Britain, France and Germany announced on Thursday the creation of a new mechanism that circumvents U.S. sanctions by facilitating non-dollar trade with Iran.

Foreign ministers of the three European countries, known as E3, said in a joint statement that they have set up an Instrument for Supporting Trade Exchanges, or INSTEX, to support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population – such as pharmaceutical, medical devices and agri-food goods. 

"The creation of INSTEX is a major first step taken by E3 countries today," said the statement, adding that "the operationalization of INSTEX will follow a step-by-step approach."

The European Union (EU) has been preparing the system, in effect a clearinghouse that avoids monetary transfers in dollars between the EU and Iran for months although it is unlikely to become operational for several months due to technical details.

The idea is for INSTEX, also known as the European Special Purpose Vehicle (SPV), to help preserve the economic benefits for Iran derived from the curbs it placed on its nuclear program under a 2015 deal with world powers, from which U.S. President Donald Trump withdrew last year.

The entity primarily focuses on food, medicine and humanitarian. It will not be used for oil-related transactions that have been hit hard by the U.S. sanctions.

"It is a political act," French Foreign Minister Jean-Yves Le Drian told reporters after a meeting of EU counterparts in Bucharest. "It is a gesture to protect European companies."

"It won't change things dramatically, but it's an important political message to Iran to show that we are determined to save the Joint Comprehensive Plan of Action (JCPOA) and also the U.S. to show we defend our interests despite their extraterritorial sanctions," one European diplomat said.

However, relations between Tehran and the EU have worsened, and the EU this month imposed its first sanctions on Iran since the 2015 deal in reaction to Iran's ballistic missile tests and assassination plots on European soil.

In a symbolic move, the EU added two Iranian individuals and an Iranian intelligence unit to the bloc's terrorist list.

EU member states are also finalizing a joint statement on Iran to outline concerns about Tehran's regional policies and ballistic missile program, but also to show their desire to maintain the 2015 Iran nuclear deal.

France and Germany had taken joint responsibility for the SPV. A German banker would head up the vehicle, which would be based in France. France, the UK, and Germany will be shareholders and they hope other states will join.

Iran vows 'constructive interaction' with Europe

New U.S. sanctions have largely succeeded in persuading European companies to abandon business with Iran, and Washington said on Thursday that it did not expect the SPV to change that.

"We do not expect the SPV will in any way impact our maximum economic pressure campaign," a U.S. State Department spokeswoman said.

"The United States questions the efficacy of the SPV and remains committed to fully enforcing its sanctions," said a senior Trump administration who spoke on condition of anonymity.

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Iranian Foreign Minister Mohammad Javad Zarif on Thursday welcomed the establishment of the payment channel, saying Iran is ready for further "constructive interaction" with Europe based on mutual respect.

"The purpose of this mechanism is to bring the whole payments between Iran and Europe and all of our exports and imports into this financial mechanism," Deputy Iranian Foreign Minister Abbas Araqchi said on Thursday.

In an interview with state IRIB TV, Araqchi expressed the hope that INSTEX would serve as a model for Iran's broad economic interests beyond Europe.

The newly-established mechanism will fully serve Iran's interests when "the non-European countries or companies could also have access to it" as non-Europeans would also be able to use the channel, Araqchi said.

The payment channel's function will be discussed during the upcoming expert meetings between Iran and Europe, he added.

"We hope this financial channel would be carried out completely ... and would involve all the commodities," Araqchi noted.

Meanwhile, he dismissed the reports that the mechanism would uphold only the businesses not sanctioned by the United States, stressing that the channel has been designed to cover the sanctioned items.

A same mechanism is planned to be formed inside Iran in order to organize the rial-based exchanges for the Iranian businesses, Araqchi said.

(Cover: French Foreign Minister Jean-Yves Drian (L), UK Foreign Secretary Jeremy Hunt (C) and German Foreign Minister Heiko Maas give a press conference on Iran at the Informal Meeting of the EU Foreign Ministers in Bucharest, Romania, January 31, 2019. /VCG Photo)