Quicker than a succession of slow-acting economic sanctions, expelling Iran from the banking hub could put a sudden choke hold on its oil-dependent economy. The move was made under strong pressure from the United States and the European Union, which are looking for ways to derail Iran’s nuclear program quickly without a military strike.
“If SWIFT follows through on its public commitment to ban Iranian banks, it could sever the Iranian regime’s financial lifeline,” said Mark Dubowitz, an Iran sanctions expert advising the Obama administration. “It would also be a significant political embarrassment for the regime: Iran would be the first country in SWIFT’s history to be expelled from what is the financial equivalent of the United Nations.”
The European Union is expected to act within weeks to effectively cut off major Iranian banks from participation in The Society for Worldwide Interbank Financial Telecommunication, known as SWIFT. It’s a move of last resort, with risks ranging from huge inflation and financial hardship for ordinary Iranians to disruption and price increases on the world oil market. Iran could also retaliate in unpredictable ways.
The EU has already imposed the first embargo on Iranian oil, to take effect this summer. The strongest-yet U.S. sanctions on Iran’s lifeblood oil sector are due later this year.
SWIFT said in a statement on its web site that it will comply with the expected instruction to cut off Iranian banks. SWIFT has previously brushed off international efforts to use its network to target countries or companies, telling enforcers that it does not judge the merits of the transactions passing through the portal.
SWIFT’s statement said the decision essentially to kick out a member country “reflects the extraordinary and highly exceptional circumstances of significant multilateral international support for the intensification of sanctions against Iran.”
The rapid expansion of what had been a gradual, years long effort to deter a weapons program reflects rising alarm that Iran may be on the brink of developing a nuclear weapon. Israel, which takes seriously Iran’s threat to eradicate the Jewish state, is openly considering a military strike on Iranian nuclear processing facilities.
There was no immediate response from Iran. Tehran insists its nuclear program is for peaceful purposes only. U.S. officials say they believe Iran hasn’t yet decided whether to build a nuclear weapon.
Some U.S. lawmakers are pushing for sanctions on SWIFT itself if it were to keep up its services to Iran. SWIFT lawyers were coming to Washington next week for meetings with Congress, and Friday’s announcement was widely seen as a way to head off that action.
The Obama administration wants to see Iran barred from using the financial pass-through, which is used by virtually every nation in the world and overseen by major central banks, but it has no direct leverage over SWIFT. Washington was keen to see Europe act first, or to have SWIFT act on its own.
A U.S. Treasury Department official, speaking on condition of anonymity because SWIFT’s action is still pending, said that the U.S. welcomes the move. The official said the U.S. will continue to urge the EU to act quickly.
The Brussels-based organization is a little-known but essential way station for international transactions, electronically converting currencies and processing payments such as those for Iran’s crude oil exports. SWIFT handles cross-border payments for more than 10,000 financial institutions and corporations in 210 countries.
SWIFT’s announcement came as the United States and European Union on Friday expressed cautious optimism that Iran is serious about returning to talks with world powers over its nuclear program.
Secretary of State Hillary Rodham Clinton and European Union foreign policy chief Catherine Ashton said they were continuing to study Iran’s response this week to a proposal to restart the stalled negotiations. However, they said they welcomed Iran’s professed willingness to hold talks as soon as possible without preconditions.
“We must be assured that if we make a decision to go forward, we see a sustained effort by Iran to come to the table to work until we have reached an outcome that has Iran coming back into compliance with their international obligations,” Clinton said following a meeting with Ashton at the State Department.
She was referring to the risk that Iran could be stringing along world powers with a promise to return to talks, while continuing to assemble the means for a weapon.
Ashton is the point of contact for the five permanent members of the U.N. Security Council and Germany, who are demanding that Iran freeze all uranium enrichment.
SWIFT said Friday that it stands ready to stop services to sanctioned Iranian financial institutions once it has clarity on what new rules will require.
There are potential avenues for Iran to go around the expected cutoff, but they would be difficult, costly and time-consuming. More than 40 Iranian banks and institutions use SWIFT to process financial transactions, but not all are under European Union sanctions. The new move involving SWIFT is expected to apply first to banks already under sanction.
SWIFT, as a European entity, must comply with EU regulations.
It unclear whether the SWIFT ban would apply only to new transactions with overseas buyers or whether it would prevent payment on existing oil contracts that go through sanctioned Iranian banks. Also uncertain was whether the powerful Central Bank of Iran would be covered at the outset.