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Oil Prices Remain Rangebound As Volatility Fades

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EU Sets Up Vehicle For Iran Oil Trade To Avoid Sanctions

The European Union said it has set up a special-purpose vehicle that will handle transactions involving Iranian oil and European goods, AFP reports, citing a statement made by the EU’s head of foreign policy Federica Mogherini at the UN.

"In practical terms,” Mogherini said, “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."

Reuters quoted European diplomats as saying the scheme was similar to the barter system used by the Soviet Union during the Cold War, which eliminated the use of any money. Some of these diplomats, however, seemed concerned that this attempt to keep Iranian oil flowing into Europe is doomed. Washington, they said, could simply expand the scope of the sanctions to include barter transactions. Reuters did not elaborate on how exactly this would be done legally.

“The key is to keep all possibilities open so that we can signal to the Iranians that the door isn’t closing,” one French diplomat said.

The European signatories to the Joint Comprehensive Plan of Action, more commonly known as the Iran nuclear deal, have demonstrated exemplary verbal efforts to keep the deal in place, with the European Commission enacting a provision that effectively bans European companies from complying with U.S. sanctions. However, these same companies, including Total and Volkswagen, have essentially ignored the provision and have abandoned Iran for fear of repercussions from Washington.

Iran, at the same time, has insisted that the EU offers real support for the deal and for its economy in these times of trouble, threatening to resume its nuclear program if nothing is done. According to the diplomats who spoke to Reuters, so far the EU has failed to provide this kind of support.

By Irina Slav for Oilprice.com

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  • Chris_zzz on September 25 2018 said:
    The problem here with what the EU is doing is obvious. The U.S.'s dispute with Iran has to do with nuclear non-proliferation, a policy goal of NATO. Why should the U.S. continue to help protect EU countries if they are undermining their own nuclear non-proliferation policies? I know what some people will claim: that the Iran deal helps the cause of nuclear non-proliferation. I disagree. It gives Iran a path to producing nuclear weapons in the future. On top of all this is the fact that Iran is sponsoring terrorism all over the Middle East and Europe. Iran still threatens Israel, one of the U.S.'s closest allies, with annihilation. Iran is waging a proxy war in Yemen and is funding Palestinian aggression against Israel. Europe is being weak and too short-term in their thinking in accommodating Iran. The Europeans should have known that the U.S. would pull out of the Iran agreement; it was highly opposed in the U.S. and never submitted to the Senate, as it should have been under the Constitution -- because it was effectively a treaty.
  • Mamdouh G Salameh on September 25 2018 said:
    The EU is signalling to President Trump that they will not comply with US sanctions on Iran and will continue to buy Iranian crude. Furthermore, they are prepared to defend European companies dealing with Iran against US sanctions.

    The EU has a lot of economic muscle being the largest trade bloc in the world accounting for 22% of the global economy compared with 18% for the US. If the US takes action against the EU for dealing with Iran, the EU will retaliate against the US.

    The EU has no alternative but to support continued trade with Iran because if Iran is not satisfied with EU support, it will definitely abandon the nuclear deal altogether. In such a situation, the alternative could be a further escalation of tension between the US and Iran possibly leading to a war engulfing the whole Gulf region.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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