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Iran cut off from global financial system

Published:Friday | March 16, 2012 | 12:00 AM

Iran was largely cut off from global commerce Thursday after the company that handles worldwide financial transactions said it was severing ties with many Iranian banks to back EU sanctions against Tehran.

The action by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, aims to enforce European Union sanctions discouraging Tehran from developing nuclear weapons.

It will go a long way towards isolating Iran financially. SWIFT is a banking hub crucial to oil, financial transactions and other trades and global financial transactions are impossible to conduct without using it.

Because of its reach, SWIFT's decision to cut off some 30 Iranian banks and subsidiaries could hinder not only banking but also the country's lucrative crude oil industry and possibly hurt Iranian households that depend on remittances from relatives living abroad.

"Disconnecting banks is an extraordinary and unprecedented step for SWIFT," said Lazaro Campos, chief executive of the company. "It is a direct result of international and multilateral action to intensify financial sanctions against Iran."

In a statement, the company said the EU decision to impose sanctions "prohibits companies such as SWIFT to continue to provide specialised financial messaging services to EU-sanctioned banks" and "forces SWIFT to take action."

There was no immediate reaction from the Iranian government or the banks involved. Not all Iranian banks are subject to EU sanctions.

Although Thursday's move added no new sanctions, it aimed to maximise the impact of the EU sanctions already approved.

"It's tightening the noose," said Ali Ansari, an expert on the Middle East at the London-based Chatham House think tank. "It will just reinforce what's already been happening."

And that, he said, is increasing Iran's isolation and difficulty in conducting trade and commerce.

In a statement, the European Council - comprised of the government leaders of the 27 European Union countries - said it had "developed the application" of its restrictive measures against Iran.

"In this context, the Council agreed that no specialised financial messaging shall be provided to those persons and entities subject to an asset freeze," the statement said.

In addition to sanctioning Iranian officials and freezing the assets of certain companies, the European Union plans to institute an embargo on the import of Iranian oil in July - an attempt to choke off funding for Iran's nuclear programme.