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EU defies US in special Iran trade deal to evade sanctions with special payments

From left, Head of Mission of People's Republic of China to the European Union Hailong Wu, French Foreign Minister Laurent Fabius, German Foreign Minister Frank-Walter Steinmeier, European Union High Representative for Foreign Affairs and Security Policy Federica Mogherini, Iranian Foreign Minister Javad Zarifat, an unidentified Russian official, British Foreign Secretary Philip Hammond. (U.S. State Department/Released)
September 25, 2018

In apparent defiance of the United States, the E.U. has created special processes to continue business dealings with Iran, despite sanctions from the U.S.

During the U.N. General Assembly this week, the five nations who remain in the 2015 nuclear deal with Iran decided to ramp up business deals with Iran, thus creating new payment channels while circumventing U.S. sanctions, Reuters reported Tuesday.

The five nations – Russia, Germany, China, France and the U.K.—released a joint statement read by E.U. foreign policy chief Federica Mogherini, saying, “Mindful of the urgency and the need for tangible results, the participants welcomed practical proposals to maintain and develop payment channels, notably the initiative to establish a Special Purpose Vehicle (SPV) to facilitate payments related to Iran’s exports, including oil.”

The SPV would allow the nations to preserve the nuclear agreement with Iran, which they deem to be essential to prevent Iran’s nuclear weapon development and would be in the best interest of the world.

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Further, the SPV would allow EU nations to continue trading goods for Iranian oil without the exchange of money. Thus, the nations would evade U.S. sanctions that cut off banks that process financial transactions for Iranian oil.

“In practical terms this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world,” Mogherini later told reporters.

“The key is to keep all possibilities open so that we can signal to the Iranians that the door isn’t closing,” a senior French diplomat said of the new Iranian trade channel.

President Trump withdrew from the deal in May and began imposing a series of staggered sanctions against Iran for its defiant nuclear activity. The first of the sanctions were implemented in Aug., with a second round scheduled to be enacted in Nov.

As a result, Iran’s economy has been impacted significantly, with their currency – the rial – losing some two-thirds of its value against the U.S. dollar, and dropping to a record low.

The U.S. has been encouraging European allies to follow suit in sanctioning Iran, even weighing the possibility of applying sanctions to European companies. The measure drew criticism among EU nations, who said last month that they were working to preserve trade agreements with Iran.

E.U. members have been scrambling to salvage the nuclear deal, which has weakened to the point that even Iran has considered abolishing it.

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Additionally, the E.U. had not developed a means to protect their companies from the impending Nov. sanctions, which has already caused one French bank to withdraw from plans to fund French companies who trade with Iran.

“If you decide to do business with an enemy of the United States of America, you will not being doing it with the United States,” a U.S State Department official warned recently, according to Reuters. “You will not have access to the U.S. financial system.”

The latest special channels won’t grant E.U. nations immunity from U.S. penalties. U.S. sanctions could be subject to change so that companies who engage in any trade with Iran will be penalized too.