Can the EU bypass US sanctions on Iran?

While the United States on Monday restored sanctions targeting Iran’s oil, banking and transportation sectors and threatened more action to stop its “outlaw” policies the European Union is trying to find a way to bypass the US’ sanctions against Iran.

Washington's move of re-imposing sanctions target 50 Iranian banks and subsidiaries, more than 200 persons and vessels in its shipping sector, and Tehran's national airline, Iran Air, along with its fleet of 65 aircraft.

The Trump administration has also threatened more action to stop Iran's “outlaw” policies, steps Tehran called economic warfare and vowed to defy.

The return of the sanctions was triggered by Trump’s May 8 decision to abandon the 2015 Iran nuclear deal, negotiated with five other world powers during Democratic President Barack Obama’s administration. That agreement had removed many US and other economic sanctions from Iran in return for Tehran’s commitment to curtail its nuclear program.

Trump denounced the deal because of time limits on some of Iran’s nuclear activities, as well as for its failure to address other Iranian activity that the United States does not like.

European powers, which continue to back the nuclear deal, have said they opposed the re-application of sanctions.

Here are the possible options for the EU to bypass the US sanctions on Iran

Creating a new payment system

The EU, led by France and Germany, is working to create a European payment system independent of the US-dominated SWIFT (The Society for Worldwide Interbank Financial Telecommunication), which is currently being used. 

SWIFT enables users to send and receive information about financial transactions. It is used by more than 11,000 institutions across the world, preventing funding to terror networks and drug cartels. 

However, it is also used for banning transactions to Iranian banks as it is heavily influenced by the US.

Europe needs to set up payment systems independent of the US if it wants to continue trade and the nuclear deal abandoned by President Trump, said German Foreign Minister Heiko Maas, in late August.

“That’s why it is indispensable that we strengthen European autonomy by creating payment channels that are independent of the United States, a European Monetary Fund and an independent SWIFT system,” Maas wrote in the Handelsblatt business daily.

However, the EU cannot use this way immediately because of the creation of a new payment system has not yet been completed.

Special Purpose Vehicle

Berlin, Paris, London and Brussels are also working on a barter system once used by Moscow during the Cold War to exchange Iranian oil for European goods without money changing hands, using a so-called special purpose vehicle (SPV), a company set up to handle the business. 

The EU High Representative Federica Mogherini, said: “EU Member States will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue trade with Iran, in accordance with European Union law, and could be opened to other partners in the world.”

In order to avoid US pressure on EU banks, the SPV enables trade transactions with Iranian banks that are on the US blacklist.

Such a system could appeal to Asian countries that purchase Iranian oil, such as India, which had contacted Brussels about avoiding US sanctions. But diplomats say its complexity is evidence that the European powers are cornered.

For example, if a company in Europe wants to buy Iranian oil, it sends payment to the SPV account. Iran will have credits in return for its exported oil to the EU and can use these credits to import permitted European products.

Blocking Statute

The EU updated its Blocking Statute, which allows European companies to recover damages from the US sanctions, on August 7.

A European Commission statement said: “It also forbids EU persons from complying with those sanctions, unless exceptionally authorised to do so by the Commission in case non-compliance seriously damages their interests or the interests of the Union.” 

The Blocking Statute allows EU operators to recover damages arising from the extra-territorial sanctions within its scope from the persons causing them and nullifies the effect in the EU of any foreign court rulings based on them. 

It also forbids EU citizens from complying with those sanctions, unless exceptionally authorised to do so by the Commission, so as not to damage the interests of the Union.