US Warns Europe Against Including Iran Oil Purchase in INSTEX

American officials have issued a warning to European nations that they risk falling foul of sanctions on Iran if they press ahead with a barter system that could allow the export of Iranian oil.

Last week, Russia signaled it was interested in joining the mechanism, known as Instrument in Support of Trade Exchange (INSTEX), as part of an effort to resuscitate a 2015 nuclear deal abandoned by US President Donald Trump last year.

Russian Foreign Minister Sergei Lavrov said INSTEX would need to facilitate oil exports to bolster Iran's economy and ensure the survival of the deal.

The US has said using the channel for food and medicine would not breach sanctions.

But a recent announcement that European ministers were considering extending it to oil risks undermining Washington’s strategy of “maximum pressure.”

A senior administration official told the Washington Examiner that the treasury department wrote to the board of INSTEX and “communicated exactly our displeasure at the creation of an instrument that, on its face, seems to foster the evasion of sanctions and the danger associated with that and reminded them what was and was not sanctionable.”

The UK, France, and Germany are intent on shoring up what is left of the 2015 accord. Central to their efforts is setting up the INSTEX.

It was designed to avoid using international financial institutions that could be vulnerable to US sanctions.

Instead, it avoids sending money to Iran by using a virtual ledger to match imports and exports. Thus, a European company wanting to import Iranian oil would pay a second European company exporting a product to Iran, such that dollars need never be sent to Tehran.

Although its three European backers say the mechanism is now operational for humanitarian goods, US officials doubt that the Iranian end of the channel will ever offer sufficient transparency to make the system work.

“Repeated declarations that we have not and will not sanction humanitarian trade are a sufficient opening for those who wish to do humanitarian trade with Iran,” said a second senior administration official. “So, we have never felt that this vehicle was necessary.”

Two weeks ago, Federica Mogherini, the EU’s head of foreign policy, floated the possibility of expanding INSTEX. “The issue of whether or not INSTEX will deal with oil is a discussion that is ongoing among the shareholders,” she said.

Highlight: The UK, France and Germany are intent on shoring up what is left of the 2015 nuclear accord. Central to their efforts is setting up the INSTEX.