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The trade war escalation combined…

EU Struggles To Create Iran Oil Trade Payment Vehicle

Iran EU

Although the European Union (EU) has vowed to create a special purpose vehicle to continue trade with Iran after the U.S. sanctions on Tehran’s oil return next week, the bloc is struggling with the set-up of such vehicle because no EU member is willing to host it for fear of angering the United States, the Financial Times reported on Sunday, citing EU diplomats.

The EU said last month that the foreign ministers of China, France, Germany, Russia, and the UK—the countries still in the Iran nuclear deal—met with Iran’s foreign minister and decided to create a special purpose vehicle for dealings with Iran. After the meeting, Federica Mogherini, the High Representative of the EU for Foreign Affairs and Security Policy, said that with the planned vehicle, “In practical terms 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 trade with Iran, in accordance with European Union law, and could be opened to other partners in the world.”

But the EU has met several hurdles in the work to setting up a payment mechanism with Iran, including the fact that no EU nation is eager to host the special purpose vehicle.

“No EU government wants to cross the US by having the SPV,” one official told FT after meetings within European Commission.

The United States will be “aggressive and unwavering” in enforcing the sanctions on Iran and won’t let those sanctions be evaded by the European Union or anyone else, U.S. national security advisor John Bolton said after the EU announced it would be working to create such vehicle.

Related: Can U.S. Gas Demand Keep Up With Surging Production?

U.S. Secretary of State Mike Pompeo also criticized the EU plan for continuing transactions with Iran, describing it as “one of the most counterproductive measures imaginable for regional global peace and security.”

The EU-Iran payment mechanism should be legally in place by November 4, when the U.S. sanctions on Iran return, three EU diplomats told Reuters last week, but added that the mechanism won’t be operational until early in 2019.

Still, the biggest European companies—not only in oil and gas but in other industries—are not taking any chances and are withdrawing from Iran due to the U.S. sanctions.

By Tsvetana Paraskova for Oilprice.com

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