Global banking system SWIFT-ly cuts off Iranian banks

Kurdistan Photo

In an attempt to step up pressure on Iran to curb its nuclear program, the world’s biggest electronic payment system, the Belgium-based SWIFT, cut off some two dozen blacklisted Iranian banks on March 17 in response to EU regulations. The move, likened to being expelled from the financial equivalent of the United Nations, will financially isolate Iran by shutting down its main channel of business with the rest of the world, impacting both on the government and Iranian businesses.

SWIFT Chief Executive Lazaro Campos made a statement on Thursday saying “disconnecting banks is an extraordinary and unprecedented step for SWIFT. It is a direct result of international and multilateral action to intensify financial sanctions against Iran". U.S. Senator Robert Menendez, who was among those pushing for the expulsion of Iranian banks from SWIFT to be included in pending U.S. sanctions legislation, said “the joint action of the U.S. and EU sends a strong message to Iran that we are serious about imposing punishing sanctions”. Similarly, the U.S. undersecretary of Treasury for terrorism and financial intelligence, David Cohen, said in a statement that SWIFT’s decision “reflects the growing international consensus that substantially increased pressure is needed to convince the Iranian regime to address the international community’s concerns about its illicit nuclear activities.”

SWIFT’s decision will put a dampener on Iran’s oil trade as it will hamper its ability to make or receive payments for crude oil which accounts for about half of the Iranian government’s revenues. Whilst China and India have said they will continue buying Iran’s oil, the Iranian government will need to “find workarounds for large, strategically important and government-facilitated oil payments”, such as gold. Just last week, in fact, the governor of Iran’s central bank said the country would accept payment in gold “without any reservation”.

It is Iranian businesses, however, that will bear the brunt of the measures. "It will make life even more difficult for us than before, because this is like our lifeline to the outside being cut," said Naser Shaker, who owns an oil and gas trading company in Dubai. The move will strangle Iranian businesses’ transactions and as a result cause the collapse of many banking relations.  Morteza Masoumzadeh, a member of the executive committee of the Iranian Business Council in Dubai, lamented that "this is devastating news for our businesses, but what can I do? Do we have any options?" Trevor Houser, an energy analyst and partner at Rhodium Group noted that SWIFT’s action will affect what Iran buys more than what it sells, as such “small Iranian businesses that rely on interbank electronic transfers to pay for everything from food to electronics imports are going to have a hard time buying from abroad”.

Last week’s move comes after a barrage of new measures adopted by the U.S. and EU since November as part of a concerted effort to stymie Iran’s nuclear ambitions by isolating its economy. The measures gained momentum after the United Nations International Atomic Energy Agency inspectors released a report on 8 November in which they cast doubt on the supposedly civilian purposes of Iran’s nuclear program.