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America's top diplomat had harsh words for Europe and its fellow remaining members of the Iranian nuclear deal after it was announced they would develop a financial mechanism to bypass U.S. sanctions and continue doing business with Iran.
Speaking to the conservative lobbying group United Against a Nuclear Iran during the UN General Assembly meetings, Secretary of State Mike Pompeo said Wednesday he was "disturbed and indeed deeply disappointed" by the European Union's decision to create a "special purpose vehicle" (SPV) designed to allow trade with Tehran in euros, which would eliminate the need for commercial and central banks who fear U.S. penalties.
"This is one of the of the most counterproductive measures imaginable for regional and global peace and security," Pompeo said. "By sustaining revenues to the regime, you are solidifying Iran's ranking as the number one state sponsor of terror."
U.S. National Security Advisor John Bolton added to Pompeo's criticism, mocking the EU's resolve and the feasibility of the plan.
"The European Union is strong on rhetoric and weak on follow-through," he told the audience. "We do not intend to allow our sanctions to be evaded by Europe or anybody else."
The Trump administration re-imposed economic sanctions on Tehran after pulling out of the Iranian nuclear deal in May. The deal, negotiated under the Obama administration, was signed by the U.S., Iran, France, Germany, Britain, Russia and China in 2015 and lifted sanctions on Iran in exchange for limits to its nuclear program.
Trump called the agreement the "worst deal ever," lamenting that it did not attempt to regulate the Iranian regime's ballistic missile testing, human rights abuses and interference in regional conflicts. The International Atomic Energy Agency, meanwhile, attested that within the parameters of the agreement, Iran was in compliance.
Mogherini told reporters late Monday that the technical details of the SVP would be worked out by experts in future meetings, but that "EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran," allowing European companies to continue to trade with the Islamic Republic.
Iran's currency, the rial, is at a record low amid the sanctions impositions as the hundreds of businesses that had initially planned to access the Iranian market pull out in droves. Analysts predict anywhere between 500,000 and one million barrels per day of oil could come off the market as the country, OPEC's third-largest crude producer, loses its customers. Iranian President Hassan Rouhani has accused the Trump administration of pursuing regime change; Trump insists he wants Iran to come to the table and agree to a more expansive deal that would restrict more of its activities.
Experts largely doubt the viability of the financial mechanism, primarily due to America's secondary sanctions capability, from which participants of the SPV wouldn't necessarily be insulated.
And even if they were, "the U.S. could adjust the scope of its sanctions to capture them — and potentially designate the SPV itself, although this would politically further up the ante," Roger Matthews, senior director at Dechert LLP's International Trade and EU Law practice, told CNBC on Wednesday.
"At present, it seems unlikely that EU entities will see this model as offering any meaningful protection from U.S. secondary sanctions exposure."
The news is yet another manifestation of the widening cracks dividing the U.S. and its European allies, following months of disputes over trade tariffs and other foreign policy measures. The tensions have seen Russia and China find common cause with the EU on issues including the Iran deal and trade tariffs, and the SVP represents one of what could become many more acts of defiance against Washington.