Jan 14, 2019, 4:20 PM
News Code: 83170562
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EU’s SPV to be launched mid-January: Politco

Tehran, Jan 14, IRNA - Special Purpose Vehicle (SPV) will be launched in mid-January and on the third anniversary of the implementation of the Iran's nuclear deal, according to a report by American daily Politco.

Jarrett Blanc in article titled “Trump's Risking Financial Disaster for America” on Sunday wrote that “the European Union is inching closer to establishing a new financial mechanism to facilitate trade with Iran despite tightening US sanctions. The EU is likely to make announcements this month, tied to the third anniversary of the nuclear deal’s full implementation in January 2016.'

This is a severe risk for the US financial dominance over the mid- to long-term. It opens up the possibility of Europe developing a banking infrastructure that does not run through New York, threatening the tremendous influence the US enjoys as the global backbone for even simple banking operations.

Blanc wrote, “EU foreign policy chief Federica Mogherini’s announcement of this financial mechanism, called the Special Purpose Vehicle, was the most important thing to emerge from the UN General Assembly in September—though it was easy to miss in the circus atmosphere of word leaders laughing at Trump’s claim to have “accomplished more than almost any administration in the history of our country” or Trump’s dramatic isolation in his failed effort to persuade the Security Council to join his pressure campaign against Iran.

“Mogherini did not provide much detail on the SPV, but its shape is starting to become clear. The European states will enlist state financial institutions to allow “net clearance” of transactions with Iran, collecting debits and credits from multiple transactions to minimize contact with the banking system.

France and Germany will take the lead, not a smaller country with historical trade ties to Iran, such as Austria. The SPV will probably launch in mid-January, around the third anniversary of the implementation of the nuclear deal. Essentially, the EU is setting up a pseudo-bank to manage Iran's transactions; it will be resistant to the US pressure because of its links to key allied governments that cannot be sanctioned without risking political chaos and another Great Recession—or worse.

“Unsurprisingly, establishing the SPV has not been easy. The EU and its member-states do not do this kind of financial engineering everyday, and Europe’s financial system is so intertwined with the US that it is difficult to find any individuals or institutions willing to take on even a small risk of being designated to the US sanctions. But that they are seeking to establish this at all is a signal that Europe understands that the US withdrawal from Iran deal signifies a level of instability, unpredictability and disregard for allies’ interests that shakes global faith in the US as the world’s financier and the dollar as the global currency,' the writer noted.

Still, the SPV will start with a relatively modest mandate—not to “bust” US sanctions, but to facilitate unsanctioned transactions, like sales to Iran of food, medicines and some consumer goods. Although the European officials will certainly hold out the prospect of a broader SPV emerging over time that would handle trade permitted under the EU law, but sanctionable by the US, there is probably not sufficient commercial interest in the European private sector to make such a mechanism work, he mentioned.

The Trump administration might think it can ignore—or even welcome—a sanctions-compliant SPV. It would reduce pressure on Washington to create realistic channels for humanitarian trade with Iran. Although the administration claims that this is “not our problem', it will continue to strain alliance relationships if innocent Iranian civilians fail to receive medicines. A limited SPV could both minimize some of the negative effects of sanctions and spread the blame for them to Europe.

Blanc concluded, “An SPV for Iran trade is unlikely to mean much for Iran’s economy or the US’ ability to marshal pressure. Iran is politically important, but commercially trivial, and that is not sufficient for European governments and firms to rewire their relationships with the US. The Iran SPV, though, will teach its managers lessons that can be applied to other cases in the future. For example, how to include non-EU trade partners, like China with its deep pockets. The higher the volume of transactions, the more lessons European officials will learn.”

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