SNAPSHOT: First INSTEX transaction completed with Iran, economic impact of mechanism likely to be minimal


SNAPSHOT: First INSTEX transaction completed with Iran, economic impact of mechanism likely to be minimal 


  • EU-Iran trading mechanism Instrument in Support of Trade Exchanges (INSTEX) successfully conducted its first transaction on Tuesday (31 March).
  • Germany, France and the United Kingdom enabled the export of medical devices from Europe, according to the German foreign ministry.
  • Berlin also said the mechanism would facilitate other transactions with the Iranian mirror organisation Special Trade and Finance Instrument (STFI) in the future.



  • The recent transaction is a positive step toward the survival of the 2015 Joint Comprehensive Plan of Action (JCPOA, nuclear deal) between six world powers and Tehran.
  • INSTEX was created in January 2019 as a special-purpose vehicle (SPV) aimed at helping EU companies do non-cash transactions with Iran to avoid contravening US sanctions that were re-imposed after President Donald Trump unilaterally withdrew from the deal. Washington has since tightened its sanctions regime as part of its “maximum pressure” campaign aimed at forcing Iran to curb its nuclear and missile activities as well as its support for regional militant groups.
  • In response, Iran has been slowly violating the JCPOA’s restrictions, including nearly tripling its stockpile of enriched uranium since November 2019 and refusing to answer questions about three possible undeclared nuclear sites.
  • Iran has announced other restrictions in the JCPOA as they occurred and allowed International Atomic Energy Agency (IAEA) inspectors to verify them. These include the stock of heavy water it is allowed and the number and type of centrifuges it operates.
  • Iran has repeatedly said that it would reverse the steps it had taken away from the deal as soon as Europe successfully shielded mutual trade from the sanctions.
  • The use of the SPV is limited to humanitarian purposes including the purchase of otherwise embargoed foods or medicines. The only goods Iran can export without breaching the sanctions regime are carpets, pistachios and other select agricultural products.
  • Despite being operational since June 2019, the service had not been used prior to the March 2020 transaction and had been met with scepticism by Iran. Delays to the first transaction may be attributed to the fact that the mechanism does not have sufficient backing from high-ranking political figures in Tehran.
  • It is likely that Iran’s struggle with the coronavirus outbreak provided a cover for the recent transaction: on 31 March Tehran reported more than 44,000 cases in the country and some 2,900 deaths. Biting US sanctions has hindered Iran’s ability to control the virus’ spread.



  • It is unlikely that INSTEX will be able to significantly bolster Tehran’s battered economy. The mechanism is not designed to enable enough trade to persuade Iran to reverse all of its steps away from the JCPOA. Furthermore, Iran’s basic demand is to be able to continue its oil exports, and this demand has not been met so far.
  • Despite six other European countries (Belgium, Denmark, Finland, the Netherlands, Norway and Sweden) joining INSTEX in December 2019, the US’ secondary sanctions that affect foreign companies and individuals conducting deals with Iran will serve to discourage companies from partaking in the mechanism over fear of losing access to the US market. Berlin has previously said that it would be very difficult, in practice, for parties to deals with Iran to remain anonymous.
  • Therefore, the aim of INSTEX is probably merely to prevent the total collapse of the JCPOA. Additional low-level transactions are probable in the coming weeks and months, likely including deals worth less than EUR1 million.
  • The use of the mechanism will serve to elevate tensions between the US and Iran, which could present a spoiler to Brussels’ efforts to salvage the JCPOA.
  • Washington remains committed to its maximum pressure campaign: despite pleas to lift sanctions over coronavirus, Washington has so far refused and has even ramped up its efforts, blacklisting five Iran- and Iraq-based companies and 15 individuals for alleged support of "terrorist groups" last week. 
  • In this vein, there is a realistic probability Washington will seek to introduce sanctions against STFI, which is controlled by the sanctioned Central Bank of Iran.

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