek, agreed that there was nothing beneficial in the mechanism for bigger businesses.

"There will be no involvement of commercial banks and central banks, both of whom are terrified at the prospect of US retribution if they are seen to be going against US sanctions," Godefridi told Sputnik.

All major European groups that were active in Iran have already canceled their projects in Iran even before any potential injunctions from the United States, and for smaller companies it would also be risky to have their identity revealed, the expert said, adding that Europe can not protect its companies against Washington's sanctions.

"If the European Union wants to be respected by [US President] Donald Trump, it should rigorously enforce its blocking regulations against Washington. If the US is persecuting European companies outside their territories, for example, on the grounds that they have resorted to the global payment system, Brussels would have to respond — through compensation and redress. But is the EU ready to do that? I have great doubts. This barter agreement is a dead end," Godefridi said.

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The Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action, was reached in 2015 by China, France, Germany, European Union, Iran, Russia, the United Kingdom and the United States. Washington slammed the door on the agreement earlier in the year and announced reimposition of a series of hefty sanctions targeting Iran and foreign companies or countries that would continue to do business with Tehran. Under the threat of falling within the scope of sanctions, many large groups, such as Total, Daimler, Volkswagen, Peugeot, Renault and Airbus, have since ceased all activity with Iran.

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