In 2015, Iran accepted curbs on its nuclear programme in return for the lifting of sanctions. Last November the US reinstated all its sanctions on Iran. The White House said it was "the toughest sanctions regime ever imposed" on Tehran, targeting Iran and states that trade with it.
Now the UK, Germany and France have created a new payments system to allow European businesses to trade with Iran without falling foul of US sanctions. All three nations opposed last year's decision by US President Trump to abandon a 2015 deal under which international sanctions on Iran were lifted.
Some of the US sanctions make it difficult for European banks to make direct payments to Iran. Many existing payment channels have links to the US, which means making payments to Iran is difficult. The US said sanctionable activity with Iran risked "severe consequences".
By creating a new payment channel -based in Paris- managed by a German banker, the UK, France and Germany hope to enable companies to continue to trade with Iran. The UK Foreign Office said the Instrument for Supporting Trade Exchanges (INSTEX), was a "new mechanism for facilitating legitimate trade between European entities and Iran".
Foreign Secretary Jeremy Hunt said initially the new payment system would only apply to food, pharmaceuticals and consumer goods, which are not subject to sanctions. Oil, Iran's main source of foreign exchange, will not be covered.