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European attempt to facilitate trade with Tehran has landed between a rock and a hard place

Europe's attempt to circumvent US sanctions has been a complete failure according to experts and business organizations. Neither companies nor governments dare challenge the US, they say.
18. September 2020
Europe's attempt to circumvent US sanctions has been a complete failure according to experts and business organizations. Neither companies nor governments dare challenge the US, they say.
In cooperation with Zamaneh Media
Redaktør: Jesper Hyhne | Ansv. chefredaktør: Jesper Nymark
A Danwatch investigation

European attempt to facilitate trade with Tehran has landed between a rock and a hard place

European trade with Iran has dwindled to a trickle since the US left the nuclear deal with Iran and reimposed sanctions on all companies doing business with Iran 

  • For months Danwatch and the Iranian exile media Zamaneh have conducted a joint investigation into Novos business in Iran.
  • This report is based on an extensive research into thousands of Persian, English and Danish language media reports, annual reports, local and international business registries, statistics, research reports, social media sites, satellite imagery as well as interviews with dozens of experts inside and outside Iran, present and former employees at Novo Nordisk, local diabetes organisations, international NGO’s, diabetes patients in Iran and of course Novo Nordisk.

If you have additional information that could help qualify this report please do not hesitate to contact us at or through our secure tip service

Since the US reinstated economic sanctions on Iran it has been next to impossible for European companies to maintain trade relations with Tehran. Import as well as export to the Islamic Republic has plummeted according to Eurostat and the transfer of money in or out of Iran has practically stopped.

After a lot of head scratching European leaders presented a new initiative called INSTEX as the great solution to solve the problem, offering moneyless trade between Europe and Iran.  

But according to experts, business organisations, and diplomats the brainchild of France, Germany and the UK has failed completely.

“The major EU countries have with great fanfare established the INSTEX mechanism, but it does not work. It is simply not a very effective instrument”, Rasmus Elling, Iran expert and associate professor at Institute for Crosscultural and Regional Studies at University of Copenhagen says.

Proof of existence

“INSTEX has successfully concluded its first transaction, facilitating the export of medical goods from Europe to Iran. These goods are now in Iran.” 

The first moneyless trade deal with Iran was announced by the German Ministry of Foreign Affairs on the 31st of March 2020 and the news echoed among businesses and in the corridors of European government.

Practically no one else noticed though, maybe due to the corona pandemic or maybe  because of the extreme scarcity of information.

Who owns INSTEX

INSTEX is a barter office dedicated to facilitating trade between the European countries and Iran. It was founded by France, Germany and the UK in January 2019 as a private shareholders company according to French law.
It is headquartered at a very discreet adress in Paris. The CEO of INSTEX is former german banker Per Fischer.  

In Iran the INSTEX office is mirrored by the STFI (SATMA in Persian) (Special Trade and Finance Instrument) headed by former banker Ali Asghar Noori.  

Instex is owned by the following countries:  

  • France
  • Germany
  • United Kingdom 
  • Belgium
  • Holland
  • Norway 
  • Denmark 
Sources: INSTEX

No company, no goods and no amount of money involved was made public, making the details of the deal a well kept secret until this day.

But the purpose was clear. Germany, France and the UK, the three founding fathers of the  INSTEX barter office, wanted to prove that the unusual creation invented to facilitate European trade with Iran could actually work. 

A lone swallow

So far the secret German deal with Teheran remains a lone swallow.  

And one swallow doesn’t make ao summer, as an investigation conducted by Danwatch and the Iranian exile media Zamaneh shows. 

In reality Denmark and other European countries are spending taxpayers’ money financing a mechanism that simply does not work.  According to economists, diplomats and experts on trade and Iran, the system that was built  to preserve the Euro-Iranian relationship has proven utterly useless.

Djavad Isfahani, professor and Iran economist at University of Virginia, US, expresses what most businesses and experts answer when confronted with the meagre amount of deals, so far conducted by INSTEX.

“INSTEX has a lot of potential, but  is not worth anything at the moment”, he says. 

Economist Mahdi Ghodi from the Vienna Institute for Economic Studies is specialised on Iran and confirms the assessment.

“INSTEX is an innovative approach to a serious challenge, but it has not yet managed to render the benefits it was supposed to. So far it has not been able to convince companies to do business with Iran,” he says.

