Special Purpose Vehicle: Europe's New Initiative to Bypass US Sanctions Against Iran

The European Union's efforts to save the 'JCPOA minus the US' continue. The latest initiative in this regard is the decision to create a mechanism titled Special Purpose Vehicle, which has been translated as 'سازوکار ویژه' in Iranian media. The goal of this initiative is to circumvent the sanctions that the United States has implemented or plans to implement against Iran following its withdrawal from the JCPOA. A new form of barter trade was announced at the end of a meeting composed of the foreign ministers of Iran and the powers of the 'P5+1' (UK, France, Russia, China, and Germany), which took place on Monday, September 24, with the presence of the EU's foreign policy chief in New York. A joint statement was approved, emphasizing the participants' welcome of the plan to create a 'special mechanism' to facilitate payments related to exports (including oil) and imports to Iran. Despite the presence of the foreign ministers of China and Russia at the New York meeting, there is no doubt that the proposed plan is the brainchild of Germany, France, and the UK, and its implementation will be the responsibility of the EU, although non-European signatory powers of the JCPOA and other countries may potentially join it. The main role of the 'special mechanism', if realized, is to counter the consequences of the return of US sanctions against Iran, especially the heavy penalties imposed by Washington on non-American companies that use international financial transfer mechanisms or use the dollar in transactions with the Islamic Republic. The aim is for European companies to trade with the Islamic Republic without using the normal channels of international financial transactions, thus avoiding exposure to US economic sanctions. The 'special mechanism' relies on barter exchange (goods for goods) and is not unlike a 'clearing house'. It refers to a legal-financial entity responsible for settling accounts related to barter transactions. To better understand this mechanism, we use two examples: 1) Company 'A' in Germany exports goods to Iran, and Iran delivers an amount of oil equivalent to the price of these goods to refinery 'B' in the Netherlands. This refinery transfers the money for the oil imported from Iran to company 'B'. 2) An Iranian company delivers carpets to its Spanish counterpart and receives medicine from a French company. The French company receives payment for the medicines from the Spanish company. The 'clearing house' for these barter transactions could be a special entity created specifically for this purpose, or it might be that the central bank of one of the EU member countries takes on this role. The main advantage of this 'special mechanism', from the perspective of its designers, is that in transactions between European companies and Iran, international financial channels or 'SWIFT' (the global interbank financial communications society under American influence) are not used, and especially the dollar does not come into play. Based on this view, employing this mechanism allows for circumventing US economic sanctions against Iran without European companies involved in transactions with the Islamic Republic being penalized by the US for doing so. Will this new mechanism be able to change the current situation in favor of Iran and the EU and provide immunity for European companies in trading with the Islamic Republic? Given the significant doubts surrounding this mechanism, the answer to this question cannot be positive at the current time: 1) The EU's initiatives to save the 'JCPOA minus the US' have so far not gone beyond promises and commitments, including resorting to 'blocking regulations' (similar to what was established in 1996 to counter US sanctions against Cuba), requesting the 'European Investment Bank' to fill the void left by European private banks, obtaining exceptional licenses from the US for European companies present in the Iranian market, or creating special accounts in the names of Iran in the central banks of EU member countries. Despite all these initiatives, prominent European companies have left Iran one after another, from Total and Airbus to Peugeot, Renault, Volkswagen, Siemens, Engie, Alstom, Eni, British Airways, Air France, KLM, and others... In other words, European companies did not take the initiatives of EU official institutions seriously and only considered their interests in relation to the US. Will the situation change this time with the 'special mechanism'? 2) Given the experience of the past few months and the failure of previous initiatives, it seems very unlikely that major European companies will turn to using the 'special mechanism' for trading with Iran. In fact, these companies are almost certainly not willing to risk their significant interests in the US market and be placed on Washington's blacklist, even if they do not formally violate US sanctions due to the use of the barter transaction mechanism provided in the 'special mechanism'. It is not the EU that buys oil from Iran, but rather a European company or refinery that considers all aspects in its dealings with Iran and does not take risks. In contrast, small and medium-sized European companies, which do not have interests in the US market, may show interest in using this mechanism. 3) The Americans may, as they have threatened, prepare special sanction regulations regarding the 'special mechanism' and confront this EU initiative. As always, the question arises as to what cost the Europeans are willing to pay in confronting the US over the 'JCPOA'. Given the current situation in Europe and its internal divisions, it seems that member countries of this union will avoid taking any hardline stance against the US, especially regarding Iran. Considering all these factors, it appears that the preparation of the 'special mechanism' for Iran by the EU, before it seeks to alleviate Washington's economic pressure on the Islamic Republic, carries a political message. In fact, the Europeans want to convey that they are committed to preserving the 'JCPOA minus the US' and that they will spare no effort to ensure that Iran can benefit from the consequences of this agreement. Another goal of the EU in preparing this mechanism is to assist Hassan Rouhani in confronting his political opponents and rivals. In fact, the President of the Islamic Republic can, in the struggle between the factions of the regime, speak of the survival of the 'JCPOA' and the EU's commitment to maintaining this agreement. Nevertheless, the Iranian executive apparatus is well aware that to escape the crippling pressures of the US, at least in the short term, the EU cannot do much. The Islamic Republic's hopes are primarily pinned on Russia and China and, to some extent, India, and whether the course of international developments can create a coalition of powers opposed to the US to open a new window for Tehran to breathe.