Germany, France, and the UK have officially set up a European mechanism to facilitate non-dollar trade with Iran and circumvent the U.S. sanctions, two diplomats said on Thursday.
The European Union (EU) has been preparing the system, in effect a clearinghouse that avoids monetary transfers in dollars between the EU and Iran for months although it is unlikely to become operational for several months due to technical details.
German broadcaster NDR reported that the European Special Purpose Vehicle (SPV) would be named "INSTEX" – short for "Instrument in Support of Trade Exchanges".
The idea is for the SPV to help preserve the economic benefits for Iran derived from the curbs it placed on its nuclear program under a 2015 deal with world powers, from which U.S. President Donald Trump withdrew last year.
The entity primarily focuses on food, medicine and humanitarian. It will not be used for oil-related transactions that have been hit hard by the U.S. sanctions.
"It won't change things dramatically, but it's an important political message to Iran to show that we are determined to save the Joint Comprehensive Plan of Action (JCPOA) and also the U.S. to show we defend our interests despite their extraterritorial sanctions," one European diplomat said.
However, relations between Tehran and the EU have worsened, and the EU this month imposed its first sanctions on Iran since the 2015 deal in reaction to Iran's ballistic missile tests and assassination plots on European soil.
In a symbolic move, the EU added two Iranian individuals and an Iranian intelligence unit to the bloc's terrorist list.
EU member states are also finalizing a joint statement on Iran to outline concerns about Tehran's regional policies and ballistic missile program, but also to show their desire to maintain the 2015 Iran nuclear deal.
France and Germany had taken joint responsibility for the SPV. A German banker would head up the vehicle, which would be based in France. France, the UK, and Germany will be shareholders and they hope other states will join.