Preserving the nuclear deal 

An email address at a rather empty website and an office – at first hidden inside the French Ministry of Finance at 139 Rue de Bercy, Paris and later moved to an anonymous apartment building at 25, Rue de la Reynie. 

This is what INSTEX looks like when you try to uncover the discreet home of INSTEX on the internet.

The physical existence of INSTEX might be next to invisible but trumpets sounded loud and clear when the initiative was announced in november 2019.

The EU could not agree to back the creation of INSTEX, so France, Germany, and the UK took matters into their own hands and founded a private company, meant to salvage  European trade with Tehran in the face of US sanctions – and persuade Iran to stay in the 2015 nuclear deal signed by the major world powers and Iran.

“With their resolute commitment and continued efforts” they aimed to “preserve the nuclear  deal with Iran”, a joint statement issued by the foreign ministers of France, Germany and the UK read.  

And Denmark was a keen supporter along with Holland, Belgium and Norway. With a sum of 2,5 million DKK Danmark decided to become a shareholder of INSTEX Minister of foreign Affairs Jeppe Kofod announced.

“We believe that Denmark and Europe have a clear security interest in maintaining the nuclear agreement,” Kofod said to the national Danish news agency Ritzau.

“The agreement is our best way to ensure that Iran does not develop nuclear weapons and to prevent further escalations in the region.”


How does INSTEX work?

The INSTEX trade mechanism was launched in January 2019 with the aim of facilitating European trade with Iran. The idea is to avoid the transfer of money between Iran and the EU countries as international banks are afraid of US sanctions.

Play Video

Sources: Danish Ministry of Foreign Affairs, INSTEX

Smart but useless

The idea of INSTEX is to make it possible to trade with Iran without transferring money across the Iranian border. 

Jørn Fredsgaard, senior analyst at the Danish Export Credit Institution offering loans and garanties to companies doing business abroad explains how the INSTEX system works.

“It is a kind of an exchange center that works with vouchers instead of money. When an Iranian company exports a commodity to Europe the payment will be a voucher which the company can use to pay for some other commodity that it might want to import from Europe. It is quite clever making it possible to trade without money,” he says.

The reason for the special set up is the American sanctions targeting all companies,  institutions or individuals doing business with the Iranian state – including foreign companies and foreign banks. 

These secondary sanctions have effectively eroded the global SWIFT money transfer system and left companies trading with Iran with no other option than bringing foreign cash into Iran in suitcases or pay via middle men in third countries, hoping no one notices.

But for several reasons INSTEX never really worked.

Fear of even trying

The main reason for this is fear, says Iran economist Djavad isfahani. Fear that the US will punish any country or company that dare use the mechanism to do business with the clerical regime of Iran.

“If the European governments and companies were not so afraid of the US, it could work”, Isfahani says.

“But they are not willing to challenge the US. If the European countries were braver they could set up assurance garanties for companies trading with Iran. It’s not rocket science, it could be done. Or Europe could buy Iranian oil in advance to make it work”.

He thinks that the EU countries behind INSTEX ought to challenge Washington and insist on keeping Iran in the European loop.

Economist Mahdi Ghodi as well as Rasmus Elling,  a long term observer of Iran-EU relations agrees.

“If a company has any kind of business with Iran today they risk being punished. The US sanctions are designed in a very opaque way making it very difficult for companies to find out whether they are violating sanctions or not. The rules are also constantly changing and new names are constantly appearing on the list of designated persons and entities”, he says.

“Therefore most companies choose to not even try”.

In Denmark, this is definitely the case, says Jørn Fredsgaard.  

“Formally companies can use INSTEX, but there are clearly some challenges – partly because INSTEX initially focuses on trade that is already permitted by the US”, he says.

According to the US Treasury medical products, food and other humanitarian supplies are exempted from sanctions. 

David and Goliath

The other major challenge to INSTEX is the lack of parity in EU-Iran trade. Iran simply buys a lot more from Europe than the other way around. 

And this presents a financial problem for the INSTEX office that has to give out vouchers to both sides.

At the moment this problem is exacerbated by Iran not being able to sell its oil and natural gas to Europe as the US is targeting anyone that imports it. 

