US Treasury Secretary Steven Mnuchin has warned global financial messaging service SWIFT on Friday that it could be penalized if it doesn’t cut off financial services to entities and individuals doing business with Iran. The United States and Iran do not have any formal diplomatic relations or ties..
US Treasury Secretary Steven Mnuchin has warned global financial messaging service SWIFT on Friday that it could be penalized if it doesn’t cut off financial services to entities and individuals doing business with Iran.
Background
The United States and Iran do not have any formal diplomatic relations or ties. The two nations share an acrimonious relationship. In 1953, the CIA played a key role in orchestrating a coup against Iran’s democratically elected Prime Minister, Mohammad Mossadeq. Between 1979 and 1981, a group of Iranian students belonging to the Muslim Student Followers of the Imam’s Line took over the U.S. Embassy in Tehran. The 44 hostages were released after 444 days. In 2002, US President, George W. Bush, described Iran as being part of the “axis of evil.”
On 2 April 2015, the P5+1 and Iran reached a provisional agreement that sought to lift most of the sanctions in exchange for limits on Iran’s nuclear programs extending for at least ten years. When the International Atomic Energy Agency (IAEA) certified that Iran had restricted its sensitive nuclear activities, the UN sanctions were lifted on January 16, 2016.
In May 2018, US President Donald Trump unilaterally withdrew the US from the Joint Comprehensive Plan of Action (JCPOA) and re-imposed economic sanctions on Tehran. President Trump has been openly critical about the Iran deal and has sought to dissuade other members of the JCPOA to withdraw as well. A fresh set of US sanctions have come into effect on 4th November 2018.
Analysis
US Treasury Secretary Steven Mnuchin has warned global financial messaging service SWIFT on Friday that it could be penalized if it doesn’t cut off financial services to entities and individuals doing business with Iran.
The warning comes as the Trump administration announced the re-imposition of all US sanctions on Iran that had been lifted under the 2015 nuclear deal. The latest sanctions take effect on November 4 and cover Iran’s shipping, financial and energy sectors. “SWIFT is no different than any other entity,” Mnuchin told reporters, adding “We have advised SWIFT that it must disconnect any Iranian financial institutions that we designate as soon as technologically feasible to avoid sanctions exposure.”
The Trump administration is pressuring its allies to cut Iranian oil imports to “zero” next month. By cutting the country off from SWIFT, Iran would lose its ability to be paid for its exports and to pay for imports.
Washington has been pressuring SWIFT to cut Iran from the financial system as it did in 2012 before the nuclear deal. Six years ago the EU imposed sanctions on Iranian banks, forcing SWIFT, which is subject to EU laws, to cut financial transactions with at least 30 of Iran’s financial institutions, including the central bank Iranian banks were reconnected to the network in 2016 after the Iran nuclear deal came into force, allowing much needed foreign cash to flow into Tehran’s coffers.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a financial network that provides high-value cross-border transfers for members across the world. It is based in Belgium, but its board includes executives from US banks with US federal law allowing the administration to act against banks and regulators across the globe. It supports most interbank messages, connecting over 11,000 financial institutions in more than 200 countries and territories.
Washington’s pressure has pushed Brussels to look at creating a SWIFT alternative. In August, German Foreign Minister Heiko Maas called on the European Union to set up an independent equivalent of the system. Later, EU Foreign Affairs Chief Federica Mogherini confirmed that the bloc’s signatories remain committed to the nuclear deal with Iran and are working to create special payment channels to do business with the Islamic Republic. That proposal stalled in Brussels and major European firms left Iran.
Iranian Deputy Foreign Minister Abbas Araghchi said Tehran and its trading partners are working to establish mechanisms for the oil trade to bypass US sanctions against the country.
Assessment
Our assessment is that Washington is tightening the screws on Tehran, looking to squeeze the remaining foreign deposits flowing into Iran. We believe that President Trump’s suggestion of re-negotiating with Iran and the new actions on SWIFT represent a carrot and stick approach from Washington.
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