Instex Mostly 'Symbolic,' Lawyers Say

Instex, the European payment system designed to allow countries to trade with Iran despite U.S. sanctions, is mostly symbolic, several trade lawyers said. The system is a potentially useful tool to appease Iran’s demands for greater cooperation with Europe, lawyers said, but likely an insignificant mechanism in brokering major trade.

The creation of Instex was designed to be more political than practical, said Ross Denton, a London-based trade lawyer with Baker McKenzie. “I’ve heard British diplomats say ‘we’ve felt that we had to do it just to keep Iran onside,’” Denton said during a July 3 webinar with several other Baker McKenzie lawyers. Instex was Europe’s way to keep Iran at the negotiating table after the U.S. withdrew from the Joint Comprehensive Plan of Action in 2018, said Anahita Thoms, a Germany-based lawyer also speaking on the webinar. “It is, in our view and our experience, largely symbolic,” she said.

Symbolic, Thoms said, mostly because it is expected to have an “initial capsule of only several million Euros,” and will be “limited in the size of the trade it can support” unless significant changes are made. But most importantly, major companies -- especially those with U.S. ties -- are reluctant to use Instex because of the threat of U.S. secondary sanctions, she said. The U.S. Treasury Department has said it will sanction any person or entity that trades with Iran or is involved with Instex (see 1905300035).

The companies most likely to use Instex are small to midsize businesses who deal mostly in humanitarian aid and pharmaceuticals, Thoms said. “Clearly the players with significant U.S. interests are hesitant, to say the least,” she said. Although the future of Instex is still unclear, partly because it has been active for less than a month (see 1907010057), Thoms said European leaders will likely keep it from collapsing because of the “political signal” it sends to Iran. “It’s important to show the Iranians that we have tried, at least,” she said.