The reimposition of secondary US sanctions and the consequent hesitation of international banks, European export credit agencies and enterprises to engage Iran have severely undermined the potential for Iran-EU trade. The establishment of the Instrument to Support Trade Exchanges (INSTEX) can be seen as a positive step forward, but it is yet to become operational. In the meantime, opportunities are missed on all sides without a comprehensive strategy among governments and business associations. As such, there is a need for a road map to sustain segments of Iran-EU trade and investment ties that can contribute to the crucial political relations between the two sides. 

Per Fischer, the German CEO of INSTEX, traveled to Tehran on March 12 to meet with business and political leaders in order to “clarify the ambiguities” about the payment mechanism. There are still a lot of questions about how INSTEX will work, but it is designed to essentially act as a trustee and administrator of funds related to Iranian exports that would be used for Iranian purchases of goods and services in Europe. Now, all stakeholders are awaiting the operationalization of this entity to assess its impact. At the same time, it is valid to argue that INSTEX has fallen short of Iran’s initial expectations.

Nonetheless, both sides wish to sustain the Joint Comprehensive Plan of Action and also the overall relationship, despite existing tensions and bottlenecks. Indeed, on March 12, EU foreign policy chief Federica Mogherini underlined once more that the EU is still striving to preserve the economic interests of Iran from the pact. However, in the absence of trade, investments and technology transfers to Iran by large European companies, Tehran will not enjoy the expected “economic interests” that Mogherini is referring to. The withdrawal of the French multinational Total from a signed contract and the cancellation of the agreement with Airbus are both symbolic of that reality.

So, step one would be for both sides to accept the new reality in which Iran will at best attract small- and medium-sized enterprises (SMEs) from Europe, mainly those that have no or limited exposure to the US market. As Al-Monitor has argued before, such SMEs could offer Iran the needed technologies; however, SMEs will be overwhelmed by some of the risks and challenges in Iran business. They also need the clarity that when EU officials refer to “legitimate trade,” it means legitimacy according to EU laws and not US laws. In fact, many European companies still perceive that legitimate trade means the food sector and pharmaceuticals, while within EU laws, the scope is much larger.