By Ali Babaei 

INSTEX : Truth or Promise?

August 7, 2019 - 12:28

At the moment we are witnessing some developments in the field of INSTEX, we should say that it has been established for a long time, but we still do not see any action under its structure and regulations. In addition, when the SPP mechanism was not implemented, it was initially expected that INSTEX would be able to meet at least some of the expectations of the parties, but in practice so far it has not been successful and only remains to be negotiated. After the United States withdrew from the treaty, the survival of its members depends entirely on the international treaty and its obligations, to fulfill such obligations.

In the present article, we will examine the courses of the SPV, SATEMA, and INSTEX with respect to their timing in order to clarify their dimensions to the readers.

1- U.S. exit from JCPOA and Europe's Request for Iran’s Remaining

When the United States unilaterally withdrew from the JCPOA in May 1989, Europe sought a way to keep the Islamic Republic of Iran committed to the JCPOA agreements. The Europeans emphasized that although the United States withdrew unilaterally, it was still legally binding on international law and that the other members had no intention of quitting and dissolving it and would therefore continue to live as an international agreement. Even European countries, while backing Iran's decision to adhere to its negotiation obligations, have criticized US unilateral policies and publicly stated that mechanisms are in place to trade European countries with Iran and that Iran must wait because it respects Iran's views. They will. When it became clear that Iran did not intend to leave, the European governments showed their eagerness to fulfill this promise.

Over time, however, Iran expressed dissatisfaction with European delays about their promises and granted two months to fulfill their promises, but European officials demanded four months in their statements, saying that the timing should never be multiplied. Consider deadlines, because it is time-consuming to set up mechanisms and achieve these ideals!

The head of the central bank of Iran then described for Europe to at least begin work on exporting essential commodities to Iran, but the Europeans even postponed the request, stating in their plan that this would be forthcoming and the request will also be considered.

2. SPV Structure
Federica Maria Mogherini, the former EU's foreign policy chief, announced the launch of an SPV (Special Purpose Vehicle for Trade with Iran) in November last year, as the English name implies, to create a channel for specific purposes meant to provide essential goods from the European Union to Iran, the European system was set for a few weeks to be established as a special mechanism for maintaining trade relations with Iran .

Federica Mogherini also said that a special mechanism for economic cooperation with Iran would be prepared before November 2018. She meant the SPV, which aims to continue EU trade cooperation with Iran even with US sanctions. If the SPV were realized, it would be beneficial to Iran because the US sanctions would be ineffective to some extent depending on what the SPV considered, and this would be an economic and political gain for Iranian foreign policy. According to news coming from Europe, SPV was supposed to operate as a company to liquidate trade with Iran out of the ordinary financial circles. For example, in this structure, Iran could sell oil to Italy and provide the necessary credit and liquidity to pay a French company that has given Iran goods or services and exchange money between two European companies.

Naturally, the US opposed the creation of the system, lobbied Europe, and none of these promises came true.

The month of November was over, and then, by the end of the year, the second date was announced for launching the channel, but again the Europeans were not loyal to their words.

3. ISTEX Design

Finally, the Europeans announced the launch of another financial mechanism that was much more restrictive than the SPV system for trading with Iran, with a company called INSTEX hosted by France, German management and British oversight. Iran was required to register such a company to cooperate with INSTEX in Iran. The economic consortium would be headed by Per Fischer, a former director of the COMMERZ Bank of Germany. INSTEX is said to cover trade in food, medicine, and medical equipment, according to Europeans words.

Within a month of the news, Iran had set up a company like INSTEX called SATEMA.  SATMA stands for Trade and Financing Mechanism. In fact, the name indicates that Iran expected an SPV-like process. Some still consider INSTEX is a continuation of the SPV or even its running arm, but it's not true. The following are reasons for this claim.

INSTEX, the trade protection instrument, is a payment mechanism that allows European companies to trade with Iran without being exposed to U.S. sanctions. British former  Foreign Minister Jeremy Hunt has said that INSTEX is a clear and practical step that shows Europe is firmly aligned with the Iran-Iran Nuclear Agreement until it fully adheres to the agreement!

While the SPV is designed to protect European companies from the consequences of sanctions against Iran, the Europeans said in a statement that third parties could also be connected to the system.

In the long run, we intend to open INSTEX to third countries that want to trade with Iran, and the three European countries will continue to work together to achieve this goal, the statement said. Another difference is that the Europeans have insisted that Iran must adopt the FATF mechanism to implement INSTEX. It is seen as an obligation beyond the bound the JCPOA.

The United States, however, did not accept a system that pay money to Iran's account or have a wide range of goods exported to Iran, and even threatened European companies involved in these acts for the sanctions of United States.The Europeans further argued that without money pay in the INSTEX, Oil for essential goods is considered and in the first phase of INSTEX export to Iran of the mentioned goods will be done:

A variety of agricultural products such as soybeans and corn, 2- Food products, 3- Fruits and vegetables, 4- Agricultural pesticides, Fertilizers and seeds, 5- Animal feed including meal and forage, 6- Pulp and raw materials, 7- Materials Primary medicines, 8- Types of general medicines and drugs for specific diseases, 9- Types of medical and hospital equipment, 10- Advanced surgical instruments and operating rooms, 12- Advanced medical equipment such as radiotherapy and radiation therapy, - Various types of human and animal vaccines, etc.

