News:Recently,six European countries have joined the barter mechanism called INSTEX which is designed to circumvent US sanctions against trade with Iran by avoiding the use of dollars.
What is INSTEX:
- The Instrument In Support Of Trade Exchanges(INSTEX) is a payment mechanism set up by the governments of France, Germany and Britain to secure trade with Iran and circumvent US sanctions.
- This mechanism was established after the US had pulled out of the Iran nuclear deal and reinstated sanctions on Iran.
- It is registered at Paris,France with an initial 3,000 Euros in the capital and a supervisory board with members from France and Germany and chaired by the UK.
- The mechanism is expected to receive the formal endorsement of all 28 EU members.
How will INSTEX work?
- The new entity acts as a sort of euro-denominated clearing house for Iran to conduct trade with European companies.
- In effect, the new trading mechanism works as a barter arrangement operating outside of the US-dominated global financial system.
- However, initially it will be used for non-sanctionable trade including humanitarian goods such as medicine, food and medical devices.
Significance of the mechanism:
- This mechanism is the first concrete step by the EU to counter Trump’s unilateral decision to withdraw from the nuclear deal.
- The backing of France, Germany and Britain to this mechanism could help reduce the likelihood of further U.S. sanctions.It may also encourage the private companies to join the mechanism.
About Iran Nuclear Deal:
- Iran Nuclear deal is also known as the Joint Comprehensive Plan of Action (JCPOA).
- The deal was signed in 2015 between Iran and the P5+1 group (US,UK, France, Russia, China and Germany).
- The deal restricts Iran’s nuclear programme,in return for lifting most economic sanctions against it.
- Iran had stopped complying with some commitments in the 2015 nuclear deal after the United States had unilaterally withdrew from the accord in 2018 and renewed sanctions on Iran.
- The US had also stepped up its pressure on Iran by ending exemptions from secondary sanctions for countries such as India from buying Iranian oil.This move crippled the Iranian government’s principal source of revenue.