The US withdrawal from the nuclear deal with Iran has given Iran a strong foothold in international trade. Even the sympathy of Europe and China is not enough for Iran.
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US President Donald Trump has decided to pull out of the 2015 Joint Comprehensive Plan of Action (JCPOA) with Iran. Under the nuclear deal, Iran would shut down its nuclear and missile programs in exchange for lifting international sanctions on Iran. The Trump administration pulled out of the "Iran Nuclear Agreement" by making hollow accusations that Iran was not strictly abiding by the terms of the nuclear deal. The European Union (EU) has pulled its socks to put sanctions on Iran similar to the West. This is because the Iran-US nuclear deal has caused economic hardship to Europe, including Iran.
In the run-up to the US withdrawal from the deal (between 2015 and 2018), it was hoped that international trade with Iran would be calculated. That's why multinationals like Renault, Airbus and Total are ready to invest in Iran. Also, energy consuming countries like China and India imported large quantities of hydrocarbons from Iran. But the United States withdrew from the agreement and the European Union's political views became anti-American. With no chance of any reconciliation between the US and Iran, European companies had to withdraw their investments in Iran.
The "Iran Nuclear Agreement" needed to be saved in order to reduce the impact of international sanctions on Iran, as well as to curb US uncertainty. So the European Union is looking for a way out of this economic crisis.
In the first week of February 2019, three of the eight participating parties to the Iran Nuclear Agreement came together to establish the INSTEX (Instrument for Supporting Trade Exchange) in order to send a friendly political message to Iran and protect the investments made by EU companies. France, Germany and the United Kingdom came together to set up the mechanism so that they would not have to face US sanctions when trading with Iran.
INSTEX was set up to allow Europe and Iran to trade with each other without the use of dollars. The system trades in food and medicine (these are just some of the elements in the non-US humanitarian class). Although people are very curious about INSTEX, oil and gas, which are the backbone of the Iranian economy, have been left out. If the INSTEX agreement does not include hydrocarbons or any other dramatic changes, the system will only be an experiment by three major European countries to save their reputation in their dealings with Iran.
Although Iran is pressuring the European Union to honor the agreement, it does not expect companies in the EU to do anything against the United States. This is because these companies also have large investments in the US and going against the US could jeopardize their entry into the US financial markets.
Iran's non-aligned deal with China is a curious one. Iranian Foreign Minister Javed Zarif recently met with Chinese Foreign Minister Wang Yi. Wang Yi welcomed Iran's efforts to strengthen "political trust" with China. The Iranian delegation included Ali Largiani, Iran's parliamentary speaker, the leader of Iran's central bank, and the country's finance and petroleum minister.
Given the composition of this delegation, the idea of a new trade mechanism to protect Iran-China trade from US sanctions could be the culmination of this relationship. China was the world's largest importer of Iranian oil before the United States withdrew from the Iran nuclear deal. That is why China was given so much importance as a partner in Tehran's economic development. As a result, Iran imported large quantities of Chinese goods. So there were many options available to counter US sanctions. A money exchange system already existed between Iran and China with the help of Kunlun Bank. But transactions through the system will not be enough to meet Iran's ambitions in trading large quantities of oil, Chinese goods and economics.
Chinese energy companies (Sinopec and CNPC) are importing 360,000 barrels of crude oil a day from Iran. Before the United States withdrew from the Iran nuclear deal and imposed sanctions on Iran, China was importing half of its oil from Iran.
This is a matter of concern for Iran. Because China will show that it is complying with the US sanctions and the big Chinese companies will avoid the US (the experience of the US to the Huawei company may be one of the factors). Perhaps, smaller banks and companies that are easier to avoid from U.S. sanctions could be the way to continue trading, but there will always be limitations when making large deals with smaller companies.
Therefore, China and the European Union will remain important positions in Iran's politics and foreign relations. But it will be difficult for them to resist the US pressure on Iran. Voices will also be raised for Iran’s international economic rights, even small initiatives like INSTEX or China. But these efforts will not suffice to restore Iran's position in international trade, that's for sure.
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