A European trade mechanism to barter humanitarian and food goods with Iran will not work until Tehran sets up a mirror company and meets international standards against money-laundering and terrorism financing, a French diplomatic source said.
Britain, France and Germany, parties to a 2015 nuclear deal with Iran along with the United States, China, and Russia, are determined to show they can compensate for last year's US withdrawal, salvage trade promised to Iran under the accord and still prevent Tehran from developing nuclear bomb capability.
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French President Emmanuel Macron has led those efforts and is trying to clinch a $15 billion credit line that would offset tough US sanctions that have strangled Iran's oil exports, but that requires getting some backing from Washington.
In addition to that the Europeans have attempted for more than a year to set up the Instex trade mechanism, but it is still not operational. It would initially only deal with food and medical trade and not Iran's principal export – crude oil.
"The Iranian mirror structure is not operational. The day they have signed the necessary FATF (Financial Action Task Force) conditions we'll talk about it and the day that we are sure that the first transactions through Instex aren't put under American sanctions, [then] we'll talk about it again," the diplomatic source said.
France's foreign minister said on Tuesday that the mirror company had not been set up yet.
But the clock is ticking, Iran's president on Wednesday gave Europe another two months to save the deal and warned that Tehran was preparing for further significant breaches of the accord's caps on nuclear activity if diplomatic efforts ultimately fail.
Until now, European officials have said that conforming to Paris-based FATF rules was not a prerequisite for Instex, although it would facilitate its establishment.
Iran's parliament has approved some new measures against funding terrorism under pressure to adopt international standards. But the Guardian Council, which vets laws and elections for compliance with Iran's Islamic constitution, blocked a draft law in 2018 on the grounds that it would prevent the Islamic Republic from providing financial support to Hezbollah in Lebanon, which is under US sanctions.
In June, the FATF said that it would only consider fully-enacted legislation and gave Iran until October to meet its norms or else face greater scrutiny of international financial transactions with Tehran.
The diplomat's comments also reflect how difficult it will be for the Europeans to convince US President Donald Trump to ease his administration's "maximum pressure" policy on Iran.
The United States would have the economic clout to block any credit line for Iran or sanction companies trading with it.
Washington has not commented on the credit line proposal, which would contradict its stated policy of imposing maximum pressure to force Tehran to rein in its nuclear and missile programs as well as what the White House views as its destabilizing regional behavior. US officials have repeatedly said that they do not believe Instex will get off the ground.
Iranian officials have repeatedly said that Instex must include oil sales or provide substantial credit facilities for it to be beneficial.
