On November 5th, the United States put into effect the harshest round of sanctions on Iran to date, scaling back Tehran’s ability to do business with foreign entities significantly.
As a result of these sanctions, and mounting pressure from the U.S., Society for Worldwide Interbank Financial Telecommunication (SWIFT), the international payments facilitator, has cut off services to the country’s Central Bank. Though SWIFT is a Belgium-based company, some of its biggest clients are in the United States, making it exceedingly difficult not to take American threats seriously.
U.S. Treasury Secretary Steven Mnuchin explained that SWIFT’s move was “the right decision to protect the integrity of the international financial system.”
The sanctions, which were part two of the U.S. campaign stemming from the withdrawal from Joint Comprehensive Plan of Action (JCPOA), have been met with criticism from other world powers.
China and Russia, for their part, have stated that they will continue to do business with Tehran, buying and selling goods in euros instead of dollars.
European countries, however, are largely reliant on SWIFT, and without it, lack a sustainable means to make or receive payments from Iran.
Leading up to the latest round of sanctions, however, both the European Union and Iran had proposed two wildly different solutions to this conundrum.
A New SWIFT
Germany has been the most vocal about the new sanctions, with Heiko Maas, German foreign minister saying: “Europe should not allow the US to act over our heads and at our expense. For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system.”
France’s Finance Minister, Bruno Le Maire, joined the call to action, stating: “With Germany, we are determined to work on an independent European or Franco-German financing tool which would allow us to avoid being the collateral victims of U.S. extra-territorial sanctions, adding “I want Europe to be a sovereign continent not a vassal, and that means having totally independent financing instruments that do not today exist.”
Though little progress has been made towards a SWIFT alternative, it’s clear that the European Union is getting fed up with U.S. overreach in the geopolitical space and getting more aggressive in its plans to move away from the U.S. dollar and U.S. controlled payment instruments.
Germany is also facing off against the U.S. over Russian plans to build a new natural gas pipeline, which the U.S. has repeatedly threatened to sanction, suggesting instead that the EU purchase more expensive LNG from American sources.
Iran Turns To Crypto
On the other side of the table, Iran is scrambling for its own solutions.
Despite its harsh stance against bitcoin and other cryptocurrencies in the past, Tehran has announced that it will be moving forward with plans to create its own state-sponsored cryptocurrency, much like Venezuela’s el petro.
The Informatics Services Corporation (ISC) has already developed the country’s new rial-backed currency, however hurdles still remain.
Due to the complexity of the endeavor, the still-unnamed digital rial requires the approval from the country’s Central Bank.
Seyyed Abotaleb Najafi , CEO of the ISC explained: “In order to realize renovation and create new infrastructure in our banking system, banks’ back end processes which is still in paper and traditional way should be changed and evolved.”
The value of the Iranian rial has already plummeted, along with its crude oil production, leaving both the citizens of the country and buyers of Iranian crude caught between a rock and a hard place.
The need for a solution is palpable and it’s becoming increasingly clear that the U.S. is unwilling to back down from its sanctions ploy.
While the EU scrambles to figure out its own solutions on the matter, Iran is rushing to complete and approve its state-sponsored cryptocurrency, which still requires a willingness from other parties to accept.
Iran risks running into the same problems as Venezuela’s el petro in this regard. President Maduro’s coin has yet to have any real impact on global trade, and due to its numerous failures, is unlikely to ever truly take root.