European SPV Offers Lifeline to Iran and the JCPOA


by Derek Davison

Three European nations scrambling to salvage the Iran nuclear deal (the Joint Comprehensive Plan of Action or JCPOA) announced on January 29 the formation of a new “special purpose vehicle” (SPV) to preserve their commercial ties with Iran in spite of U.S. banking sanctions. France, Germany, and the United Kingdom—three of the JCPOA’s original seven signatories, along with China, Iran, Russia, and the United States—unveiled the SPV, or the “Instrument in Support of Trade Exchanges” (INSTEX)—which will allow Iran to barter for European goods in transactions that steer clear of financial networks and do not rely on the U.S. dollar.

European leaders trumpeted INSTEX as a sign that they remain invested in the nuclear deal’s survival. UK Foreign Secretary Jeremy Hunt called it “a clear, practical demonstration that we remain firmly committed” to the JCPOA. European Union foreign policy chief Federica Mogherini issued a statement welcoming the formation of the SPV, arguing that the new instrument “will provide economic operators with the necessary framework to pursue legitimate trade with Iran.”

However, what the Europeans announced on Thursday was not what they described when they began talking about forming an SPV last year. At that time, the SPV was envisioned as a much larger financial mechanism that could allow Iran to continue selling oil and gas to Europe with minimal disruption. But major European firms, worried about even the possibility of running afoul of U.S. sanctions, have cut ties with Iran, and it seems unlikely that any degree of assurance from the EU would be enough to get them to risk losing access to U.S. banks and the U.S. market.

Consequently, INSTEX is likely to be a much less ambitious device, used primarily by small European firms with little exposure to U.S. sanctions and only—at least initially—to trade in humanitarian goods like medicine and food. U.S. sanctions do not directly block Iran’s import of these items, so by focusing on them INSTEX would avoid a potential confrontation with Washington. But banking sanctions generally prevent Iranian firms from financing their purchase, and so INSTEX could fill an important role in easing the pain those sanctions are causing to the Iranian people.

In a press call held by the European Leadership Network (ELN) on January 29, Bourse & Bazaar founder Esfandyar Batmanghelidj explained the benefit the new mechanism could provide to Iranians struggling to obtain basic necessities:

And what that means is that even compliance trade, meaning trade that’s exempt from U.S. secondary sanctions, such as trade in food and medicine, has been negatively impacted, and these are two categories that are really important for the Europe-Iran trade relationship.


So, for example, Europe exports around 800 million euros of pharmaceuticals and medical devices to Iran every year, and by comparison, China exports just around 200 million euros worth. So, the relationship with Europe is really key in these categories, and as you can imagine, these are goods that have a really big impact on sort of quality of life and well-being in Iran. These are goods that the households in Iran really depend on, whether it’s consumer goods or medicine or food products. So, the role of the SPV is to try and retain a reasonable volume of trade or basically mitigate the negative impact on this trade from the U.S. secondary sanctions.

Also this week, the International Atomic Energy Agency reiterated that Iran is complying with its obligations under the JCPOA. But since the United States violated the agreement last year by re-imposing sanctions, Iranian leaders have insisted that they will not remain party to the agreement unless they receive its promised economic benefits. The re-imposition of U.S. sanctions has probably made that impossible, but the Iranians still may be made to feel that they have more to gain by remaining in the JCPOA than by leaving it and restarting an industrial-scale nuclear program.

Will this pared-down SPV be enough to satisfy Iranian leaders? Iran’s deputy foreign minister, Abbas Araghchi, welcomed the INSTEX announcement as “the first step within the set of commitments the Europeans have made to Iran,” but pointedly did not go any further than that. On the ELN press call, Tarja Cronberg, the former chair of the European Parliament’s Delegation with Iran, called INSTEX “an effective response” to Iran’s demands that “will take sort of the heat off…at least for the time being” in terms of quieting the demands of Iranian hardliners to quit the JCPOA.

U.S. reaction to INSTEX has been relatively muted so far. Secretary of State Mike Pompeo criticized the idea of the SPV when it was initially discussed, but that was before its scope was reduced. About INSTEX, the State Department merely said that it is “closely following reports about the SPV to gain additional details about the mechanism” and that it does “not expect the SPV will in any way impact our maximum economic pressure campaign” against Iran. Indeed, as long as it stays focused on ensuring that Iranians can get access to basic goods like food and medicine, INSTEX could actually bolster the Trump administration’s claims that its sanctions are not meant to punish the Iranian people.

