Six more countries have joined hands to back INSTEX, a mechanism that facilitates trade with Iran while circumventing US sanctions.
While six more European nations have expressed their commitment to trade with Iran in spite of US sanctions, experts say the move is doomed to fail unless the European Union enforces its political and economic independence.
Belgium, Denmark, Finland, the Netherlands, Norway and Sweden announced on November 29 their backing of an international payment mechanism, which can help Western firms trade with Iran by sidestepping US sanctions.
They have joined the Instrument in Support of Trade Exchanges (INSTEX) to discourage Iran from developing nuclear weapons, something that could escalate tensions in the Middle East.
“The nuclear agreement was unanimously endorsed by the UN Security Council and is a key instrument for the global non-proliferation regime and a major contribution to stability in the region,” the joint statement said.
But INSTEX, which does not rely on US dollars or the SWIFT system to make cross-border payments, has a limited scope and covers only trade in food products and essential medicines.
While the inclusion of more countries helps give it more legitimacy, Tehran has complained for months that the system is not working especially when oil is not part of the bargain.
“It doesn’t matter how many European countries join INSTEX, it won’t work as long as there is no solid international financial transaction process in place to enable real trade between Iran and Europe instead of a barter system,” Mohsen Tavakol, a non-resident Senior Fellow at the Atlantic Council’s Middle East Programme, told TRT World.
“There’s no point with INSTEX as long as the European Union can’t hold and protect its political and economic sovereignty against the US.”
Iran’s economic woes
Over the decades, Iranians have gotten used to buying fuel at subsidised rates and so when the government made the shock decision on November 15 to increase petrol price by 50 percent, the Islamic Republic descended into chaos.
Violent protests swept across dozens of cities as angry crowds ransacked government buildings and banks. More than 200 people have been killed in clashes with security forces, according to Amnesty International.
Iran’s economy, its citizens and the ability of the government to pay its bills are all reeling under crippling sanctions, which US President Donald Trump imposed last year after abandoning the 2015 nuclear deal with Iran.
Oil exports, the country's main foriegn exchange earner, have come down to under 500,000 barrels per day (bpd) from 2.8 million bpd before the sanctions, forcing the government to trim state expenditure and cut subsidies.
The International Monetary Fund estimates that Iran’s GDP will contract by more than nine percent compared to just two years ago as the sanctions take their toll.
INSTEX was put in place by Britain, France and Germany in January in a bid to keep alive the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal which world powers signed with Iran and the US unilaterally abandoned.
Paris-based INSTEX is basically a virtual ledger, which allows European firms to exchange products without directly dealing with Iran.
For all the talk, it is still in its conceptual stage and despite strong push by the European governments no company has used it - not even for food or medicine.
It also faces stiff resistance from the US and its ally Israel. Israeli Prime Minister Benjamin Netanyahu, the most vocal opponent of the nuclear deal, made his displeasure obvious over the joint statement of the European countries.
“While the Iranian regime is killing its own people, European countries rush to support that very murderous regime,” Netanyahu said on Sunday.
Experts say no amount of assurance is enough to convince companies to take the risk of running foul with the US Department of Treasury, which seeks to enforce the ban on any sort of trade with Iran.
Major European firms including French oil giant Total and German insurer Allianz closed businesses in Iran soon after Trump imposed sanctions.
The strength of the US financial system makes it nearly impossible for businesses to ignore the sanctions. That's because international trade is denominated in dollars and dollar transactions go through the US financial system for settlement, bringing them under the ambit of Washington's laws.
Sanctions mean that Iran has also been blocked out of the global banking system.
In the last few years major banks including BNP Paribas, Standard Chartered and ING have paid billions of dollars in fines for breaching what are known as secondary US sanctions.
The fear of getting caught up in the sanctions net discourages foreign companies and banks to avoid even private Iranian concerns that have nothing to do with the government.
“If the EU were serious about its trade relationship with Iran, it would allow some of its banks and financial institutes that have no connection with and interest in the US to openly facilitate trade with Iran, but that’s not the case,” says Tavakol.