Home News Economy Western Banks’ Wariness Belies Iran’s Boastful Descriptions of Economic Recovery

Western Banks’ Wariness Belies Iran’s Boastful Descriptions of Economic Recovery

Iranian state media claimed that South Pars’ production would rise to 35,000 barrels per day in just one week, according to UPI. And authorities have sought to give the impression that this sort of rapid output is needed in order to fulfill rising levels of international demand for Iranian oil. For instance, The Iran Project reported on Tuesday that NIOC had projected that outputs to the European market would increase from 500,000 barrels per day to 800,000 within the next two months.

However, that report also acknowledged that the vast majority of Iran’s current oil exports still go to Asia, and that these exports had doubled in the year following the implementation of the nuclear deal, whereas exports to Western countries had increased only modestly. This situation is certainly reinforced by persistent wariness among those Western countries. European markets fear the possibility of renewed US sanctions in the tense environment that has emerged since the January inauguration of US President Donald Trump. But as well as contributing to those tensions, the Islamic Republic has declined to take measures that might reassure Western buyers and investors regarding the preexisting conditions in the Iranian market.

Reuters reported this week that the Iranians had issued a formal request with the Bank of England to set up special clearing accounts to facilitate transactions between Iranian and British firms. These efforts have reportedly gotten some support from the British government, which is eager to find new sources of trade in the midst of its divorce from the European Union. But the Bank of England itself has been resistant to Tehran’s requests, in no small part because of the murky and non-competitive business environment in the Islamic Republic.

The multinational Financial Action Task Force has uniquely identified Iran and North Korea as areas of highest risk for potential foreign investors, and the United States Treasury considers Iran to be an area of primary money laundering concern, owing to its historical support for international terrorism and the deep penetration of hardline institutions like the Islamic Revolutionary Guard Corps into Iran’s economic infrastructure.

Nevertheless, there are other pressures that are working against the FATF and the US Treasury, although it is possible that these have been overstated by the Iranian regime in the interest of making the country seem like a more stable and attractive investment option. For example, Iran’s English-language propaganda network Press TV reported on Wednesday that state-operated banks in India were looking for new payment mechanisms for their transactions with the Islamic Republic, and that these mechanisms were expected to rely on correspondent financial institutions in Europe. Not only does this report understate the current unavailability of such Western correspondents, it also neglects tensions between Iran and India, which could threaten long-term economic collaboration.

On Tuesday, India.com pointed out that approximately three dozen Indian fishermen were known to be detained in Iranian jails as a result of their having allegedly strayed into Iranian waters. An official in the Indian government was quoted as saying that these individuals remained in custody even after the fines imposed by an Iranian court, and that a non-governmental organization had filed a formal complaint with the Islamic Republic over the situation.

The public commentary on this situation is noteworthy not just because of the possible long-term dispute that it suggests, but also because it stands in contrast to the silence that some Western powers have been said to maintain at a time when several Western nationals have been arrested without explanation inside Iran. Some human rights advocates and political groups have accused those governments of neglecting the situation out of concern that criticism could jeopardize prospects for trade and reconciliation in the post-nuclear agreement environment.

This accusation was specifically levied by Rebecca Jones last week when she criticized the British government for its failure to publicly condemn the arrest of her sister-in-law Nazanin Zaghari-Ratcliffe, whose status as an Iranian-British dual national apparently justified her five-year prison sentence on undisclosed charges. “There’s money in Iran and I don’t think they want our family to jeopardize that,” Jones said, according to the BBC.

But even if this interpretation of the government’s response is correct, it has not been sufficient to overcome the wariness of financial institutions, whose anxieties are only further justified by the apparent aversion to foreign trade among some highly placed Iranian figures. On Wednesday, Agence France-Presse reported that Supreme Leader Ali Khamenei, the final authority on all matters of Iranian policy, had expressed desire for a ban on certain kinds of foreign imports. This recommendation was framed as part of Khamenei’s call for a “resistance economy” that is focused more on domestic development than foreign trade, something that AFP says has been a common refrain in his speeches for a matter of months.

The report went on to suggest that such commentary cast doubt on the willingness of Iranian government and financial institutions to adopt the “deep structural reforms” that are needed in order to improve the country’s investment prospects and its persistently stagnant economy. Khamenei’s “resistance economy” plan is the same that was touted while nuclear-related sanctions were in full force, as a way to weather the difficulty without succumbing to international demands.

What’s more, Khamenei’s plans are not facing the sort of resistance that one might expect from the administration of President Hassan Rouhani, who spearheaded the nuclear agreement on the Iranian side. This week, Iranian state media reportedly carried remarks by Foreign Minister Mohammad Javad Zarif warning that the country was prepared to resume full-scale nuclear enrichment if government officials determined that the US had created “a situation that continuation of the Joint Comprehensive Plan of Action would damage Tehran’s national interest.”

Zarif even went so far as to say that the renewed nuclear activities would be more advanced than they were prior to the agreement. He admitted that Iran had continued development of advanced enrichment centrifuges after the implementation of the JCPOA, resulting in devices that could create enriched uranium 20 times faster and more efficiently than the previous models. Such statements are sure to further justify the concerns of those Western policymakers who oppose the existing nuclear deal, thereby raising the likelihood of new enforcement measures that could bar the reentry of European firms into the Iranian market.

Of course, the US has already continued its sanctions of the Islamic Republic and Iran-linked entities over non-nuclear issues like support or international terrorism. Reuters pointed out on Wednesday that a court in Luxembourg had deferred judgement in a case wherein the Iranian government is challenging the seizure of Iranian assets for payment of compensation to victims of the September 11, 2001 terrorist attacks in New York who had successfully sued Iran. And the Foundation for the Defense of Democracies reported that the United States Treasury had imposed new sanctions on two Bahraini nationals with links to Iran, declaring them Specially Designated Foreign Terrorists.

These and other such enforcement measures are all but certain to further encourage Supreme Leader Khamenei’s push for a resistance economy, which would in turn encourage Western economic disengagement from Iran.