European nations set up transaction channel 'INSTEX' to trade with Iran

The United Kingdom along with other European nations such as Germany and France on January 31, 2019 set up a new transaction channel called INSTEX that will allow companies to continue trading with Iran despite US sanctions.

Feb 5, 2019 19:00 IST
facebook IconTwitter IconWhatsapp Icon

The United Kingdom along with other European nations such as Germany and France on January 31, 2019 set up a new transaction channel called ‘INSTEX’ that will allow companies to continue trading with Iran despite US sanctions.

INSTEX is short for ‘instrument in support of trade exchanges’. The payment channel will create a possibility for the European countries to conduct business transactions with Iran. While the move was praised by Iran, it drew a warning from the United States.

The information was shared by German Foreign Minister Heiko Maas after a meeting with European counterparts in Bucharest, Romania.

Key Highlights

The European nations hope that the special payment system will help save the Iran nuclear deal by allowing Iran to keep trading with EU companies despite US re-imposing sanctions after President Donald Trump abruptly quit the accord in 2018.

The system was launched by the three countries, which are the European signatories to the 2015 deal that curbed Iran’s nuclear ambitions in return for sanctions relief. The system was in preparation for months.

The company 'INSTEX' was registered in Paris earlier last week with an initial 3,000 euros in capital and a supervisory board with members from France and Germany and headed by the UK.

INSTEX-In Detail

The transaction channel will allow European businesses to trade with Iran, despite strict US sanctions.

Though the payment channel is a project of Britain, France and Germany, it will receive the formal endorsement of all 28 EU members.

It will support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population such as pharmaceutical, medical devices and agri-food goods.

In the longer term, INSTEX aims to be open to third countries wanting to trade with Iran.

However, INSTEX is not yet operational as it needs Iran to set up a parallel structure of its own, which may take some time to complete.

While it is aimed at small and medium-sized companies, it is expected to send an important message to Iran about Europe's commitment to keep the nuclear deal alive.


The launch of the special payment channel is a clear and practical demonstration of Europe's commitment to continuing the nuclear deal.

It, however, does not in any way preclude the European Union from addressing Iran's hostile and destabilising activities.

Europe has toughened its tone on Iran's ballistic missile programme, human rights record and interference in Middle East conflicts.


While Iran welcomed the news as a "long overdue first step", the nation’s deputy foreign minister Abbas Araghchi said that to be of any value, the new mechanism must allow trading of sanctioned goods.

US, on the other hand, dismissed the idea that the new entity would have any impact on efforts to exert economic pressure on Iran and fired a fresh warning at anyone thinking of trading with the Islamic republic.

EU diplomatic chief Federica Mogherini, who has led the bloc's efforts to save the nuclear deal, said INSTEX was essential for the continued full implementation of the nuclear deal.


The President of United States, Donald Trump had on May 8, 2018 announced the withdrawal of the US from the landmark 2015 nuclear deal with Iran.

Trump withdrew from the agreement, which included Germany, France and Britain, calling it horribly one-sided. He had added that the United States will be instituting the highest level of economic sanctions on Iran.

Following the move, US Secretary of state, Mike Pompeo on August 16, 2018 announced the formation of the Iran Action Group (IAG) to coordinate and run the country's policy towards Iran. Pompeo has named Brian Hook, the State Department's director of policy planning, as the group’s head.

On November 5, 2018, the United States temporarily exempted eight countries, including India from the US sanctions for buying Iranian oil. The other nations exempted from the sanctions included China, Japan, Italy, Greece, South Korea, Taiwan and Turkey.

Despite US warnings, the European nations and the nuclear deal’s other signatories Russia and China maintain that Iran has not broken its side of the nuclear accord and should be allowed to trade.

Download our Current Affairs & GK app For exam preparation

डाउनलोड करें करेंट अफेयर्स ऐप एग्जाम की तैयारी के लिए