WarSclerotic

The European Union has so far failed to find a country to host a special mechanism to trade with Iran and circumvent the newly reimposed U.S. sanctions that went into effect Monday, according to three EU diplomats, who said European governments fear being targeted by U.S. countermeasures.

The EU on Monday reissued its Nov. 2 statement, saying it was still setting up the so-called “special purpose vehicle,” or SPV, which is designed to circumvent the sanctions.

The EU, which opposes the sanctions, had hoped to have the SPV ready by the time the sanctions came into force.

However, no EU country has so far volunteered to host the entity, the diplomats said. Several states have been asked by EU foreign policy chief Federica Mogherini to consider hosting the SPV headquarters, as the bloc tries to uphold the nuclear accord from which U.S. President Donald Trump withdrew in May.

While the European Commission declined to comment on Monday, European Economic Affairs Commissioner Pierre Moscovici said that “the European Union does not approve” of the reimposition of U.S. sanctions, which were lifted under the 2015 nuclear deal.

Brian Hook, Washington’s special representative for Iran, underscored the risks for European companies, warning that any EU country hosting the SPV could potentially be sanctioned.

“The United States will not hesitate to sanction any sanctionable activity in connection with our Iran sanctions regime,” Hook said.

The SPV may incorporate a barter system and aims to sidestep the U.S. financial system by using an EU intermediary to handle trade with Iran. It could ensure, for example, that Iranian oil bought by Europeans could be paid for with EU goods and services of the same value.

A senior French diplomat said Paris was confident the mechanism would be legally in place soon, but things needed to be fully cemented first.

“We hope the legal instruments will be put in place in the coming days. It will then be a few weeks or months to finalize its modalities, and its implementation will be during 2019,” he said. He added there was no way any trade with this mechanism could be done before the end of the year.

Hook said he had not seen demand from European companies to use the SPV because they preferred to invest in the United States.

“If you take a look at the over 100 corporations that have decided to choose the United States market over the Iranian market, they are not looking to avail themselves of any type of vehicle, they are very pleased to continue working with the United States,” he told reporters.

The EU, with support from China and Russia, hopes to keep Iran in the deal by allowing trade to flow despite U.S. penalties.

The SPV follows several other EU initiatives to try to shield European business with Iran from the U.S. sanctions, which Trump says aim to punish Iran for its role in the wars in Syria and Yemen.