European nations prepare to launch delayed Iran payments channel

Germany, the UK and France will announce that a payments channel designed to boost trade with Iran is finally operational at a crunch meeting on Friday as European governments battle to save the 2015 nuclear deal.

But the initiative, known as Instex, is expected to have initial capital of only several million euros, raising questions about whether it will be enough to convince Tehran to stick with the accord that Donald Trump abandoned last year.

Officials from the remaining signatories to the accord — the three European states, China, Russia and Iran — will meet in Vienna to discuss its status as Tehran threatens to increase its nuclear activity above limits in the agreement.

The threats have added to the heightened tensions between the US and Iran and led to concern that the nuclear accord, which was designed to reduce the risk of an arms race in the Middle East, faces total collapse.

If Tehran does increase its nuclear activity, European states will face a dilemma over whether to continue backing the accord or match the US by reimposing sanctions on Iran.

Germany, France and the UK, known as the E3, have been desperate to save the accord since Mr Trump unilaterally withdrew the US from the deal last year and imposed sweeping sanctions on Iran.

But they have struggled to establish an effective mechanism that would encourage European businesses to trade with Iran because of the threat of the US’s punitive measures.

Diplomats say transactions under Instex should begin shortly, adding that European pharmaceutical and agricultural companies have expressed interest in the initiative. They acknowledge that it is largely symbolic, but hope it will help ease tensions as the Islamic republic faces intense pressure from the Trump administration.

In Iran, politicians have been scathing about the European payments channel, saying it will do little to offer the republic economic relief.

It took them more than a year to put this in place, and it’s still not operational. It’s as if you have a beautiful car, you enjoy looking at it, but there’s no gas inside

Iran’s ambassador to the UN, Majid Takht Ravanchi, said: “Personally, I don’t think it will be enough . . . It took them more than a year to put this in place, and it’s still not operational. It’s as if you have a beautiful car, you enjoy looking at it, but there’s no gas inside. So all you can do is look.”

The initial credit line of several million euros is a fraction of EU-Iran trade, which had grown to more than €20bn annually before the US pulled out of the accord.

“If they [Iran] give it time and enable it to work, and if it gives confidence to European companies that it is a mechanism through which they can facilitate legitimate trade — and if the Americans indicate tacit support through the absence of sanctions — it stands a strong prospect of developing,” said a diplomat.

Theresa May, the British prime minister, said that “what we need to see is a de-escalation of the tensions”. “We will continue to work and I will continue to talk with my colleagues, France and Germany, about the importance of us acting to do everything we can to maintain” the nuclear accord,” she said.

Instex was launched in January but bureaucratic issues and the challenges of trading with Iran, given the scope of the US sanctions, meant no transactions have taken place under the initiative.

Experts say that at first it will not be defying US sanctions, but rather delivering finance that banks, nervous of any contact with Iran, refuse to provide.

In May, President Hassan Rouhani said Iran would increase its nuclear activity unless the E3 produced concrete steps to help Iran counter the economic impact of American sanctions in 60 days. That deadline expires on July 7.

Iran officials had recently suggested the republic would exceed limits on its stockpile of enriched uranium on Thursday. But there was no statement from Iran to suggest that had happened.

Iran wants Europe to buy its crude oil so that the Tehran can use petrodollars to import basic commodities and medicine through Instex.

US sanctions have caused Iran’s oil exports — its key source of foreign currency — to plummet from 2.8m barrels a day in May 2018 to less than 500,000 bb/d, market analysts estimate.

Charles Hollis, managing director of Falanx Assynt, an emerging markets consultancy, said a critical question would be how many international businesses “will choose trading with Iran over maintaining commercial relations with the US irrespective of whatever cover Instex may provide”.

Additional reporting by Alex Barker in Osaka