By INU Staff
INU - Iranian state media announced on Wednesday that it would start tethering its currency exchanges to the euro instead of the dollar, in line with a plan that had first been floated years earlier as part of an effort to limit reliance on American currency. However, Reuters noted that it was not immediately clear whether the plan would be met with participation from a majority of relevant parties. Despite contrary government pressure, ordinary Iranians continue to use the US dollar for trade and savings, and various Iranian businesses continue to rely on it for international transactions.
These contrary trends were on display in recent reporting on the Iranian economic crisis, which saw the value of the rial fall to about half its value against the dollar between September and this month. The government responded to the situation by setting an artificial exchange rate of 42,000 rials to the dollar when the market exchange rate had sunk to more than 61,000 rials. Tehran also put limits on the amount of foreign currency individuals could keep outside of banks, and heavily criminalized transactions that flouted the official rate. Nonetheless, Radio Farda reported on Tuesday that people were continuing to do so.
This lack of cooperation was evidently not limited to the ordinary Iranian public but also included state-linked entities, who have traditionally had access to better exchange rates anyway, due to a system that maintains an official rate that is separate from the market rate. The 42,000 rial limit ostensibly brought an end to this separation, but the government has tried to collapse the two rates in the past and has had little success.
According to Radio Farda, Iran’s Central Bank head Valiollah Seif blamed smuggling and money laundering for the recent problems without acknowledging that these activities are often the purview of entities like the Iranian Revolutionary Guard Corps. That being the case, there is cause to assume that the IRGC and its affiliate businesses will oppose the effort to move away from the dollar, to the extent that doing so will encourage legitimate trade in other Western currencies.
This is indeed, the intention behind the shift, as emphasized by the Reuters report, which points out that France is among the countries that are considering offering euro-based credit to Iranian businesses in order to facilitate transactions while avoiding the dollar. As well as aligning with Iran’s emerging economic policy, this will also help to shield France from the US sanctions that might be re-imposed or even expanded in May, after the deadline for expanding the 2015 nuclear agreement in order to satisfy US President Donald Trump.
If France or other European nations do take these sorts of steps, they will effectively be emulated measures already undertaken by some nations, such as Turkey, who enjoy closer relations with the Islamic Republic. Iran’s English-language propaganda network Press TV boasted on Tuesday about the direct Turkish-Iranian currency swap, which was negotiated last year but went into effect this week amidst Iran’s economic crisis. But that crisis also happened to roughly coincide with a reduction in value of the Turkish lira, to its own record low against the dollar.
The same report also indicated that Russia was considering the adoption of a similar scheme. This is perhaps to be expected in light of other reports of expanding cooperation among these three countries, each of which are heavily involved in the Syrian Civil War. Agence France Press reported on Tuesday that the presidents of Iran and Turkey had both vowed to continue their mutual alliance with Russia in the wake of US led airstrikes that sought to punish Syrian dictator Bashar al-Assad for his latest deployment of chemical weapons.
Separately, Russian Energy Minister Alexander Novak lauded a bilateral oil deal between Moscow and Tehran, according to Reuters. In a possible sign of confidence about the future of Iranian-Russian relations, Novak speculated that the deal, set to expire at the end of this year, could be extended for an additional five. This comes at a time when Iran and Russia both face escalating pressure from Western powers, over their support of Assad as well as other matters.
France and the United Kingdom also participated in Saturday’s airstrikes on Syria, thereby underscoring the tension between their positions on Iran’s regional role and the nuclear agreement, to which Russia is also a signatory. This tension was highlighted in another Reuters report, regarding the apparent increase in European support for the proposed expansion in sanctions on the Islamic Republic.
That report emphasized the European Union’s desire to punish Assad and his foreign backers. Anger over this issue could partially override the EU’s commitment to preserving the JCPOA. This week, Austria, Spain, and Sweden apparently came around to the notion of imposing new sanctions on 15 Iranian individuals and groups, but Italy remains as a holdout. The lingering skepticism generally relates to doubts about whether the White House will be satisfied by measures the EU is able to agree upon.
Trump hopes that the US and Europe will succeed in expanding nuclear inspections in Iran, ending sunset provisions related to restrictions on the nuclear program, and impose new limits on Iran’s ballistic missile activities and regional role. As of early this week, the Europeans were supposedly close to an agreement on inspections and missiles, but not over sunset provisions. Meanwhile, French President Emmanuel Macron and Angela Merkel were planning to separately visit Washington in order to urge Trump to renew sanctions waivers in May.
But if the European leaders fail in this endeavor, their governments will face serious choices over whether to defy the US by continuing their expansion in trade with Iran. The prospects for such defiance have always been doubtful, but they are arguably diminished by the escalating clash between European and Iran over the future of Syria. If this political conflict is not resolved, it may discourage France and other such nations from taking advantage of the forthcoming change in Iranian currency exchanges. And this in turn may mitigate any sanctions-busting potential for that change.