The Media Line: EU Proposes ‘Special Vehicle’ For Bypassing U.S. Sanctions On Iran

EU Proposes ‘Special Vehicle’ For Bypassing U.S. Sanctions On Iran

Another round of sanctions targeting Iran’s oil sector is set to go into effect early next month

By: Terrance J. Mintner/The Media Line

In a slap to the Trump administration’s policies on Iran, the EU has decided on Monday to salvage the landmark 2015 Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA).

It is calling for a “Special Purpose Vehicle” (SPV) or an alternative way to make economic transactions with the Islamic Republic in a bid to circumvent the next round of U.S. sanctions—set to begin in early November—that will target Iran’s oil sector. With these sanctions in place, Washington can effectively cut off from the U.S. financial system banks and other companies that continue their business dealings, especially oil transactions, with Iran in defiance of the punitive measures.

After U.S. President Donald Trump pulled out of the 2015 nuclear deal in May, his administration began re-implementing sanctions on the Iranian economy, a process that has been unfolding in phases.

After the partial return of sanctions, the Iranian economy has been in free fall as the currency—the rial—has slipped to record lows. The resulting economic instability has sparked several protests throughout the country with calls to reform the political system.

The 2015 nuclear deal, spearheaded by former U.S. president Barack Obama, put measures in place to end the biting sanctions on Iran in return for greater restrictions on Tehran’s nuclear program.

On Monday, the remaining supporters of the deal—Iran, the EU, Britain, China, France, Germany, Russia—agreed to continue trade relations with Iran through the use of a special payment mechanism.

“Mindful of the urgency and the need for tangible results, the participants welcomed practical proposals to maintain and develop payment channels notably the initiative to establish a SPV to facilitate payments related to Iran’s exports, including oil,” the supporters of the deal said in a joint statement after the meeting.

Though they hinted that technical details will come later, some European diplomats have speculated that the SPV could take the form of a bartering system whereby Iranian oil or other products would be exchanged for EU goods without the use of money. This arrangement would allow Iran limited economic relations with the EU without violating U.S. sanctions.

After the meeting, EU foreign policy chief Federica Mogherini said that such arrangements could be bolstered by a legal mechanism.

“In practical terms this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law,” Mogherini said.

Thomas Gratowski, an Iran expert at the advisory firm Global Counsel, told The Media Line that a bartering system is a real possibility considering that it is what Iran depended on during the sanctions era (the toughest sanctions were levied on Iran between 2010 and 2013).

When the U.S. and EU put pressure on countries to reduce their imports of Iranian oil at that time, some Asian countries were allowed to continue oil imports from Iran.

“But Iran was forced to keep its oil revenues in the central banks of those countries. In return, it could use the money held in those banks to import from those countries,” Gratowski said. “So, dollars never reached Iran,” he continued.

He explained that penalties for breaching U.S. sanctions could shut out companies from the U.S. market, its financial system, and U.S. supply chains. “Multinational companies are obviously extremely wary of being hit by any of these measures.”

He speculated that the “SPV could work with some smaller European oil refining companies that are not exposed to the U.S. market in any of these three channels. They could use the SPV to purchase Iranian oil.”

Behnam Ben Taleblu, an Iran expert at the Foundation for Defense of Democracies in Washington, told The Media Line that when the next round of sanctions go into effect on November 4, the U.S. is simply resurrecting the penalties that used to exist.

“The real challenge comes after that date when the enforcement scheme begins. This involves adding new targets and levying new threats, because you don’t want to go back, but make provisions for the future.”

When asked why Europe is willing to go to such great lengths to salvage the deal, Ben Taleblu responded that the EU has maintained mercantilist relations with Iran. But it also believes that tough sanctions—like the ones that both the EU and U.S. put in place between 2010 and 2013—were “worth being traded away on the non-proliferation merits of the JCPOA.”

“The leverage that the U.S. and EU generated starting in 2010 after U.N. Security Council Resolution 1929 should not have been traded away for a deal that bad,” he contended.

“Diplomacy is a good way to deal with the Iran nuclear issue, but the 2015 deal did not adequately address the threat emanating from Iran in the present, nor did it do anything to stem a future threat. In fact, it helped Iran establish a legal groundwork for a future nuclear-industrial program.”

Ideologically, Ben Taleblu concluded, “Europe believes that you can transform Iran by giving the Iranians cash—an assessment shared by the Obama administration. It also believes that you can resolve this conflict, and begin to re-integrate Iran into the international community, and make it a normal country, simply by tinkering with a few things in its nuclear file.

“That has proven not to be the case,” he said.

MORE DETAILS: The Media Line

 

 

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