Bloomberg reports that the U.S. is threatening major European allies with sanctions over their “special purpose vehicle,” formally known as the Instrument in Support of Exchange (INSTEX):

The Trump administration escalated its battle with European allies over the fate of the Iran nuclear accord, threatening penalties against the financial body created by Germany, the U.K. and France to shield trade with the Islamic Republic from U.S. sanctions, Bloomberg News reports.

Sigal Mandelker, the Treasury Department’s undersecretary for terrorism and financial intelligence, signaled in a May 7 letter obtained by Bloomberg that Instex, the European vehicle to sustain trade with Tehran, and anyone associated with it could be barred from the U.S. financial system if it goes into effect.

Europe’s INSTEX has been designed first and foremost as a workaround to handle humanitarian trade with Iran that is effectively blocked because financial institutions are afraid of doing any business with Iranian customers as a result of U.S. sanctions. The immediate goal is to allow trade in medicine and food to be processed without risking U.S. penalties. The U.S. is now threatening to penalize anyone involved in this effort to get food and medicine to the Iranian people. European governments assumed that putting their officials in charge of running it would deter the U.S. from attacking it, but they have underestimated just how deranged our government is on this issue.

Threatening to sanction European officials and companies for making use of this mechanism shows just how irrational and destructive U.S. policy is. The Trump administration’s Iran obsession is driving it to threaten punitive measures against its own allies because they created a means to engage in legitimate trade in humanitarian goods. That confirms a few things that we already suspected. First, it tells us that the U.S. is determined to cut off all legitimate trade with Iran, including trade in supposedly exempted humanitarian goods. They are actively working to cause the Iranian people as much misery as they can. Second, it tells us that the administration is willing to wreck its relations with some of its closest European allies to pursue their economic war against the Iranian people. U.S. interests and longstanding relationships with important allies are being sacrificed for the sake of a vindictive and outrageous policy of collective punishment against a population of more than eighty million people.

If the U.S. follows through on this threat, we should expect European governments to react very strongly. As Henry Farrell has explained, the quarrel with the U.S. over the nuclear deal and reimposed sanctions is not just about Iran. The EU and our European allies see this as the latest example of our government’s excessive use of secondary sanctions, and they aren’t going to give in if the U.S. escalates further. By threatening to sanction them for doing what they can to keep the JCPOA alive, the U.S. is giving them a big incentive to create an alternative system that will protect them from further harassment. Threatening Europe over INSTEX is madness, and carrying out that threat will make our allies even more determined to defy U.S. demands now and in the future.