Around seven months ago Donald Trump withdrew from the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). Since that time, Iran and European party are trying to design a mechanism in order to continue trade with Iran and make Iranian and European exporter able to receive their money. Hemmati, the Governor of Central Bank of Iran (CBI) believes that this channel work like a bilateral monetary agreement between two countries.
In other words, in these kinds of agreements two sides of the agreement trade with their own currencies and not any third party. Both central banks of two countries should sign an agreement in order to do so. Iran has been used this channel in the past years and they have used it as an alternative of trading with USD and with this method they have been able to reduce the negative effects of sanctions on the economy. During the past years, Iran has signed 10 different agreements with different countries such as China and Turkey.
It is expected that through SPV, Iran will be able to export crude oil and oil products to Europe and instead import required goods and services from European countries. The currency in this channel will be Euro. Although around 80 percent of international trades are done by USD but Euro can meet the needs of Iran. Iran has been used a similar method during the war with Iraq (1980-1988).
France and Germany have accepted to host SPV jointly. They took the joint responsibility to minimize the risk of U.S. punishment.
However,a number of experts believe that it will look like a barter system. In that case no money will be transferred and it will work as a credit line. Iran will sell its crude oil and if Iran wants to buy required goods and service, it will be done through this credit line. The main issue which has not been addressed yet is how companies which trade with Iran will be out of U.S. sanctioned list. Simply, if big companies have to choose from doing business with Iran or U.S., they will prefer U.S. because of the economy size and as a result the number of small companies in doing business with Iran will increase.
All in all, for Iran, it is vital to be able to export its oil first. It seems that European need to accelerate the work on this mechanism otherwise Iran might go out of deal because there isn’t any benefit for being in JCPOA and this can cause more chaos in the Middle East.