4. Russia's Reaction to INSTEX

The Russian Foreign Ministry had earlier announced that Moscow had urged all countries not to buy Iranian energy carriers, thus backing Iran's positions. Russian's Foreign Ministry said in a statement that Russia wants to speed up implementation of the INSTEX mechanism, and also hope that all countries trading with Iran will use it. The above statement demonstrates Russia's determination to enter the INSTEX if implemented, which would itself be an encouragement for governments that partially agree with Russia, China for instance.

5. Suspension of the INSTEX

In fact, however, there is no news of INSTEX being implemented, and Europeans said that they should wait and these actions are timely.

For example, chief Federica Mogherini, indicated that INSTEX's long-term goal, is opening of economic channels for third countries interested in doing business with Iran, and three European countries still working to achieve that goal. 

The United States views INSTEX as an illegal campaign for money laundering and sanctions relief, and strongly opposes it. Even if INSTEX only supplies essential supplies to Iran, it has still faced opposition from the United States, this view of America, have indicated that Trump's decision is extreme pressure to Iran, but the United States' behavior is preventing Iran from reaching essential needs that are in opposition to natural rights and fundamental human rights.

But what really hampers the European promise of such mechanisms is that we know that America’s pressure plays an important role on the one hand, and on the other hand European companies do not want to be subject to US sanctions and other commitments, including compliance with FATF regulations. Iran opposed to delay, and Iran repeatedly stated that the US withdrawal and delay for INSTEX cause, Iran reduce its commitment to the JCPOA, which was opposed by Europeans.

6- Analyzing Recent Developments

"We are consulting to facilitate oil exchange through INSEX," the EU ambassador in Russia said in an interview.

"When we talk about INSEX (the instrument of European trade exchange with Iran), we have to start with the current political developments about JCPOA," said Markus Ederer, EU ambassador in Russia in an interview with TASS news agency. International Atomic Energy International reported July 8, for the first time since its implementation of JCPOA, that Iran is enriching uranium to more than 3.67%, and the EU is very concerned about this development and has called Iran not to take further steps. It is important for European countries.

The Islamic Republic of Iran, after exiting the United States, for a year, put "strategic patience" on its agenda and gave the parties this time, in particular, the European countries, promised to compensate US exit for Iran and fulfilling their obligations under the nuclear agreement.He continued, as the three founding countries of INSTEX have stated, and I believe that legal exchanges of oil for drugs, medical goods and nutrition products under the INSTEX mechanism will be implemented soon.

Following the EU foreign ministers' last meeting on July 7, Federica Mogherini said shareholders were consulting on facilitating trade of other goods, in INSTEX.

The EU ambassador in Russia at that time stated: "there has been no new development in the participation of third countries in INSTEX, but it was clear from the beginning that third countries would have access to It."

In analyzing recent events, first of all, it must be said that Marcus Eder's prediction of third countries' entry into INSTEX was correct. In the green continent itself, a country like Sweden has expressed interest in joining the INSTEX mechanism. Sweden's ambassador to Russia, Peter Ericson, has said his country is ready to join the INSTEX system, according to AL-MAYADEEN news.

Russia and China have also expressed interest in working with the INSTEX system. Clearly, getting into INSTEX will be very beneficial not only to the three founding countries of INSTEX, but also to third parties. However, the analysis of the above discussion should be noted that Marcus Eder's statement that there was no change in third party access to INSTEX can be criticized, because at that time Russia had indicated its willingness to cooperate with INSTEX.

Secondly, it should be noted that the INSTEX would not move toward petroleum for essential goods, such as food and medicine, because This implies that Iran has violated international obligations and, like Iraq at the time, is bearing the brunt of its commitments and that access to medicine and medicine is only for human rights respect for Iran. Iran fulfilled its international obligations, including the IAEA Statute obligations, and Iran's move to increase its enrichment has been a response to U.S. exit of JCPOA and failure of INSTEX.

7. Result
As we know, any international treaty can continue its life on the world stage as long as its parties remain in the treaty and fulfill their obligations. If one party withdraws from the treaty or fails to fulfill its obligations, there is a right for the other party to withdraw from the treaty, suspend its obligations or refuse to fulfill its obligations, or, In accordance with the mechanisms provided for, in the treaty or international law, the obligation of the other government to be demanded.Iran was also said to have exercised its reciprocal right after the United States leave JCPOA and after a year of failure to fulfill Europeans promises, in a statement issued by the Supreme National Security Council of Iran to the parties, in May 9 statement. It warned that Iran will reduce its obligations under the agreement if they fail to fulfill their obligations in the oil and banking sector within 60 days.

Iran has reduced its two obligations under the nuclear pact, and has stated it will not abide by the restrictions contained in the Brokerage Agreements on 300-kg ceiling of uranium reserves and the 3.67 percent of enrichment level. As stated above, with the implementation of INSTEX Iran will abide by its obligations under the Nuclear Agreements, and will be commercially beneficial to INSTEX's third parties.

- Dupuy, Pierre-Marie, (2002), “A General Stocktaking of the Connection Between the Multilateral Dimensions of Obligations and Codification of the Law of Responsibility”, EJIL, Vol. 13 No. 5.
- Falsafi, Heday Allah, International Law of Treaties, First Edition, Tehran, New Publication, 2004
- Falsafi, Heday Allah, Contemplation on the Concepts of Rule of Right, Peace and Human Dignity, Law Journal, No. 26 and 27, 2001


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