INSTEX hasn’t been entirely well-received in DC, especially within the regime-change echo chamber. Mark Dubowitz, CEO of the hawkish Foundation for the Defense of Democracies, tweeted somewhat colorfully that “Trump administration must neutralize this trade channel before it becomes the camel’s nose under the tent. Don’t be misled by need for a humanitarian channel; multiple such channels already exist given escrow funds + Iran banks on Swift.”

INSTEX’s farthest-reaching impact may not directly relate to Iran at all. Although its scope is small and explicitly designed to minimize confrontation with the United States, it nevertheless reflects a growing interest in Europe to insulate European interests from broad U.S. sanctions. That could have major ramifications for the efficacy of future U.S. sanctions, as ELN Policy Fellow Axel Hellman explained:

The last point I’d like to make on this is just to kind of look at this from an American perspective. What we can say is that what has enabled the United States to use economic and financial sanctions so effectively is the power position that United States has, the centrality of U.S. capital markets in international finance, the importance on the U.S. dollar as a tool for clearing international transactions, and the buy-in from allies to U.S. policy when it has leveraged that strength to impose sanctions. That is, for instance, what we saw on the international sanctions regime on Iran leading up to the nuclear deal.


So, the growing concern now in the United States—among some people, I should mention—is that when you now have a situation where you first don’t have that active buy-in from allies you have the other key players—Russia, China, and, of course, the European Union—disagreeing with U.S. policy over Iran and remaining in the nuclear deal, but also actively trying to set up alternative structures such as the SPV. The risk to the U.S. position is that over time this will lead to a degradation of U.S. ability to use sanctions the way that it has been recently.

U.S. foreign policy has become increasingly reliant on sanctions as a tool for throwing Washington’s weight around short of open military conflict. But it’s a tool that will lose its effectiveness the more it is overused, as even U.S. allies are driven to find ways to protect themselves from those penalties. INSTEX does not appear to be comprehensive enough to seriously challenge the potency of U.S. sanctions. But, to borrow Dubowitz’s phrase, it could be the “camel’s nose under the tent” for a much bigger challenge to Washington’s influence.

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Derek Davison

Derek Davison is an analyst covering U.S. foreign policy and international affairs and the writer/editor of the newsletter Foreign Exchanges. His writing has appeared at LobeLog, Jacobin, and Foreign Policy in Focus.



  1. Good news: the ever increasing use of sanctions by Washington is actually a sign of isolation desperation. (So is the creation of CENTCOM and AFRICOM.) It’s solid evidence of decline, not strength, of the American empire. Gone are the days five decades ago when Washington was able — with few exceptions — to control its illegitimate overseas interests largely through intimidation and regional surrogates. Think the Shah, Marcos, Suharto, Haile Selassie, Apartheid in S. Africa. US military bases and troop deployments were not as needed in as many places as today to “keep the peace”. Nor was sanctioning the widespread wrecking bar of first resort it is are today. China sided with the US against the Soviets then, but is a strategic partner of Russia today. Europe was much more compliant back. The trillions the US owes China and a wall with Mexico were unthinkable. Let’s take heart as American imperial overreach results in well deserved irreversible exhaustion. Growing resistance to Washington’s reflexive bullying and insatiable greed makes a multi-polar world order more likely today than at any point since the late 1980s.

  2. I seriously doubt a European CEO will consider this “special purpose vehicle” sufficient to protect his or her company against American retaliations.

  3. Basle this vehicle is a good first step and not meant to be for companies that are venturing into new open markets nor for the ones that would like to re-enter the US like Groupe PSA but instead for the ones that have already had trade with Iran and have not submitting to the zero sum game of the current US administration. It’s called work in progress. How many years did it take for the JCPOA to be inked ? how many times did the CEOs of Europe lost hope during the process ? For now the European CEO has bigger fish to fry with the problems across the EU than to focus on the threats of a right wing nut job .

  4. As mentioned this is the first baby step by the EU states! However it’s going to take a long time before the current companies which have been trading with Iran will begin to resume their trading activities. The companies will also test the water slowly first to make sure SPV is air tight against the economic aggressions of the US! In the meantime some voices in Iran indicating that Iran is running out of patience but for a while they are going to honor their commitment to the agreements spelled out in JCOPA.

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