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  HOME | Business & Economy (Click here for more)

Europe Sets Up Way to Trade with Iran

MADRID – France, Britain and Germany, defying threats from Washington, are executing this week their plans to set up a special-payments company to secure some trade with Iran and blunt the impact of US sanctions.

In the short term, the new company is expected to struggle to achieve even its initial goal of enabling Tehran to import vital food and drugs at affordable prices.

After months of delays, people familiar with the plan said on Tuesday the three European governments had started the process of registering the company to run a payments channel that would allow goods to be bartered between European and Iranian companies without the need for direct financial transactions. The company should be established by Thursday or Friday, the people said.

The company is being registered in France and will be headed by a German official with the French, British and German governments as shareholders – an arrangement intended to ward off US Treasury Secretary Steven Mnuchin’s threat of sanctioning the entity by putting it under the aegis of Washington’s traditional European allies.

The move is the first action by French President Emmanuel Macron to hit back at President Trump as US-French ties have turned frosty.

The European Union promised to create what is known as the special-purpose vehicle as part of efforts to persuade Iran to remain in the 2015 nuclear deal following President Trump’s decision in May to pull the US out of the accord and reimpose sanctions. When many smaller member countries expressed reluctance to host the company or participate directly as shareholders because of US sanctions threats, the bloc’s three biggest powers proceeded with the project.

Iranian officials have repeatedly warned they could restart prohibited nuclear activities if Europe doesn’t help it secure the nuclear deal’s economic benefits.

European officials have for months tempered expectations of the mechanism’s impact. Officials said the first transactions could take several months, with a range of technical steps still to be taken.

Even when fully operating, the mechanism will initially handle only trade not subject to US sanctions, such as exports of food and medicine to Iran, to avoid provoking retaliation from Washington, officials say.

Early evidence suggests the reluctance of European and other non-US banks to deal with Iran because of US sanctions is squeezing supplies of these goods. The sharp fall in Iran’s currency last year as US sanctions returned also had an impact.

Iran’s central bank said in November that food prices had risen almost 60 percent from one year earlier and health costs has increased by 20 percent.

Europe is Iran’s biggest foreign supplier of drugs and medical devices. Those sales were declining even before renewed US sanctions took full effect. European exports to Iran of drugs and medical devices last year through November totaled 850 million euros ($970 million), down 4 percent from the same period in 2017. There is anecdotal evidence, too, of a squeeze on supplies. People tracking trade with Iran said some cargo ships carrying grain and food have been docking off Iranian ports for weeks, awaiting foreign-currency payments before unloading.

After US sanctions returned on Nov. 5, US food giants Cargill and Bunge stopped new foodstuff sales to Iran as Western banks refused to process payments, according to an Iranian trade official and a financial intermediary in Iran. The companies declined to comment on their Iran business.

“The real problems are that Iranian importers are having difficulty getting timely access to the euros and Swiss francs they need to make those purchases,” said Esfandyar Batmanghelidj, founder of a Europe-Iran business forum. “When they eventually do, the beneficiary banks in Europe, which need to accept these payments on behalf of their clients, have refused to do so.”

US officials have said their sanctions are designed to protect humanitarian trade but acknowledge that companies’ potential links to the Islamic Revolutionary Guard Corps have scared off foreign banks.

“The IRGC operates front companies both on the corporate side and on the humanitarian side and it makes it very hard for any outsider to know whether they are facilitating commerce, humanitarian goods or terrorism,” said Brian Hook, the State Department’s special representative on Iran.

The new payments channel was designed to help. Through the channel, an Iranian firm can sell goods to a European firm and chalk up a credit. The Iranian firm can then use its credit to purchase goods such as medical devices from a European company via the channel. That means no money flows directly between European and Iranian banks.

Swiss officials have been in talks with their US counterparts to win assurances for their banks to protect a payments channel to Iran for humanitarian goods, according to people familiar with discussions. Switzerland’s banks are a hub for commodity traders that make shipments to Iran.

It remains unclear how Iran will export enough to pay for purchases from European companies. In 2017, almost 90 percent of Iranian exports to Europe were energy products now largely banned under US sanctions, leaving less than 1 billion euros in other exports.

Cyrus Mehdi-Zadeh, the vice chairman of the British-Iranian Chamber of Commerce, said supplies of critical medicines to Iran were being disrupted from both Asia and Europe, with Chinese banks and businesses also reducing Iran ties under US pressure. He said pharmaceutical firms in Austria and Germany who have supplied Iran for years have also been advised in recent weeks to stop sales.

“We don’t see (the new company) as a significant factor because we don’t see any demand for it,” said the State Department’s Hook.

 

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