Iran's Banking Constraints in International Transactions: From Europe to the Persian Gulf

According to Tehran media, banks in the Arab Gulf region and Turkey are imposing more pressure on their Iranian clients, one of the most significant manifestations being the increasing blockage of their bank accounts. Thus, Iran's economy, which bears the heavy burden of Western banks' strictures, is facing new constraints originating from the increasingly hostile behavior of regional banks. The strictness of global banking giants against Iran, nearly two years after the signing of the Joint Comprehensive Plan of Action (JCPOA), which provided the legal basis for lifting sanctions related to the Islamic Republic's nuclear file, still faces serious obstacles, the most important of which is the continuation of restrictions on a significant portion of the global banking system against Iran. There is no doubt that the theory of the complete failure of the JCPOA, as claimed by its opponents, including the 'principlists' of the Islamic Republic, does not align with reality. The implementation of this agreement has had positive repercussions in various geopolitical and economic fields, the most important of which is distancing Iran from a security disaster, normalizing oil production and exports, and reducing the intensity of the country's isolation in the international economic community. However, it cannot be denied that the hopes of the Iranian people regarding the benefits of the end of sanctions have largely been dashed in the face of existing obstacles to benefiting from the capacities of the JCPOA. One of the most significant obstacles to benefiting from the JCPOA is the continuation of so-called 'primary' sanctions, which are also referred to as 'non-nuclear' or 'non-JCPOA' sanctions. These sanctions were imposed by the United States in the 1980s and 1990s in connection with issues such as human rights, terrorism, and money laundering against the Islamic Republic. The persistence of such sanctions is one of the factors preventing the implementation of the JCPOA from leading to the normalization of Iran's position in the international economic relations network. The most significant consequence of this abnormal situation is the stubborn approach that global banking giants have adopted against Iran. In its fourth report on the implementation of the JCPOA, the Iranian Foreign Ministry summarizes the continuation of 'primary sanctions' and their role in creating obstacles to lifting 'secondary sanctions,' especially in the context of Iran's banking transactions: 'The overlap of sanctions lifted under the JCPOA with remaining sanctions, including primary U.S. sanctions imposed on pretexts such as terrorism, missile and military capability development, and human rights issues, continues to be one of the obstacles to Iran's maximum benefit from the advantages of lifting nuclear-related sanctions. Moreover, banks and financial institutions operating in the United States are obliged to comply with a wide range of U.S. regulatory and supervisory laws and regulations to continue their activities in the U.S. and benefit from its market, and to protect their interests in this country, they generally extend and apply U.S. laws and regulations to their activities in other parts of the world, which has created challenges for Iran in establishing financial connections with institutions and financial entities in other countries.' What the Foreign Ministry's report refers to as 'challenges for Iran' is the withdrawal of Western banking giants from any operations that are in any way related to investment in Iran or trade with this country. In the European Union, only small and medium-sized banks that have no interests in the U.S. market participate in transactions with Iran. In France, two medium-sized banks, 'Wormser' and 'Debloc,' play this role. These banks lack the financial capacity necessary to finance large transactions, and for this reason, the company 'Airbus' contracted with a Middle Eastern leasing company called Dubai Airspec Enterprise for financing the sale of its aircraft to Iran. Some other commercial partners of Iran in France have resorted to similar financial arrangements to realize their projects. Additionally, several other projects have stalled due to the lack of cooperation from major banks. In fact, many large financial institutions in Western Europe or some Asian countries, including Japan, refrain from participating in any transaction that involves Iran due to fears of heavy penalties that may be imposed on them by the U.S. judiciary. Donald Trump's hardline policy toward the Islamic Republic naturally fuels Iranophobia among the concerned institutions. However, beyond the 'primary sanctions' and tensions in Tehran-Washington relations, two other factors severely weigh on Iran's financial transactions with the world: 1) Pressures from the 'Financial Action Task Force' (FATF) - this powerful international body, established to combat money laundering and later to address terrorism financing, has placed Iran alongside North Korea at the top of the list of countries with a high-risk rating based on the status of its banking system. 2) The lack of coordination of Iran's banking system with international standards - this issue, which began in the years following the Islamic Revolution, particularly due to extensive purges in the country's banking system, intensified during the sanctions related to the nuclear file. Over the past decade, the banking system worldwide has undergone significant transformations both technically and legally. Iran, due to the severance of its communication bridges with the world, has fallen behind this transformation, which is another major obstacle to its relations with the global banking and financial system. New pressures on Iran's regional banking transactions In recent days, Iranian media have reported the beginning of a new round of blocking Iranian accounts in the Gulf region and West Asia. According to the Mehr news agency (Tuesday, June 9), 'Iranian bank accounts in countries such as Turkey, Oman, and the United Arab Emirates, particularly Dubai and Abu Dhabi, are being blocked one after another, and these are new events that are marking another chapter of banking sanctions against Iran.' The same source quotes an economic activist who states that Dubai and Abu Dhabi, 'in an unexpected move, are even unwilling to process small remittances of one to two thousand euros for foreign countries, which are merely for family expenses.' Another economic activist tells the same news agency that 'now accounts of Iranians in Turkey and Oman are being blocked, and there is no escape from it. This has started in the last two or three weeks and is spreading like a domino effect to other Arab countries.' Other news sources in Tehran confirm these reports, including 'Eghtesad News,' which states that the scope of banking strictures against Iranian economic actors extends to other countries such as Saudi Arabia, Pakistan, and even China. The issue at hand is the 'lack of coordination of Iran's banking system' with international standards and the pressures from the 'Financial Action Task Force.' In fact, banks in the Persian Gulf region and Turkey have advanced far ahead of Iran in their compliance with the norms and requirements of the banking system in the second decade of the 21st century. The intensification of banking strictures against Iranians in the Gulf region and Turkey, if continued, will be bad news for economic circles in Tehran. Over the decades following the Islamic Revolution, and especially during the sanctions related to the nuclear file, Iran has used the financial institutions of its Arab neighbors in the Gulf and Turkey as a bridge to the international economic community, although using these institutions has never been without its challenges. Economic and political circles in the Islamic Republic naturally attribute the recent banking strictures against Iranians in the Gulf region to the escalation of tensions in relations between Tehran and Riyadh and consider it an inevitable consequence of U.S. President Donald Trump's recent visit to Saudi Arabia. These circles are confident that the Saudis have organized a widespread assault worldwide against Iran's economic interests, including pressuring European countries to prevent the expansion of their cooperation with Iran. The Saudis undoubtedly have more leverage in the Gulf and possess more effective pressure tools to further disrupt the relations of small countries in the region with Iran. In this situation, the finger of blame from the economic and political circles of the Islamic Republic naturally points to Riyadh, attributing the regional banks' strictures against Iranians to a Saudi conspiracy. The weight of Saudi Arabia in the Gulf region and its extensive efforts against Iran's interests cannot be denied. However, it should not be assumed that the small countries in the region are completely at Riyadh's command. They have their own interests and objectives and are not always aligned with Saudi diplomacy and economic orientations. It must be accepted that beyond the escalation of political and strategic tensions between Iran and the Arab Gulf countries, especially Saudi Arabia, other factors are also striking blows to Iran's regional banking relations, which we previously mentioned in examining banking relations between the Islamic Republic and the European Union. The discussion revolves around the 'lack of coordination of Iran's banking system' with international standards and the pressures from the 'Financial Action Task Force.' In fact, banks in the Persian Gulf region and Turkey have advanced far ahead of Iran in their compliance with the norms and requirements of the banking system in the second decade of the 21st century.