Will INSTEX Save Iran from Sanctions?

The new European financial mechanism for Iran to bypass U.S. sanctions (INSTEX), which was officially announced on Thursday, February 11, is seen by the German Foreign Minister as a sign that Europe is determined and united in its path, regardless of the positions of others (the U.S.). With this not-so-fundamental step after months of delays, Europeans aim to keep Iran committed to the JCPOA to prevent a new round of nuclear competition in the region and changes in the current balance of power, while also keeping the door open for negotiations on other controversial positions and approaches of Iran, according to them, and maintaining trade with Iran, albeit at a limited level, to preserve a connection with Iran's capacious economy for when relations normalize. However, INSTEX is essentially a commodity trading exchange whose capacity and success in relieving Iran from the pressure of sanctions is severely limited. Major companies that have exited Iran or do not trade with it are not merely concerned about the severing of banking connections under U.S. pressure but also about losing access to the much larger American market. Many smaller companies are even more pressured by the U.S. and its banking blockades, making them reluctant to take the risk of trading with Iran. The U.S. embassy in Germany has even sent letters to companies sending electrical and gardening equipment to Iranian embassies and consulates in Europe, warning them not to proceed, or they would face consequences. The fact that the ministries of economy and finance of the three INSTEX member countries (Germany, France, and the UK) have not sent their officials to the INSTEX supervisory council due to fears of U.S. sanctions, and that officials from the foreign ministries without expertise in this matter have taken on this mission, is indicative of the limiting influence of the U.S. on the functioning of this new institution. Europeans have stated that with INSTEX, they want to maintain the level of trade with Iran (even in food, medicine, and medical equipment) at least at the level of the previous sanctions period and before the signing of the JCPOA, and not let the more aggressive approach of the U.S. government during this period paralyze all trade with Iran. However, the problem is that U.S. pressures may ultimately reduce Iran's oil exports even further in the coming months, and there may not be much money from oil revenues entering INSTEX to settle the claims of exporters to Iran. Another issue is whether all countries buying Iranian oil, from Spain and Greece to larger importers like China and India, are willing to cooperate with INSTEX and at least allocate part of Iran's oil revenues to settle potential claims of European companies. For example, even Germany's (restricted) exports to Iran during the previous sanctions were ten times its imports from Iran, and thus the continuation of this level of exports, if German companies are willing to continue despite U.S. pressures, must be settled with money that comes into INSTEX from Iran's oil sales to other places, which is ambiguous and questionable due to U.S. pressures and the interests of major oil buyers. U.S. officials may have rightly said that INSTEX does not fundamentally change the pressures against Iran, and the reaction and formulation of Abbas Araghchi, Iran's Deputy Foreign Minister, towards INSTEX also does not indicate any noticeable satisfaction. He has expressed hope that this mechanism will not be flawed and will not be limited to the exchange of goods such as food and medicine. In Tehran, the way to counter U.S. sanctions is seen not as changing and revising approaches that have led to a thirty- or forty-year tension in the Islamic Republic's relations with the West, but rather in resisting the sanctions until (perhaps) the Trump era ends in 2020. The realization of the removal of the Trump administration is fraught with uncertainties, and his successor, considering the overall power structure in the U.S., is unlikely to have much maneuverability for normalizing relations with the Islamic Republic without changes in Iran's regional and international approaches, especially regarding its view of Israel's existence. Even the Obama administration did not achieve much in the absence of Tehran's willingness to negotiate to resolve other non-nuclear issues, and the JCPOA remained fragile during that period. It goes without saying that changes in this or that regional perspective do not mean surrender but can be accompanied by a complex set of negotiations given Iran's geopolitical and geoeconomic significance. However, even if Tehran's strategy of 'resisting sanctions until Trump's removal' is correct, it is still unlikely that INSTEX, in its current configuration, will be a strong lever for such resistance. Perhaps the columnist of the famous German economic newspaper (Handelsblatt) was right when he tweeted that INSTEX is a symbol and a display of Europe's consolation to Tehran and a way to bolster itself in an ocean of weakness against U.S. financial and aggressive economic policies.