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On Thursday, the European Union (EU) ordered the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to block Iranian banks currently subjected to EU sanctions from using their service. SWIFT is a financial transaction company used by almost every bank around the world to send payment messages to each other. Since global financial transactions are virtually impossible to implement without SWIFT, the move represents the EU’s most determined effort to date to convince Iran that its pursuit of nuclear weapons is unacceptable. SWIFT announced it would comply with the order by Saturday. The decision is no doubt being met with high anxiety from diplomacy advocates. International sanctions have so far been woefully unsuccessful, and options are dwindling. Economic isolation, coupled with upcoming talks with the Iranian regime, have opponents of military intervention scraping the bottom of the diplomatic barrel.
“This EU decision forces SWIFT to take action,” said Lazaro Campos, SWIFT’s chief executive. “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.”
SWIFT was set up in Belgium by banks in 1973. In 1987, non-bank financial institutions were allowed to join, followed by corporate customers of banks in 2000. The service has more than 10,000 users in 210 countries, and sends approximately 17 million messages every day. It is overseen by the central banks of Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, the United States, Switzerland, Sweden, and the European Central Bank. It neither holds nor transfers money, but provides a common language and a secure private system allowing banks to communicate payment messages to each other.
Yet the system, while effective, is far from perfect. On the plus side, it will hinder Iran’s ability to sell as much oil as it is currently selling, and may even force the nation to sell oil at below-market prices as a result. Financial institutions outside the SWIFT umbrella may hesitate to cooperate with Iran out of fear of being banned from doing business with other nations. Furthermore, the ban could force Iran to use hard assets like gold to complete transactions, making trading inefficient and risky.
On the minus side, some banks, notably those in China and India that are still planning to purchase Iranian oil, could communicate with Iran outside the network. And since SWIFT outsources some of its messaging to regional contractors, it remains possible that Iran could co-mingle its oil with oil that flows through international pipelines, masking its origin. Iran could also accept payments for transactions in a bank outside the country, purchase goods and services in that country, and import them back into Iran.
Some critics contend the move could backfire, forcing oil prices higher and undermining SWIFT’s reputation. Others worry that ordinary Iranians, even those hostile to the current regime, will be cut off from money sent to them by relatives living outside the country.
In addition, there is currently a lack of coordination between the EU and the United States. The EU measure only affects sanctioned Iranian banks, and 30 of those banks and their subsidiaries have been cut off as a result. On the other hand, the U.S. Congress has proposed legislation that seeks to ban transactions with any Iranian banks. The U.S. currently bans 23 Iranian banks, the bulk of which are covered by the EU ban. But congressional lawmakers contend at least 20 additional banks are being used to underwrite both Iran’s nuclear program trade and provide support for terrorist groups. According to congressional aides, the new law could subject some European companies to penalties and sanctions, including banning them from the U.S. financial system, even if they fully comply with EU rules. Thus, the U.S., while appreciative of this latest move by the EU, seeks to pressure Europe to go even further. The EU does intend to ratchet up the pressure in July, when an embargo on the importation of Iranian oil will be implemented.
Iran has already been feeling such pressure, even before yesterday’s announcement by the EU, as the sanctions already imposed on that nation since November have had some effect. Reuters revealed that Iran is stockpiling food to blunt their effects. Ships carrying at least 396,832 tons of grain are lined up to unload, reflecting a frantic level of shopping in which Iran has purchased what amounts to a year’s supply of wheat in a little over one month. In order to work around the sanctions, they are paying premium prices for the shipments, and using non-dollar currencies such as Japanese yen and Russian rubles to pay for them.
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