France, Germany taking charge of Eu-iran trade move Iran cannot ‘wait forever’ for EU to skirt US sanctions

France and Germany are to take joint responsibility for an Eu-iran trade mechanism to minimize the risk of US punishment. Diplomats said the French-german gambit is a “safety-innumbers” tactic to overcome the refusal of individual EU states to host the mechanism to sidestep the risk of being targeted by the revived US sanctions regime against Iran.

They told Reuters that the goals of the nascent trade mechanism, set up to keep Iran in the 2015 nuclear deal, could be scaled back to encompass only less sensitive items such as humanitarian and food products.

“The SPV (Special Purpose Vehicle for trade) is important, but what’s more important to the Iranians is oil and ensuring their exports in the long term,” said a senior French diplomat.

“None of the measures that we’re trying to put in place will perform miracles, but what we’re trying to do is a series of measures to convince the Iranians to keep to their nuclear commitments. That is our objective,” he said.

France, Germany and Britain – European signatories to world powers’ 2015 deal with Iran that curbed its nuclear program in exchange for relief from sanctions – have scrambled to come up with measures to preserve its economic benefits for Tehran after US President Donald Trump denounced the accord as weak and withdrew from it in May.

The European Union has so far enabled its lending arm, the European Investment Bank, to add Iran to a list of countries with which it does business and introduced a law to shield European companies from US sanctions.

Both measures are part of a wider package meant to show European good faith to Iran and would be complemented with the so-called SPV, a clearing house that avoids monetary transfers in dollars between the EU and Iran.

The goal was to have the SPV legally in place by the time Trump reimposed oil sanctions on Iran on Nov. 5, though not operational until next year.

However, after no countries came forward to host the SPV and only Austria and Luxembourg – small states with solid financial systems – refused for fear of incurring US sanctions, France, Germany and Britain were forced to go back to the drawing board.

“What’s in the air now is that France or Germany would host or preside over the SPV,” said an EU diplomat. “The French are the most pushy and the Germans are more prudent, but at the same time France doesn’t want to bear the brunt for everyone else.”

US unable to affect SPV

Two other diplomats said that if Paris and Berlin took joint control of the SPV it could deter the Trump administration from directly confronting two major US allies.

Britain is still considering how to contribute, but is restrained by the distracting process of its pending departure from the EU and by the fact the SPV would be trading in euros, not Britain’s sterling currency.

French Foreign Minister Jean-yves Le Drian told the bloc’s ministers in a closeddoor meeting in Brussels on Nov. 19 that Paris and Berlin were working closely together to achieve something by year-end, two other EU diplomats said.

The French, German and British finance ministers will discuss the SPV on the sidelines of this weekend’s G20 summit, according to a French Finance Ministry source.

Under the 2015 deal, Iran restricted its declared civilian nuclear power program in exchange for an end to international sanctions against it.

To circumvent renewed US sanctions, the SPV was conceived as a possible way to help match Iranian oil and gas exports against purchases of EU goods, an effective barter arrangement.

However, those ambitions appear to have been toned down with four diplomats saying the SPV could realistically only be used for smaller trade that might be tolerated by the Trump administration, for example humanitarian or farm products.

Asked whether the mechanism would be able to handle oil sales after all, EU Energy and Climate commissioner Miguel Arias Canete said only that work was continuing.

“We are developing a very sophisticated special purpose vehicle. It is not easy,” Arias Canete said in an interview with Reuters on Tuesday.

The SPV’S legal and technical aspects, such as ownership structure, jurisdiction and what banking infrastructure to use if any, were still being finalized, diplomats said.

Continued oil sales to mega-energy consumers India and China could be enough for now to satisfy Iran, easing the need for the SPV to immediately cover crude trade, the French diplomat said. Highlighting just how sensitive the issue is in Tehran and the possible disconnect between what the EU can do and Iran’s aspirations, Iranian officials have repeated to European counterparts in recent meetings that they are under pressure and cited the possibility and consequences of Iran exiting the deal in the coming weeks.

“Our priority is to be able to enjoy some banking system for financial transactions and to be able to sell our oil,” Ali Akbar Salehi, head of the Atomic Energy Organization of Iran, told Reuters in an interview on Tuesday.

“If the SPV answers the two priorities that I just mentioned, then, yes, it could be a workable proposal, it can be helpful in keeping the deal alive.”

Time running short

Iran said Friday the EU must be given more time to set up the trade mechanism meant to circumvent US sanctions on Tehran, but warned it could not “wait forever.”

“Europe’s efforts for implementing a financial mechanism are continuing despite mounting US pressure,” Iran’s Deputy Foreign Minister Abbas Araqchi told the official IRNA news agency.

“We believe that Europe must be given more time ... they have so far been unable to introduce operational measures, but we are not supposed to wait forever,” he added.

“Americans are out to block all paths and have already started pressuring countries aiming to implement the mechanism and work with it,” said Araqchi, refusing to comment on potential SPV hosts due to the “sensitivity” of the issue.

Araqchi said Iran will stay in the nuclear deal as long as it meets Tehran’s interests, but will “make a different decision” the moment it no longer does.

Reuters and AFP contributed to this story.