Iran and Russia set to link their banking systems

Iran and Russia have taken a step towards integrating their banking systems, according to a senior Iranian official, in a move that would broaden collaboration between Tehran and Moscow as they try to circumvent Western sanctions that have prevented the access of the two countries to foreign capital.

Mohsen Karimi, the deputy governor of Iran’s central bank, told Fars, Iran’s semi-official news agency, on Monday that Iranian banks can now rely on the courier services of Russian banks, allowing them to carry out international transactions while bypassing much of the global banking establishment.

Harsh economic sanctions imposed by Western countries have disconnected banks in both countries from SWIFT, the Society for Worldwide Interbank Financial Telecommunications, a Belgian messaging service that connects more than 11,000 financial institutions around the world. The system is essential for cross-border payments, allowing banks and international financial firms to transmit payment instructions and alert each other to transactions before they occur.

“We have connected the national banking messaging network of the two countries and we no longer need SWIFT,” Karimi told Fars in an interview, adding that the system would connect about 700 Russian banks to 106 banks from around the world. minus 13 other countries.

Representatives of Russia’s central bank, which has yet to confirm the deal, are expected to arrive in Iran within days to finalize details, he said.

SWIFT severed ties with Iranian banks in 2018, after President Donald J. Trump pulled out of the 2015 nuclear deal and reimposed sanctions on Tehran. The Biden administration has imposed new sanctions on Tehran in recent months after nationwide protests in Iran were met with a brutal crackdown.

Some Russian banks were also cut off from the SWIFT system after Moscow’s full-scale invasion of Ukraine last year.

“We see two pariah states trying to find ways to help each other in what can be seen as a common threat to both,” said Michael Parker, a former U.S. federal prosecutor who now heads the Anti-Money Bureau. – practice of money laundering and sanctions within the Washington-based law firm Ferrari & Associates. “When you move state actors away from the center to the periphery, it makes sense that they end up together.”

The move towards integration of banking systems seems to indicate that Iran and Russia could cement ties that Western officials have described as an alliance of convenience. The Biden administration warned last year that Russia and Iran were strengthening their military ties in a “full-fledged defense partnership”.

Linking their banking systems will allow Tehran and Moscow to share their experiences of operating under sanctions programs, which “are tailored to two different perceived threats” and do not apply uniformly to the two countries or financial systems, it said. said Mr. Parker.

Financial sanctions against Russia – which some say are the largest in modern history – have eroded its economy and hampered its post-Soviet efforts to modernize along Western lines. Crippling sanctions on Iran have also cut off its access to international markets, decimating its economy and currency, which have fallen in recent months by around 30%, an all-time low.

Russian President Vladimir V. Putin has always approached deepening ties with Iran with caution, but his calculus has changed as his war with Ukraine has frozen Russia from Western markets. Moscow is now increasingly looking to Tehran as an economic partner to help mitigate some of the effects of Western sanctions.

“Iran has spent years honing its craft to mitigate the impact of much more comprehensive sanctions programs that have been launched against it and its economy,” Mr Parker said. “Russia, in turn, has a much more robust and modern banking system that has not yet been completely shut out of the global economy.”

This week’s deal was mentioned in October by a Russian trade representative, who said the new banking system could be up and running within months, according to Tass, the Russian news agency.

Russian Crypto and Blockchain Industry Association Executive Director Alexander Brazhnikov told a Russian newspaper earlier this month that he was working with Iran to launch a common cryptocurrency. . The collaboration has the potential to further mitigate the effects of Western sanctions by allowing both countries to conduct transactions outside of the international banking system with countries willing to trade digital currencies.