Special Report: A Provisional Assessment of INSTEX
June 2019 - 12 Pages
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By Esfandyar Batmanghelidj and Sahil Shah
This new report from Bourse & Bazaar and the European Leadership Network, the third in a series examining issues around Europe-Iran bilateral trade, evaluates INSTEX's design and operationalization. The report draws on recent meetings with European officials, business leaders, and legal and financial experts engaged in discussions around the mechanism.
France, Germany, and the United Kingdom (E3 governments) will soon announce further steps to operationalise INSTEX. The test for European policymakers is whether INSTEX’s first transactions can take place before July 7th, before Iran’s 60-day deadline. Iranian and European policymakers will then determine whether this forms an effective European response to Iran’s pending escalation on the nuclear aspects of the JCPOA.
INSTEX is a limited solution for a specific problem. The mechanism is intended to alleviate restrictions on sanctions-exempt trade, stemming from the reluctance of European banks to conduct cross-border transactions with Iran.
INSTEX cannot directly counteract the Trump administration’s “maximum pressure” campaign nor can it fully deliver on the JCPOA’s economic promises. Given its focus on humanitarian trade, INSTEX can help Iranian people by reducing the inflationary impact of increases in the price of imported goods.
The strength of INSTEX is in its declared humanitarian focus, which shields it from US pressure and also maximizes the likelihood that European companies will engage the currently untested mechanism. The officials working to operationalize INSTEX are doing so in accordance with four workstreams:
Workstream 1: Operations and Trade Mechanism
Workstream 2: Compliance Framework
Workstream 3: Integration with Iranian Corresponding Entity
Workstream 4: Expansion to “Like-Minded Countries”
Progress is being made in each workstream. However, significant challenges remain that will likely mean that in 2019 the scale of INSTEX commercial operations will be limited. The critical question facing policymakers in Europe and Iran is whether the first transactions can take place in the next few weeks in order to be part of Europe’s considered response to Iran’s escalation on the JCPOA.