Nov. 13, 2018–U.S. sanctions against Iran are beginning to hit the banking sector, making international exchange difficult for Iran and its trading partners.
Over the weekend, a global messaging system needed for international trade cut Iranian banks off from its exchange. Without access, Iranian traders cannot conduct business abroad using with bank-to-bank money transfers.
As the ban takes effect, international transactions with Iranian banks and traders may come to a halt. Furthermore, the impact on banking transactions brings diplomatic rifts between the United States and the European Union to the surface.
SWIFT’s Hard Hit
The Brussels-based SWIFT system started disconnecting some Iranian banks from its network over the weekend. A SWIFT statement reported by Reuters called the move a “regrettable” step that was “taken in the interest of the stability and integrity of the wider global financial system.”
That move will make it “almost impossible for Iran to receive the payments,” according to Eli Lake, writing for Bloomberg News.
SWIFT is the premiere method for conducting international transactions. It connects more than 11,000 banking and securities organizations in more than 200 countries and territories.
U.S. Sanctions Target 70 Banks
The Treasury Department said it included more than 70 Iran-linked financial institutions, including foreign and domestic subsidiaries, on its designated sanctions list.
It is unclear how many of those are included on SWIFT’s disconnect list. SWIFT’s New York bureau had not returned a call to the Global Economic Report by publication time.
Targeting Banks Targets Everything, Iran Leader Says
Iranian President Hassan Rouhani tried to play down the impact the U.S. sanctions will have, saying they are nothing new to Iran. At the same time, he warned that they would harm the Iranian people directly.
“When they impose sanctions on the banking system, they are actually affecting everything,” Rouhani said in a Nov. 10 release.
Food, Medicine & Humanitarian Assistance
Although the United States exempts humanitarian assistance and imports of food and medicine from the sanctions, it is not clear how those transactions are possible without bank-to-bank transfers.
Switzerland is reportedly creating a separate channel to manage financial transactions for humanitarian goods. “Switzerland is committed to safeguarding Swiss economic interests and closely follows the development of the situation,” the Swiss State Secretariat for Economic Affairs said, as reported by Reuters
Alternatives to SWIFT
Furthermore, several news outlets have reported that the European Union members, particularly France and Germany, are interested in setting up an alternative to SWIFT. News reports often refer to it as a special purpose vehicle (SPV) to continue trading with Iran, as they agreed to do under the 2015 nuclear deal.
Meanwhile, Russia says through its state-owned media Sputnik that its Central Bank has already developed an alternative to SWIFT. The government reportedly would activate it if SWIFT cuts Russia’s banks from its network and plans upgrades next year.
New Regional Relations, New Sanctions
The banking sanctions, in effect, bar Iranian firms from a global financial community.
Rouhani indicated the sanctions will encourage Iran to form closer economic ties with partners in the region. “This does not tire the Iranian nation, but makes them ready for more production and having closer relations with neighbors,” he said.
However, even as Iran forms stronger regional ties, U.S. financial intelligence agents are increasingly going after underground financing methods, such as smuggling.
For example, today, the U.S. Treasury Department announced it is taking new actions against individuals in Iraq related to Hizballah.
“Hizballah is a terrorist proxy for the Iranian regime that seeks to undermine Iraqi sovereignty and destabilize the Middle East,” a Treasury Department release said. “Treasury’s concerted actions aim to deny Hizballah’s clandestine attempts to exploit Iraq to launder funds, procure weapons, train fighters, and collect intelligence as a proxy for Iran.”
The department warned it would further sanction anyone conducting business with its current targets.
So even though the United States and Iran are not engaged in direct combat, they are certainly fighting an intense international finance battle.
