The governor of the Central Bank of Iran (CBI) has proposed that a financial mechanism initiated by European powers to circumvent US sanctions on Iran, known as Instex, could be funded by future sales of Iran’s oil so that trade between Tehran and Europe can continue.
Abdol-Nasser Hemmati said on Sunday that if Britain, France and Germany want to make Instex more stable and functioning, an “interim, negotiable solution” could be for them to set up a long-term credit line for buying oil from Iran and use the capital to settle payments for trade.
Hemmati admitted that the three countries had some reservations for purchase of oil from Iran for the time being as the United States continues to pressure them to cut crude import from the country to zero.
However, he said that European powers have proposed a similar solution for linking Instex payments to income driven from future oil purchases from Iran.
Under Instex, which is exclusive to European businesses, exports to Iran should be compensated by imports from the country. A mirror company in Iran would carry out the same transactions for Iranian companies exporting to and importing from Europe.
However, the mechanism, launched after Washington pulled out of an international deal on Iran nuclear program in May last year, has effectively failed to revive bilateral trade mainly due to a lack of advance funds that could offset the initial exports to Iran.
The three European powers have injected few million euros into the France-based company, hoping that would kick-start trade with Tehran.
Hemmati said that Instex would not suffice in its current form of covering non-sanction trade items and should expand in future to include all goods. He said the scheme was currently playing a tiny role in helping the CBI to manage the Iranian currency market.