Pressure mounts to cut Iran off from SWIFT as next round of sanctions looms

For the Iranian regime, the fact that European nations want to still make the Joint Comprehensive Plan of Action (JCPOA) function offers opportunities to create work arounds. However, the Trump administration is actively putting economic pressure on the regime in an attempt to force real change.

One of the ways that the U.S. is trying to limit the regime’s impact is by cutting off access to the global payment network, known as SWIFT (Society for Worldwide Interbank Financial Telecommunications). Being denied that access would mean that Iran would have a difficult time receiving payment for its exports, especially those in their oil and gas industries.

“I can assure you our objective is to make sure that sanctioned transactions do not occur whether it’s through SWIFT or any other mechanism,” said Steven Mnuchin, the U.S. Treasury Secretary. “Our focus is to make sure that the sanctions are enforced.”

Goal of U.S. is zero exports

For the U.S., economic pressure on the regime involves sanctions that target trading, coal, industrial software, and the auto sectors, as well as the oil and gas industries, as well as Iran’s central bank. With these sanctions in place, the economic squeeze was on. Companies that are fronts from the Islamic Revolutionary Guard Corps (IRGC) are also being targeted.

In addition, the U.S. is pressuring its allies to enforce those sanctions, including denying the regime access to SWIFT, a Belgium-based financial messaging system. If that occurs, then Iran will no longer have the ability to pay for its imports or to be paid for its exports.

SWIFT is set up with various directors that come from different nations. A nation’s shareholder may give it the ability to propose one or two Directors and other nations can band together to nominate a director. Therefore, while nations themselves cannot claim control of SWIFT, there is influence that can be exerted by one nation or another.

The U.S. banks have executives on the SWIFT board and U.S. federal law allows the Trump administration to act against banks and regulators around the world.

Market already factored in losses

Mnuchin also spoke about the increasing oil prices, acknowledging that waivers for nations to continue to purchase Iranian oil would be limited. Those who do receive waivers would be looking at reducing their oil purchases from Iran by more than the 20% they had to previously during the period between 2013 and 2015.

“I would expect that if we do give waivers, it will be significantly larger reductions,” said Mnuchin. “Oil prices have already gone up, so my expectation is that the oil market has anticipated what’s going on in the reductions. I believe the information is already reflected in the price of oil.”

He was also clear that eventually countries would have to cut those imports to nothing to avoid sanctions. To avoid running into this issue and to continue buying from Iran, Russia and China are pursuing their own system of payment that would be a way around the SWIFT system. Meanwhile, the European countries that remain part of the JCPOA are struggling to find a way forward.

In compliance with previous EU sanctions, SWIFT cut Iran’s central bank from the system, but they were reconnected in 2016.

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