top of page

Source: NY Times

Jan 31, 2023

By Cora Engelbrecht

President Vladimir V. Putin of Russia had long been cautious about deepening ties to Iran, but his calculus has changed during the course of the war.

Iran and Russia have taken a step toward integrating their banking systems, according to a senior Iranian official, in a move that would expand collaboration between Tehran and Moscow as they try to work around Western sanctions that have thwarted both countries’ access to foreign capital.

Mohsen Karimi, the deputy governor of Iran’s central bank, told Fars, the semiofficial Iranian news agency, on Monday that Iranian banks could now rely on Russian bank messaging services, allowing them to make international transactions while bypassing much of the global banking establishment.

Tough economic sanctions imposed by Western countries have disconnected banks in both countries from SWIFT, the Society for Worldwide Interbank Financial Telecommunications, a Belgian messaging service that links more than 11,000 financial institutions around the world. The system is critical for cross-border payments, allowing international banks and financial companies to transmit payment instructions and alert each other to transactions before they happen.

“We have connected the national banking messaging network of the two countries and we no longer need SWIFT,” Mr. Karimi told Fars in an interview, adding that the system would connect about 700 Russian banks with 106 banks from at least 13 other countries.

Representatives from Russia’s central bank, which has not yet confirmed the agreement, are set to arrive in Iran in a few days to finalize details, he said.

SWIFT cut ties with Iranian banks in 2018, after then President Donald J. Trump pulled out of the 2015 nuclear agreement and reimposed sanctions on Tehran. The Biden administration imposed fresh sanctions on Tehran in recent months, after nationwide demonstrations in Iran were met with a brutal crackdown.

Some Russian banks were similarly cut off from the SWIFT system following Moscow’s full-scale invasion of Ukraine last year.

“We’re seeing two pariah states trying to find ways in which they can help each other in what can be perceived as a common threat to both of them,” said Michael Parker, a former U.S. federal prosecutor who now heads the anti-money-laundering and sanctions practice at the Washington-based law firm Ferrari & Associates. “When you push state actors away from the core into the periphery, it’s only logical that they will find each other.”

The move toward integrating banking systems seems to signal that Iran and Russia may be solidifying ties that Western officials have described as an alliance of convenience. The Biden administration warned last year that Russia and Iran were strengthening their military links into a “full-fledged defense partnership.”

Linking their banking systems will allow Tehran and Moscow to share their experiences operating under sanctions programs, which “are tailored to two different perceived threats” and do not apply uniformly to both countries or financial systems, Mr. Parker said.

The financial sanctions on Russia — which some call the most extensive in modern history — have eroded its economy and curbed its post-Soviet efforts to modernize along Western lines. Crippling sanctions in Iran have similarly cut off its access to international markets, decimating its economy and its currency, which in recent months has fallen about 30 percent, a historic low.

President Vladimir V. Putin of Russia has historically approached deepening ties to Iran with caution, but his calculus has changed as his war with Ukraine has frozen Russia out of Western markets.

Moscow is now increasingly looking to Tehran as an economic partner to help alleviate some of the effects of Western sanctions.“Iran has spent years honing its craft to blunt the impact of much more comprehensive sanctions programs that have been leveled against it and its economy,” said Mr. Parker. “Russia, in turn, has a much more robust and modern banking system that has not been fully shut out of the global economy just yet.

The agreement this week was mentioned in October by a Russian trade representative, who said that the new banking system could be operational within a few months, according to Tass, the Russian state-run news agency.

The executive director of the Russian Association of the Crypto Industry and Blockchain, Alexander Brazhnikov, told a Russian newspaper earlier this month that it was working with Iran to launch a joint cryptocurrency.

The collaboration has the potential to further mitigate the effects of Western sanctions by allowing both countries to conduct transactions outside the international banking system with countries willing to trade in digital currency.

Cora Engelbrecht is a reporter and story editor on the International desk, based in London. She joined The Times in 2016.  @CoraEngelbrecht

bottom of page