European governments are locked in negotiations over a special purpose vehicle to safeguard trade with Iran, as a US crackdown on Tehran’s oil and finance sectors came into force.

Hours before Monday’s launch of a US squeeze on Iran’s energy industry and central bank, European diplomats said a planned special channel to safeguard non-US trade with Iran would not be ready in time.

Agreement has yet to be reached on crucial details, including where to locate it as countries fear triggering a political and economic backlash from Washington if they play host. European states have not put a formal deadline on when the launch will be, but some diplomats had hoped to have the channel ready in time for the reimposed US sanctions.

The Trump administration will add more Iranian banks to its sanctions list later on Monday, forcing international financial messaging system Swift to choose whether to fall in line with the US and cut the institutions from its global cross-border payment network. The Belgium-based company, which declined to comment on Sunday, could face possible punishment under new EU rules if it complies with US orders.
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President Donald Trump’s decision in May to pull out of a landmark international nuclear deal with Tehran has pitted the US against European powers and China and Russia, cosignatories to the 2015 accord.

Dieter Kempf, head of the BDI, Germany’s main business lobby, echoed widespread European business concern about the potential destabilising effect of the US decision to unilaterally reimpose sanctions it had suspended in exchange for Iran curbing its nuclear programme. This is the second and final tranche of US sanctions to be restored. New sanctions may also be introduced.

“By using the global economy to pursue political goals, the US is straining international relations and the transatlantic partnership,” Mr Kempf said.
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European efforts to create a “special purpose vehicle” (SPV) to process Iran’s import and export payments had made some headway but still needed further work, EU diplomats said. “We are now actively working on where the SPV will be located, deciding who will participate, and starting the process of registering it,” a French finance ministry official said, adding that there were “good options on the table” for hosting it. “It is definitively crunch time and considering how complex and sensitive this is in light of geopolitical consequences, progress is pretty swift and operational.”

Details of the proposal are now being discussed at finance minister level, diplomats said. EU finance ministers are due to meet in Brussels on Tuesday, although the SPV was not on the published agenda as of Sunday.

Steven Mnuchin, US Treasury secretary, on Friday dashed hopes that Swift would be exempted from the latest sanctions. Mr Mnuchin said the US Treasury would “aggressively” use its authority and warned Swift to disconnect any targeted Iranian banks “as soon as technologically feasible to avoid sanctions exposure”.

Europeans have appealed for the US to safeguard at least one bank for humanitarian transfers. Mr Mnuchin said humanitarian transactions to non-designated entities would be allowed to use Swift, but stopped short of endorsing a specific bank.

Europeans fear that unless the US endorses an institution by name, western banks will be too nervous to touch any Iranian bank, even those not subject to sanctions. “[W]e need to figure out how to make sure that the US humanitarian exemption is workable,” a European diplomat told the FT, adding that resolving the delivery of humanitarian assistance and goods such as food and medicine was “becoming increasingly urgent”.

There are also fears that other US bodies, besides the Treasury, could take legal action if they perceive there is any sanctions evasion. The Foundation for the Defense of Democracies, a Washington think-tank, has circulated a legal memo arguing that individual Swift board members — including executives at top international banks — could be at risk of violating sanctions if they provide messaging services to sanctioned Iranian institutions.

But Iranian analysts say that — regardless of Swift’s decision — the world’s top banks would be unlikely to handle Iranian transactions for fear of facing massive penalties. Big international banks have mostly refused to transfer money to and from the country even after the suspension of sanctions under the nuclear deal.

Reporting by Michael Peel in Brussels, Guy Chazan in Berlin, Harriet Agnew in Paris, Katrina Manson in Washington, and Najmeh Bozorgmehr in Tehran