Steven Mnuchin warns EU leaders to respect US sanctions when trading with Iran

US Treasury Secretary’s comments come a day after Russia signalled its support for a European financing structure designed to support Tehran

After meeting with G7 ministers and central bankers, US Treasury Secretary Steve Mnuchin warned the EU to not breach Washington sanctions when trading with Iran. AP Photo/Michel Euler

Steven Mnuchin, the US Treasury Secretary, warned European leaders about their trade with Iran on Thursday, saying that they must respect Washington’s sanctions on Tehran.

“We want to make sure that Instex is very careful on diligence and not doing anything that would run into issues of our sanctions,” Steven Mnuchin told reporters after a two-day G7 meeting.

Intex is the special purpose vehicle that is designed for the EU to circumvent US sanctions when trading with Iran. A special purpose vehicle is a legal financial entity that is often designed to isolate the main participants from financial risk, which in this case is sanctions.

The official’s comments are thought to be in response to Russia saying on Wednesday that it wanted to join the financing mechanism.

In 2015, global powers signed a nuclear deal with Iran but US President Donald Trump withdrew America from the accord last year.

Mr Mnuchin threatened countries planning to trade with Iran, saying that if they breached US sanctions, the wouldn’t have access to the US currency. The treasury chief said: “If people want to participate in the dollar system, people will be obligated to follow the US sanctions.”

The policymaker added that he had spoken to French Finance Minister Bruno Le Maire about Iran over the last two days, but “didn’t discuss Instex on this trip.”

The EU said last week that more nations from inside and outside of the bloc have announced a willingness to join the Instex. EU foreign policy secretary general Helga Schmid said last Thursday that beyond the 10 EU nations that are already part of the financial mechanism, with seven more member states expressing interest in joining.

Non-member states have also been interesting in joining. On Wednesday, Russian Foreign Minister Sergey Lavrov said his country was willing to join the EU payments channel, urging the bloc to include oil exports in the mechanism. Oil is one of Russia’s biggest markets, accounting for more than 60 per cent of its exports.

If Moscow becomes involved in Instex, it would be a vote of confidence in the Joint Comprehensive Plan of Action and may increase the likelihood of the 2015 nuclear deal being rescued. Relations are fragile after Iran signalled earlier this month that it had broken the terms of the deal by increasing its uranium enrichment levels above what was agreed.

"Russia is interested in close-coordination with the European Union on Instex," the Russian foreign ministry told the Financial Times. "The more countries and continents involved, the more effective the mechanism will be as a whole."

On Thursday, Dmitry Peskov, Russian President Vladimir Putin’s spokesman, backed the ministry, calling Instex “an important project”.

“It is aimed at protecting the interests of European economic operators against the background of illegal attempts to restrict their activities by third countries,” he added.

Since the nuclear deal was ratified, Iran has pressured EU states to do more to support the country’s economy, that has been crippled by sanctions from Washington.

Mohammad Javad Zarif, the Iranian foreign minister, said that Instex was “not sufficient”. The mechanism is only operational for medicine and food, which aren’t currently threatened by US sanctions.