The special purpose vehicle INSTEX is to allow trade with Iran despite US sanctions.

Finally, after a delay of a few months, the governments of France, Germany and Great Britain gathered in Paris to establish a mechanism that will ultimately protect the EU business against American secondary economic sanctions.

  • European business will be subject to such arbitrary measures as Iran.
  • INSTEX is a special purpose vehicle that will aggregate European commercial transactions with Iran and settle accounts between European entrepreneurs.
  • High-level diplomats will represent the supervisory board of the company.
  • INSTEX will focus on sectors that are particularly important for the Iranian people, including trade in medicines, medical equipment and agricultural equipment.


The United States' practice of using the so-called secondary sanctions against entrepreneurs from third countries (for instance from the EU) for violating US economic sanctions (for example against Cuba) is not new. Increasing discrepancies in foreign policy of the US and the European Union create a risk that European business will be subject to such arbitrary measures as Iran. Therefore, one should carefully monitor the fate of the Trade Support Mechanism that is being established – the first instrument of direct confrontation with the US.

New mechanism

A stake in the fight is high especially for entrepreneurs active on the American market. This justified the EU’s concerns regarding a categorical opposition to American sanctions when adopting the so-called blocking status. Based on this legal act, US sanctions are illegal in the EU, and consequently entrepreneurs were prohibited from withdrawing from trading with Iran. The same document created a side gate allowing for the withdrawal of European entrepreneurs from holding liable for the violation of the blocking status. In other words, business in the EU was banned from applying to US sanctions unless... it would apply to them.

In this context, the statement made by EU foreign ministers of the three founding countries of INSTEX, which underlined that it will serve to facilitate legitimate commercial transactions with Iran, seems of significant importance. This is a fundamental softening of the tone compared to the original plan for the establishment of a mechanism that would protect all EU-Iran trade (which intrinsically must be in line with EU and Iranian law, so the ministers' declaration must refer precisely to US sanctions).

The statement does not include too many details about the way in which INSTEX (a special purpose vehicle) operates, only a general statement that this is the first significant step towards the operationalization of the mechanism. Therefore, it seems that it confirms the speculations appearing in recent weeks that the mechanism has been formally established, but to avoid antagonizing the United States, it will not function for at least a couple of weeks. At the same time, it is a fairly complicated legal undertaking, so its refinement takes time. However, some things can be guessed.

How will INSTEX work?


INSTEX will most likely aggregate European commercial transactions with Iran and settle accounts between European entrepreneurs. For example, a European company EU-A sells a commodity worth 300 to an Iranian I-x company. European company EU-B buys goods from I-y for 200. After checking the correctness of the transaction (without due diligence AML/CFT, which INSTEX is not supposed to deal with), there would be a settlement between EU-A and EU-B for 200 (similarly, the Iranian partner would settle between x and y). Intermediaries and parties to the transaction will be European banks and entrepreneurs (and, correspondingly, entities from Iran).

Such a mechanism is new to the EU, but Iran has previously benefited from this solution on a reduced scale. To maintain the liquidity of the mechanism, it would be highly desirable if countries importing Iranian oil like China, India or Japan would join in. INSTEX could also charge a commission on such transactions, as it is currently done by banks in case of foreign transfers.

The company's supervisory board will be composed of high-level diplomats from the European “troika” - Germany, France and Great Britain - and governments will be its shareholders. Although this does not preclude American retaliatory measures, the involvement of important diplomats to protect humanitarian trade – i.e. excluded from the scope of US sanctions – will make the decision to initiate criminal proceedings difficult. It does not come as a surprise that the previous American reactions are unambiguously critical.

In order to mitigate the appointment of INSTEX for Americans, ministers Jean-Yves Le Drian, Heiko Maas and Jeremy Hunt stressed that the prerequisite for implementation of economic elements included in the so-called Joint Comprehensive Plan of Action (JCPOA) of 2015 is to fulfil the obligations to abandon the nuclear program. In the initial period, INSTEX will focus on sectors that are particularly important for the Iranian people, including trade in medicines, medical equipment and agricultural equipment.

The ministers also stressed that INSTEX should cooperate with its Iranian counterpart to meet the “highest requirements” in the fight against money laundering and terrorist financing (AML/CFT). Isolation of two key points in bilateral trade aims to ensure its transparency.

Ultimately, INSTEX will also be available to third countries interested in trade with Iran

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