This failure goes back to US threats against European banks and the announcement by the Central Bank of Europe from the very outset that it would not be able to engage in financial or commercial exchanges with Iran. In such a situation, the main question is what will be the outcome of the SPV and whether there are alternative solutions? Is Europe just looking to pay the political price of safeguarding the JCPOA and it would not be willing to pay the economic price?

Designing the SPV

In trade and international finance, business entities are used for specific purposes or for small and medium-sized European companies as a legitimate financing technique and today too they have many applications. An SPE is formed by a sponsoring or parent company and can leverage this value-based investment by borrowing from credit markets and purchasing assets from or for a backing company.

Conversion of accounts receivable into securities through special purpose entities is seen by companies as a way to improve cash flow. The European Special Purpose Vehicle for Trade Facilitation with Iran, the Iran-Europe Trade Spin or the SPV, was designed with the same goal in mind, in light of the threat posed by the United States to Iran’s trade partners without the need for currency exchange, based on a sophisticated oil- calculating value-delivery of equivalent currency commodities from European countries to counteract sanctions.

Possible Financial Mechanism Scenarios

Earlier, it was said that the biggest weakness in the European supportive package would be the failure of the European Investment Bank and the European Central Bank to cooperate with Iran. On the other hand, companies such as Total have left Iran and the ATR Aircraft Company has announced that it will no longer be able to sell aircraft to Iran. Airbus also said it was impossible to deliver aircraft to Iran.

Therefore, SPV has two major challenges: First, finding small and medium-sized European companies willing to trade with Iran as a new mechanism, and secondly, locating the establishment of the SPV entity in order to manage business relationships. The second challenge, because of the fears of European countries from the threat of penalty, is more challenging than the first one.

Hence, possible scenarios of SPV based on different approaches to the second challenge can be imagined. In an optimistic situation, it is possible that the EU can solve the problem by transferring the SPV to Iran. But another scenario could be the transfer of the SPV to a European country with trade with the EU, a country like Russia or Turkey; this option has a high political risk because the other party must become committed; but with the transfer of Iran’s creditorship to a third country’s exchanges with Europe and importing goods from these countries, it is possible to solve the problems of location and direct trade with Europe to some extent. But the cynical option is that the SPV would become a leverage to push Iran into renegotiation rather than becoming a means to facilitate trade.

Financial Mechanism Substitutes

A bilateral or multilateral monetary treaty is also a solution to the financial aspect which is concluded by mutual agreement between the two countries to avoid the use of foreign exchange in transactions. The currency swap, which is one of the options of such a monetary treaty, is in the form of an agreement to swap local currencies and pay import and export money based on predetermined currency rates. This alternative could be used for countries that have suffered a depreciation of the national currency against the US dollar, but a more comprehensive alternative for bilateral exchanges could be the elimination of cash receipt and payment or barter trade which is settled on the basis of debt obligation.

European countries that have a high incentive to maintain the JCPOA and, of course, have the upper hand in the trade war with the United States, are more inclined to this option as large European countries and their central banks will face heavy sanctions on the part of the United States if they strike a financial deal with Iran.

But an important solution is the provision of technical and engineering services in the form of small and medium-sized enterprises provided they are involved in trade with the major European companies. In this case, the losses resulting from the discontinuation of cooperation in Iran’s projects will be offset to a certain extent. But these very companies are also trading with major European companies and this could pose a threat to them. Therefore, the transfer of Iranian creditorship to third countries with direct trade with the EU which are exposed to US sanctions could be a more risk-averse solution than the SPV.