Germany, France and Britain have set up a special payment platform to keep trade with Iran intact despite Washington's sanctions. That's unlikely to go down well with the US administration.

(Source: Moment/Getty Images) Trading with Tehran by the skin of our teeth.

Ever since Washington withdrew from the Iran deal, it was going to be tough for European countries to keep trading with Tehran.

That hasn’t stopped them trying and today, Germany, France and Britain launched their latest attempt to continue the flow of goods they believe is central to keeping alive the plan, formally known as Joint Comprehensive Plan of Action.

The Europeans conceived Instex, a payment platform, to trade with Iran and circumvent US sanctions against banks and businesses which do business with the Muslim nation, according to a report by NDR, a German public channel.

Instex, which stands for Instrument in Support of Trade Exchanges, is the system that analysts have been expecting. It is basically a barter system that tallies exports of Iranian oil against goods from Europe, thus avoiding exposure to the dollar – something that is at the heart of sanctions against Iran. Importantly, the vehicle only allows agricultural and humanitarian goods, medicines and medical devices.

That in itself isn't much, according to Sascha Lohmann, an expert on US foreign policy at SWP, a Berlin think tank. But, he pointed out, at least it's important for the EU and European unity.

“It also sends a signal to Iranians that the EU is still engaged,” Lohmann said. “Trump will probably be angry, it’s going to be interesting to see how he responds.”

Trouble to come

It won’t be the first time that Europe and America clashed over how to handle Iran after their quarrel over the nuclear deal in 2015. The agreement, under which Iran agreed to roll back parts of its nuclear program in exchange for relief from some sanctions, was feted as a breakthrough. However, in May last year, the Trump administration announced it would withdraw.

European countries tried to keep doing business in Iran, and were promised protection by Brussels. The EU called on companies to reject US sanctions and passed a blocking statute guaranteeing help for businesses in case of US retaliation. This has not proved successful, however.

The US ambassador to Germany, Richard Grenell, countered these efforts and contacted companies individually, pressuring them to withdraw from Tehran. One after another, German firms fell into line. Within short order, Siemens, BASF, Daimler, Deutsche Bahn, Deutsche Telekom and Munich Re announced they would stop doing business in Iran.

DC's displeasure

Now, there are several ways Washington might respond to the newly-created payment channel, Lohmann told Handelsblatt. The administration could sanction the bureaucrats involved in the vehicle, the French, British and German board members. Instex is led by Per Fischer, a former Commerzbank manager, and it will have a British non-executive chair, according to NDR and Reuters. The US government could also sanction companies attempting to use the vehicle. Or it could warn such businesses that if they engage with the vehicle, legally or not, they will face consequences.

“The discussion of how to respond reminds me of how the administration in Washington considered dealing with [international payments system] Swift, before Swift 'voluntarily' complied. The question was whether to directly sanction companies or individuals involved,” Lohmann recalled.

Plea for help

The move comes four days after Iran’s nuclear chief, Ali Akbar Salehi, called on European countries to hurry up and establish a special payment vehicle or SPV “before it is too late.” Speaking on Sunday to IRNA, an Iranian news channel, he said an SPV would be an important source of encouragement to keep the nuclear deal alive. “It will help keep the trust that we worked so hard to build between the two sides; otherwise, we will be losing the trust; and once the trust is lost, everybody will be a loser in the game,” he said.

Looking ahead, Lohmann echoed that concern, noting that "the difficulty is that many US sanctions laws have been updated recently so they can even apply without people being exposed to dollar transactions."

Allison Williams is deputy editor of Handelsblatt Today. To contact the author: [email protected]