New Trade Mechanism Unlikely To Bring EU Firms Back To Iran, But Sends Important Signal

A new EU mechanism for non-dollar trade with Iran embodies Europe's adherence to the nuclear deal with Tehran, but the measure is unlikely to ensure the return of major EU companies to the Iranian market as it does not protect them from possible US restrictions, experts told Sputnik

MOSCOW (UrduPoint News / Sputnik - 04th February, 2019) - A new EU mechanism for non-dollar trade with Iran embodies Europe's adherence to the nuclear deal with Tehran, but the measure is unlikely to ensure the return of major EU companies to the Iranian market as it does not protect them from possible US restrictions, experts told Sputnik.

US President Donald Trump announced in May that the United States would withdraw from the 2015 Joint Comprehensive Plan of Action (JCPOA), known as the Iran nuclear deal, and re-impose its sanctions against Tehran that had been lifted under the agreement. The first package of the US restrictions came into force in August.

On Thursday, Germany, France and the United Kingdom the signatories to the Iran nuclear deal announced that the mechanism, dubbed INSTEX (Instrument for Supporting Trade Exchanges), has been established to ensure legitimate trade with Tehran despite US efforts to derail the implementation of the nuclear agreement with Iran.

The INSTEX announcement is politically significant as it signals Europe's determination to keep the nuclear deal with Iran despite the pressure from the United States, Ahmad Khalid Majidyar, a fellow and the director of IranObserved Project at the Washington-based middle East Institute, told Sputnik.

"By creating the new mechanism, European powers are signaling to Tehran that they still support the nuclear agreement and will encourage European companies to continue doing business with Iran," Majidyar said.

Such assessment was echoed by Steffen Kotre, a member of the Bundestag Committee on Economic Affairs and Energy from the Alternative for Germany (AfD) party, who also noted the political importance of the long-awaited trading mechanism for regional security.

"Continuing trade and treating Iran with respect and not as an enemy is the best way how to secure peace and to keep control over Iran's nuclear program," Kotre told Sputnik.

At the same time, this move could also be perceived as a signal to Trump personally from other JCPOA signatories who strongly disagreed with his decision to pull out from the nuclear deal as well as re-imposition of sanctions on Iran, Abdulaziz Alghashian, a Middle East expert and PhD researcher of international relations and the politics of the Middle East at Essex University, pointed out in his comments to Sputnik.

"I think it is more of maintaining face, and I think it is an establishment against the Trump legacy. Because if you look at what Trump did, he focused on [his predecessor Barack] Obama and the nuclear deal, and he treated this nuclear deal as part of the Obama legacy. And instead now it is the Trump legacy. This is what this Instrument for Trade Exchanges is about. This is very much not a rhetorical, but symbolic establishment," Alghashian said.

According to the expert, the European Union believes that "Trump is on his way out" as it was unclear whether he would be able to secure solid and strong support in the next elections.

"The potential of this deal can really be a lot more efficient, if Donald Trump goes out of office," Alghashian noted.

Whereas the establishment of a special trading mechanism was a strong move politically, there are certain doubts about its economic efficiency. According to Alghashian, the mechanism would hardly return the level of economic cooperation with Iran to the pre-sanctions level.

"It could be efficient, but I do not think it could be efficient to the level if the United States did not pull out of the deal. Although the political will is still there for the cooperation and facilitation of trade with Iran and European, the companies themselves still rely to a certain extent on the American market. Some of these companies have products and subcontractors and so on, that rely on the US market, and I think that is the reason why it will not be as efficient as Europeans hope to be and as efficient as Iran wants it to be," he said.

Kotre agreed, saying that it "won't be enough" just to create a non-dollar trading channel as it was also vital to exert pressure on Washington so that it lifted sanctions against Tehran.

"We have to convince the United States to withdraw the sanctions. At this time I have been given no proof by the German Bundesregierung [Cabinet] or any other official address that Iran truly violated any agreements. For this reason the German Bundesregierung and its allies should increase pressure on the United States. Unfortunately, I don't see the necessary assertiveness," he explained.

A US Department of State spokesperson said on Thursday that Washington does not expect the European Union-created special trading mechanism to affect its campaign of exerting maximum pressure on Iran, adding that as US President Donald Trump has made clear, "entities that continue to engage in sanctionable activity involving Iran risk severe consequences that could include losing access to the US financial system and the ability to do business with the United States or US companies."

According to Majidyar, most major companies would not risk their business operation in the United States over access to the Iranian market, since the new mechanism does not protect them from probable sanctions.

"Despite the new trade exchange support system, large companies and banks would not risk their much larger business interests in the United States for a significantly smaller market share in Iran. The new mechanism also would not protect these companies from potential penalties in the U.S.-dominated global financial system," the expert said.

On the other hand, smaller companies that are not dependent on the US market may still enjoy new opportunities at the Iran market via the new channel, Dr. Hassan Hakimian, the director of the London Middle East Institute at SOAS University of London, told Sputnik.

"This is especially useful for transactions with Iran for small and medium-sized European companies that have no concerns in terms of their exposure to, or interest, in the US market," Hakimian said.

He noted, however, that in long-term perspective the new mechanism might pave the way for the EU's lesser dependence on the dollar.

"If established and operating well, it can, however, be an important first step towards a longer term mechanism which would grant the Europeans greater freedom to function outside the US Dollar zone," Hakimian said.

Major European companies that used to have business operations in Iran do not seem particularly excited about the new mechanism. German car and truck manufacturer Daimler, which suspended its plans to expand business operations in Iran following re-imposition of the US sanctions, told Sputnik that it was not planning to take any actions amid the announcement of the special trade mechanism.

"We see no need for action, since we have suspended our activities in Iran which were anyway very limited," the company's spokesperson said.

Airbus aircraft manufacturer, which was ordered some 100 planes by Iranian airlines before the re-introduction of US sanctions, told Sputnik that it "rigorously complies" with US sanctions and Office of Foreign Assets Control (OFAC) regulations.

"Any product with 10% or more US technology content must comply with OFAC export control licences. These licences were revoked as part of the US sanctions against Iran. Airbus rigorously complies with all sanctions and export control regulations including those of OFAC," the companies spokesperson said.

Swiss healthcare company Roche told Sputnik that it continued to analyze the impact of US sanctions, but did not provide any further comments regarding the new mechanism itself.

"What we can say today is that we are continually assessing the impact of the reintroduced economic sanctions. Roche remains committed to ensuring patients in Iran can be provided with our innovative medicines, diagnostics and diabetes products. We cannot comment beyond this," a spokeswoman said.

Royal Dutch Shell oil and gas group and Danish engineering company Haldor Topsoe refused to comment on the issue.