“As long as there is no balance between import and export from Iran to Europe, INSTEX will not work”, says Rasmus Elling. 

“Iran is trying to diversify its production and has succeeded partly in the production of metals, semi-finished products and medicines. But the only thing that really can change this balance is Iran being able to sell its oil to Europe”.

At the moment Iran is selling its oil to China instead, he says.  

Iran is not fooled

Right from the start, the aim of INSTEX was clear. The purpose was to keep Iran in the nuclear deal with promises of trade benefits. But the promises seem increasingly empty to the Islamic Republic as trade with Europe is diminishing.


EU trade with Iran

According to the EU statistical bureau Eurostat the European export to Iran has plummeted 90 percent from 9,5 billion euro in 2018 to only 0,7 billion in 2019.

And import from Iran shows a similar tendency. In 2019 the 28 EU countries imported commodities worth only 4,5 billion euro compared to 8,9 billion the previous year.

Already when INSTEX was born, scepticism was voiced.

Head of Iran’s Central Bank, Abdolnasser Hemmati was one of them, saying that the system would never work, as long as the EU cannot import Iranian oil.

“INSTEX needs to be financed by importing oil from Iran to ensure its sustainable operation”, he said according to Financial Tribune suggesting that the European countries could open a long-term credit line for Iran to be repaid with oil import at a later date.

Rasmus Elling confirms that Iranians have long realized that the European countries cannot deliver.

“But still INSTEX has a value as a token of good faith showing Iran that European countries mean it when they say, they would like to trade with Iran”, he says. 

But Iranian patience is running low as a televised speech by Iran’s spiritual leader Ayatollah Ali Khamenei showed in July 2020.

Here, the Supreme Leader was very outspoken on the uselessness of INSTEX, criticizing Europe’s behavior after the United States pulled out of the nuclear deal in 2018. 

“Europeans did nothing” to assist Iran after the US pullout, he said, according to Radio Farda.

“Their latest initiative was a stupid toy called INSTEX”,  he said characterizing the mechanism as “nonsense” adding Europeans did not even try to use INSTEX to help Iran. 

Uncertain future

Danwatch and Zamaneh have repeatedly tried to reach INSTEX for an answer to the criticism but the office in Paris does not answer inquiries from the media.

But business sources and experts agree that the mechanism is not likely to succeed in the near future.

“INSTEX’s failure is proof of how incredibly difficult it is to escape the unprecedented US sanctions and that will not really change until a new American president is chosen”, Rasmus Elling says.

“Everyone is waiting to see if Biden (US Democratic presidential candidate, Joe Biden edi) will take over”.

However Joe Biden’s Iran policy is unclear.

In statements he has indicated that he wants the US to reenter the nuclear deal with Iran but whether he intends to soften the grip on Iran’s economy is unknown. 

Asked about his position on Iran by the Council of Foreign Relations, a US think tank, Biden said:

“If Iran moves back into compliance with its nuclear obligations, I would re-enter the JCPOA (the nuclear deal) as a starting point to work alongside our allies in Europe and other world powers to extend the deal’s nuclear constraints”.

Economist Djavad Isfahani thinks that INSTEX is worth preserving for the day, US eases its economic grip on Iran.

“As long as there is such an unpredictable administration in Washington INSTEX is not going to work. But it has potential and Iran has been fairly patient, hoping to keep Europe on the table”, he says.

“Iran thinks that with time Europe will come to its senses and then Iran has a good channel to trade with Europe. And INSTEX is an important piece of that puzzle. There is a lot of potential in INSTEX, but it takes courage to use it”.

And so does Esfandyar Batmanghelidj, founder and publisher of Bourse & Bazaar, a media  that supports business diplomacy between Europe and Iran.

Batmanghelidji insists that INSTEX has unrealized potential that just need time to blossom:

“INSTEX will not be able to revive the trade lost between Europe and Iran due to sanctions, but it can play an important role in easing the export of products from the EU to Iran, particularly pharmaceutical products for which Europe is Iran’s most important supplier”, he says.

Economist Mahdi Ghodi agrees.

“With INSTEXs in place, we have a mechanism to immediately facilitate trade between Iran and the EU as soon as relations between the US and Iran get better. It might even work before all sanction-related prohibitions are eliminated and banking relations with Iran are  back to normal”, he says.

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