(CN) – Europe is often described as an economic giant, but a dwarf in the push and shove of world politics. This status is being put to the test once again as tensions escalate between the United States and Iran, leaving the European Union in the middle and potentially unable to salvage the Iran nuclear deal.
The European Union was a key player in negotiations that ended with a landmark agreement in Vienna in 2015 that required Iran to curb its nuclear ambitions in exchange for the lifting of international sanctions.
But the deal is falling apart a year after President Donald Trump pulled out and began imposing crippling sanctions on Iran and any entity that does business with Iran.
Last week, Iran threatened to begin withdrawing from the deal too and to take steps to resume its pursuit of nuclear weapons. Before it does that, though, Iran said it would give the EU, and the other signatories to the deal, China and Russia, 60 days to step up trade with it and ease oil and banking restrictions that have hit its economy.
This leaves it largely up to Europe to salvage a deal it has put so much stock in, and which stands as one of the EU's few diplomatic achievements on the world stage.
A lot is at stake for Europe as the deal breaks down.
Although European leaders have deep reservations about Iran, they still support building trade with the country and see the nuclear deal as crucial to regional stability, arguing it helps prevent an arms race and the proliferation of nuclear weapons in the Middle East.
Iran's President Hassan Rouhani also has warned that Iran's economic troubles could impede his country in fighting drug trafficking and lead to an increase in refugees and terrorists making their way to Europe.
To salvage the deal, France, Germany and Great Britain have crafted a financial mechanism designed to allow European companies to export a limited number of goods to Iran and avoid U.S. sanctions. The trade would allow humanitarian goods, such as medicine and farm equipment, to be exported to Iran outside the U.S.-dominated global financial system. The EU says the first transactions will take place soon.
The goods meant to be traded are, in theory, not subject to sanctions because they are considered humanitarian relief in nature. But the U.S. has been ambiguous about whether it will consider companies and banks engaging in such trade with Iran an infraction of its sanctions, and this ambiguity forced the EU to devise this instrument, known as INSTEX, an acronym for Instrument In Support Of Trade Exchanges.
“Europe has made this their core, symbolic initiative in the face of U.S. withdrawal,” said Sahil Shah, the Iran Project Lead with the European Leadership Network, a London-based think tank, in a telephone interview with Courthouse News.
He called this financial mechanism a novel method to bypass U.S. sanctions. But he said European companies will be extremely wary of conducting business through it for fear of running afoul of U.S. sanctions unless strict compliance processes are put in place.
He doubted that this instrument, on its own, will be enough to make Iran feel compelled to remain within the nuclear deal.
“It will not be adequate,” he said. He said the Iranian government “can't see it making much of a difference to the multi-faceted economic issues facing Iran, including rising inflation and unemployment.”
He added that Iran is frustrated at how long it has taken Europe to create the mechanism. “It's unfortunate that so much time has been spent on a mechanism that would not have been necessary if the U.S. had given proper guidance,” Shah said.