Thread by @yarbatman

1. So INSTEX is back in the news both because of @HeikoMaas's visit to #Iran and also reports that the Trump administration is weighing sanctions against its mirror entity, STFI (via @nwadhams). I want to share a few notes from behind the headlines.
bourseandbazaar.com/news-1/2019/6/…

2. Six weeks ago, @BourseBazaar/@theELN hosted a round table with INSTEX President Per Fischer and FCO officials to discuss implementation with a select group of executives + legal/financial experts. We are in the process of preparing a public report, but here are some takeaways.

3. The narrative is that INSTEX is taking ages to establish. But when briefed, companies with knowledge of the complexities of business in Iran are actually encouraged by the progress so far. If we are being fair, the E3 set up a state entity from scratch in six months.

4. Plus, I have said this before, but the mechanism at the heart of INSTEX is actually very simple and very familiar to any company that has had to do treasury management with a local subsidiary, JV partner, or agent in Iran. It is the compliance framework that is a bit trickier.

5. That being said, there isn't a single company presently in Iran that doesn't have high levels of confidence in their own due diligence processes, whether because of support from to external advisors or because of a long-standing relationships in the market.

6. The first INSTEX transactions may actually take place between EU companies and their *own fully-owned subsidiaries* in Iran. The line from OFAC that there is some sort of immense risk in using INSTEX because of opacity in Iran's economy is frankly bullshit.

7. We are one-year into a maximum pressure campaign and a significant number of European companies are *still* operating in Iran. These firms have capable compliance counsel + deep pockets. They are sticking around because Iran is major market, even if they have US business.

8. INSTEX is about solving a persistent operational headache for these companies, but it is also the most tangible demonstration of political backing for their continued operation in Iran. I am not talking about SMEs--the companies most likely to first use INSTEX are MNCs.

9. For this reason, INSTEX is actually Europe's best (and so far only) mechanism to trap the Trump admin into a lose-lose scenario. Either Trump relents and allows a humanitarian-focused INSTEX to trade, granting Iran some additional resiliency in the face of max pressure...

10. ...or the administration targets the STFI Iranian mirror entity as a "back door" to targeting INSTEX, thereby exposing that it has no concern for humanitarian trade, while also attacking a mechanism Europe has conceived in order to assert its own economic sovereignty.

11. Plus, the STFI entity has a minimal link to the Iranian state by design. OFAC could target one of its private bank shareholders (as Parsian Bank was hit in October), but protocols could be developed to have ownership shifted to new entities.

12. If necessary, European governments could even become the shareholders of the Iranian mirror entity, taking ownership up to 100%. This might be politically challenging, but could be considered as a response to any US designation of STFI vs. hitting INSTEX directly.

13. One key thing to remember is that both European restraint and Iranian dismissiveness in talking about INSTEX are products of political necessity. These messages are not a reflection of the work-rate on implementation nor assessed feasibility of the mechanism.

14. The thing can work, everyone working on it knows it can work, that is why they have gotten this far, companies are asking to use the mechanism, more EU countries want to join the mechanism...

It is just that this is not the dominant narrative.

15. The other thing that is being missed out is that INSTEX is only nominally about Iran. It is clear that whatever happens with INSTEX, the E3 foreign ministries will continue the development of mechanisms that can help insulate their foreign policy from US sanctions.

16. This is why Mike Pompeo has stated his inclination is to just let INSTEX slide. It is a limited solution for a limited problem in humanitarian trade. It can't counterbalance the max pressure campaign, so why invite a deeper diplomatic (and ethical) crisis by sanctioning it?

17. Well, INSTEX matters because it is a rare area where European and Iranian stakeholders are working creatively, cooperating technically, and engaging with non-government stakeholders. INSTEX is like a microcosm of what the post-JCPOA period was supposed to be, absent the US.

18. Those in Washington calling for sanctions on INSTEX aren't worried about the mechanism and trade impact. They are frightened by how deep European + Iranian commitment to diplomacy runs and that this commitment will outlast their time pulling the levers of US economic power.