After the US withdrew from the JCPOA, it threatened criminal and/or financial action against entities which trade with Iran (with some limited exemptions). This made the SWIFT society drop Iranian banks from its systems, which halted a lot (most?) of Iran's international trade (and non-trade financial activities).

The EU and/or its members have taken at least two measures in response to this situation and with a view not to effectively acquiesce to the US sanctions and keep their end of the JCPOA: A renewal of the 1996 blocking statute, and more recently, the INSTEX - Instrument in Support of Trade Exchange.

My question:

How does INSTEX (supposedly) work? Is it supposed to be a SWIFT-like mechanism for transferring money between bank accounts? (Not that I know how SWIFT works)? And if INSTEX is like SWIFT, why is DW claiming that

The European side intends to use the channel initially only to sell food, medicine and medical devices in Iran.

? Shouldn't INSTEX be usable for just any transfer?

1 Answer 1


When an European company wants to trade with Iran, they have two big problems.

  • They cannot trade with the US any more.
  • Banks they use for this trade cannot operate in the US any more. This is more than just dropping Iranian banks from SWIFT.

For large companies the first point is enough. Given the choice of ending their US business or their Iran business, they end their Iran business.

There are small companies which deal with the Iran and have no significant US business. Without INSTEX, they are still unable to trade with Iran because their bank refuses to do the transactions. The trade has become not just "toxic" but also "infectious."

INSTEX is supposed to work as a barter clearing house. They can only function if the value of ingoing and outgoing deliveries matches, and they need time to ramp their operations up. (That answers your last question. They will do general goods later.)

  • I don't understand your answer... 1. What is a "barter clearinghouse"? How does that look from the perspective of a single company or person who wants to perform some transaction involving Iranian latency? 2. Most banks in the world don't operate in the US - just in a single country or a few countries (IIANM). Why would such banks care about the risk of not being able to operate in the US?
    – einpoklum
    Jun 30, 2019 at 7:54
  • 2
    @einpoklum, just about any bank deals with the US. Regarding barter clearing, say A in Europe wants to sell machine tools to B in Iran, and C in Iran wants to sell Persian rugs to D in Europe. So A gets EUR from INSTEX in Europe, B gives IRR to INSTEX in Iran, C gets IRR from INSTEX in Iran and D gives EUR to INSTEX in Europe. No money moves from Europe to Iran or back, no EUR or IRR get converted.
    – o.m.
    Jun 30, 2019 at 9:26
  • 1. "Deals with" != "Operates in"... 2. So currency is exchanged within INSTEX? Hmm. interesting. That's not like SWIFT, right? Anyway, if that's the case, that means that either trade has to be balanced, or the INSTEX includes credit lines for Iran or for the EU , and the same thing for Iranian companies.
    – einpoklum
    Jun 30, 2019 at 10:20
  • @einpoklum, on the long run it has to be balanced. It is supposed to be big enough to buffer temporary imbalances.
    – o.m.
    Jun 30, 2019 at 10:21
  • Ok, so now I understand why Iran's deputy foreign minister said that INSTEX must include a credit line or there must be oil purchases. I'm guessing right now it doesn't have any of the two, i.e. no buffer in non-Iranian currency.
    – einpoklum
    Jun 30, 2019 at 14:16

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