After the Nuclear Agreement, Where Will the One Hundred Billion Dollars in Currency Reserves Go?

While the fate of the nuclear agreement and the chances of reaching a result or remaining without it still hang in the balance, assessing the potential outcomes of the agreement for the negotiating parties is one of the motivations that could influence the diplomatic exchanges between the parties in the coming three weeks. One of the most attractive advantages of the potential nuclear agreement for the Tehran government is gaining access to the blocked financial reserves that have been held by foreign governments and banks due to sanctions. This reserve is estimated to be around one hundred billion dollars. On the verge of signing a temporary nuclear agreement, the Associated Press reported on October 18 that the Obama administration was working to allow the Rouhani government to utilize Iran's blocked foreign currency reserves. Over the past year, the Iranian government has transferred about 25 billion dollars of these blocked reserves into the country in cash, gold, or converted into goods, in addition to receiving approximately 11 billion dollars from foreign blocked reserves. Reuters reported on February 25 of this year that one billion dollars of Iran's blocked assets were transferred into the country through cash smuggling, and the U.S. Treasury Department announced last December that the Iranian government had received hundreds of millions of dollars in cash disguised as transactions by certain commercial companies. Following reports inside and outside Iran regarding the smuggling of currency and especially the announcement of the seizure of one of these shipments by the Tehran prosecutor's order, officials from Rouhani's government, including Valiollah Seif, the Central Bank governor, and Mohammad Baqer Nobakht, the government spokesman, confirmed the smuggling of Iranian currency from abroad to inside and vice versa. In this regard, Seif stated, 'The Central Bank has responsibilities in regulating the market, which it is currently fulfilling.' Nobakht remarked on the cash smuggling, saying, 'Iran has proposed the suitcase-to-suitcase transfer of money, and foreign parties have expressed their consent to this matter, and we have permission to transfer cash into the country.' Due to the restrictions imposed by sanctions, despite permitting limited portions of financial transfers, the Islamic Republic is still unable to conduct official monetary transactions within the global banking system. The slow pace of money transfers through official channels, the extreme caution of foreign banks in engaging in financial transactions with Iran, and the fear of falling under U.S. financial penalties, which for some banks have exceeded 1.4 billion dollars, on one hand, and Iran's desire for secrecy and financial transfers on the other, have made the method of using cash smuggling attractive for the Tehran government. Iran's main foreign currency reserves are located in local currencies in China, India, South Korea, and Turkey. Iran's currency reserves in China are estimated to be between 22 to 25 billion dollars. In addition to these funds, which are Iran's claims from oil exports, a significant volume of foreign assets was transferred from European financial centers (Britain, Germany, Switzerland, and France) to China between 2007 and 2011 when Iran was at risk of banking sanctions. This foreign asset is estimated to be around 25 billion dollars. The Islamic Republic either transfers these funds under the name of shell companies to one of the transit countries and spends them there (converting to rials at exchange offices in Dubai and receiving an equivalent amount in rials inside the country) or receives the funds and directly transfers them inside. Iraq, Turkey, and Dubai are the main destinations for cash smuggling before the final transfer to Iran. On November 30, during a period when the temporary nuclear agreement was expected to free about 4 billion dollars of Iran's blocked assets, Abbas Araghchi, Deputy Foreign Minister and one of the senior nuclear negotiators of the Islamic Republic, claimed in an interview: 'With the implementation of the temporary agreement, and during the next six months, Iran will have access to 15 billion dollars.' Araghchi's confirmation indicates the possibility of undisclosed financial agreements between the Islamic Republic and the U.S., under which it is likely that twice the volume of the agreement will be informally released as Iranian assets. On January 19 of this year, Republican Senator Mark Kirk warned that the Obama administration was seeking to release billions of dollars of Iran's blocked assets in pursuit of a nuclear agreement with the Islamic Republic. In addition to the one hundred billion dollars of Iran's blocked assets (currency transferred to China and also 75 billion dollars of oil and petroleum derivatives sales revenues), Iran has billions of dollars in blocked reserves in other countries. In June 2009, the British Labour government seized 976,000 pounds, equivalent to 1.6 billion dollars, of Iran's cash assets using international sanctions in that country. Following the hostage-taking of American diplomats in Tehran in the early 1980s, then-President Jimmy Carter issued an executive order to seize all cash and non-cash assets of Iran. Despite the 1981 agreement between Iran and the U.S. known as the Algiers Accords, under which Washington committed to releasing Iran's assets, all subsequent U.S. presidents have annually renewed Carter's executive order for the past 34 years. According to published reports, the U.S. government has deposited about 8 billion dollars of these assets in the Bank of England and 3.6 billion in the U.S. Federal Reserve. If normal interest were attributed to this money for Iran, its volume could have increased several times over the past 34 years. Iran also has significant financial claims against Egypt, Senegal, Venezuela, and France (the company Eurodif). If negotiations reach a deadlock due to Iran's bargaining based on declared red lines, the unofficial and undisclosed release of these vast monetary reserves by the U.S. and placing them at the disposal of the Rouhani government for cash smuggling could pave the way for achieving a political (nuclear) agreement on March 20 of this year; an action that does not require the approval of the U.S. Congress and, even if revealed, could either be strongly denied or justified as a duty.