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NATO Summit 2019: European allies on collision course with Donald Trump as non-dollar deal with Iran gets more takers

  • Last year, the US abandoned the JCPoA under which international sanctions on Iran were lifted in return for Tehran accepting curbs on its nuclear programme

  • INSTEX was a mechanism designed by France, Germany and the UK to facilitate non-dollar trade with Iran in a bid to avoid US sanctions in the aftermath of the US walkout

  • A day ahead of this year's NATO Summit in London, six European countries, four of whom are NATO allies, announced their decision to become shareholders in INSTEX

A day ahead of this year's North Atlantic Treaty Organisation (NATO) Summit in London, six European countries — four of whom are NATO allies and two are NATO partners — announced their decision to become shareholders in the Instrument in Support of Trade Exchanges (INSTEX) mechanism. This brings the tally of European participants in this special purpose vehicle (SPV), designed to facilitate non-dollar trade with Iran in a bid to avoid US sanctions, to nine, including founder members and NATO allies France, Germany and Great Britain.

That this edition of the NATO Summit will mark the organisations 70th anniversary isn't without its significance, and neither is the fact that it is likely to see members less united than in any of the preceding seven decades.

What is INSTEX?

INSTEX came to light in January this year following the US' abandonment of the Joint Comprehensive Plan of Action (JCPoA) — an agreement between Iran and the P5+1 (China France, Germany, Russia, the UK and US) under which international sanctions on Iran were lifted in return for Tehran accepting curbs on its nuclear programme. Walking out of the deal was something President Donald Trump had threatened ever since his presidential campaign began to gain momentum and it was in May last year that he fulfilled his threat.

"It is clear to me that we cannot prevent Iran nuclear bomb," Trump had said at the time, "The Iran deal is defective at its core. Therefore, I am announcing today that the United States would withdraw from the Iran nuclear deal." Furthermore, the re-imposed sanctions were aimed to target critical sectors of Iran's economy such as its energy, petrochemical, and financial sectors. Then-prime minister Theresa May, Chancellor Angela Merkel and President Emmanuel Macron were quick to respond in a joint statement that expressed 'regret and concern' about the US decision.

 NATO Summit 2019: European allies on collision course with Donald Trump as non-dollar deal with Iran gets more takers

File image of Donald Trump at a NATO meeting. AP

Reminding Trump that 'the JCPoA was unanimously endorsed by the UN Security Council' the three European leaders stated, "According to the IAEA, Iran continues to abide by the restrictions set out by the JCPoA, in line with its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons. The world is a safer place as a result. Therefore we, the [European signatories to the JCPoA], will remain parties to the JCPoA." That it would then be these three countries that would kick-start the INSTEX seems logical.

This SPV is essentially "a barter arrangement operating outside of the US-dominated global financial system". Further, as this report adds, the mechanism will "focus on non-sanctionable essential goods such as humanitarian, medical and farm products. It is not expected to address oil-related transactions."

What of the 'Asian giants', you ask? India was apparently eager to participate in INSTEX and China has made positive noises about the SVP. However, while New Delhi has maintained a stoic public silence about the matter, Beijing has remained non-committal. But while India has been cutting down its imports from Iran, Beijing has its own trade channels with Tehran, so neither of these parties matter very much in the INSTEX scheme of things.

What is it good for?

A couple of weeks after the UK, France and Germany announced the establishment of the INSTEX, US vice-president Mike Pence condemned the SPV as "an effort to break American sanctions against Iran's murderous revolutionary regime". He added, "It's an ill-advised step that will only strengthen Iran, weaken the EU, and create still more distance between Europe and the United States." In an apparent counter to the assertion by Merkel, May and Macron, he went on to add, "Some argue that Iran is in technical compliance with the narrow terms of the [JCPoA]. But compliance is not the issue; the deal is the issue."

That the Americans would be perturbed by INSTEX, as also European efforts to move forward with Iran on the terms of the JCPoA, was understandable, but presumably, the Iranians would be pleased, right? Wrong. Tehran, which has steadily been rolling back compliance with the JCPoA, expressed its scepticism after a meeting (Joint Commission on Preserving Nuclear Deal) in June. Speaking of the meeting itself, Iran's deputy foreign minister Abbas Araghchi noted, "It was a step forward, but it is still not enough and not meeting Iran's expectations." He went on to add, "For INSTEX to be useful for Iran, Europeans need to buy oil or consider credit lines for this mechanism, otherwise INSTEX is not like they or us expect."

Russian foreign minister Sergey Lavrov expressed his country's interest in being part of the SPV but seemed to echo Iran's concerns. He noted that while the commodities listed under INSTEX (humanitarian, medical and farm products) aren't banned by US sanctions, oil exports would have to be facilitated eventually to ensure that the terms of the JCPoA remain intact and Iran's economy is bolstered.

What now?

In short, the US is unhappy, Iran is unhappy, Russia is unconvinced and it appears only the Europeans are pleased with this setup.

It cannot have slipped the minds of INSTEX participants that the economic gains on offer from trading humanitarian, medical and farm products are far outweighed by the potential risk — ie the White House quickly cobbling together a new set of unilateral sanctions against the European countries trying to pull a fast one on Trump. That seven of the countries involved in this venture are treaty allies under the auspices of NATO would seem that much more galling to the US president, who is set to meet them on Tuesday.

Further, having witnessed nearly three years of Trump's foreign policy that is driven by bluster and followed up by belligerence, NATO leaders — particularly those who've signed on to INSTEX — will be preparing to weather more of the same. But, it doesn't end there. NATO, a defence alliance formed to counter the advances of the USSR during the Cold War, is fraught with its own internal problems. Starting with Trump's insistence that members stump up more 'protection money' to Russia's growing warmth with certain members, and from Turkey's increasingly roguish behaviour to Macron bemoaning the 'brain death' of the organisation, there's a lot for the treaty allies to consider in the 71st year since NATO's formation.

As mentioned above, there appear to be no great economic gains from INSTEX, so why bother with this, particularly when it's odds-on to get the US president's goat?

Back in January, French foreign minister Jean-Yves Le Drian laid bare the raison d'être of this SPV, but stopped short of expanding on it. "It is a political act," he  told reporters, and added, "It is a gesture to protect European companies." Just how much 'protection' it offers remains to be seen, but it is most certainly political in nature, rather than economical. And its purpose could well be to take a jab at Trump for unceremoniously tearing up a deal that seven countries, including his own, worked tirelessly to hammer out.

It remains to be seen what retributive measures the Trump administration — but really, just Trump — envisions in order to discipline his insubordinate European allies and how they propose to retaliate, but it's safe to say that the picture will become much clearer in the next couple of days.

With inputs from Reuters

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Updated Date: Dec 02, 2019 14:22:47 IST