Bourse and Bazaar | Maziar Motamedi: The second and final sanctions deadline of November 4 is drawing near. After this date, unilateral US sanctions on Iran’s financial sector will once again come into force. According to Iranian bankers and government officials, this could mean that Iran struggles to import humanitarian goods, including basic foodstuffs.
The sale of essential foodstuffs and medicine to Iran is exempt from sanctions, giving latitude to US officials to reiterate their claims that sanctions are targeted and not intended to hurt the Iranian people. However, while no direct legal barriers might exist for trade in humanitarian goods, potential restrictions slapped on banks that facilitate the necessary transactions might yet cause problems.
Prior to the nuclear deal, Iran’s private sector banks were exempt from secondary sanctions and thereby to be able to handle humanitarian trade payments. As sanctions are set to be reimposed, ambiguities about the scope of the returning restrictions forthcoming from the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury have left bank leaders and government officials in Iran with more questions than answers.
To understand the growing fears around the maintenance of humanitarian trade, Bourse & Bazaar spoke to several senior bankers and government officials in Iran and executives from global trading companies who are key stakeholders in this trade. All requested to remain unnamed given the sensitive subject matter.
A veteran banker and a board member of a major Iranian private bank described two possible scenarios. “U.S. officials have said they aim to reinstate sanctions that were lifted as a result of the nuclear deal. If we use this as the basis, the interpretation is that private banks that were previously exempt from secondary sanctions and any foreign banks working with them on humanitarian trade will once again be exempt,” he said.
But he warned that this time may very well be different given that the US has hardened its rhetoric and promised “maximum pressure” from the sanctions. “Your guess is as good as mine,” he quipped.
He said his bank is currently conducting business as usual but has seen some foreign counterparts take preemptive measures to reduce their transaction volume ahead of the November deadline.
“Some banks are implementing a number of limitations over concerns about what happens next. They are already doing some of the things that will be expected of them once sanctions return on November 5,” he said.
An official at the international department of another major Iranian bank expressed the same feeling of uncertainty, and highlighted concerns that private sector banks like his will not be spared from secondary sanctions this time around.
“We are already facing issues with imports of some essential goods even before [the November] sanctions snap back,” he said. In his assessment, if the bank becomes subject to secondary sanctions, there is little to nothing Iran’s central bank can do to support them.
While Iranian bankers may feel powerless to prevent the return of secondary sanctions, they are also concerned about risks stemming from an area in which Iranian stakeholders do have control—compliance with the Financial Action Task Force (FATF) action plan, which outlines steps for Iran to improve anti-money laundering and combating financing of terrorism standards.
Iran has until mid-October to demonstrate sufficient progress to the FATF or its already embattled banking system will become more isolated than ever. Time is running out for Iran to pass the required legislation in the face of domestic pushback from local interest groups and persistent lobbying by FATF member states including the US and Israel.
“If we don’t pass the bills related to the FATF, we are effectively sanctioning ourselves,” stated the deputy chairman of one of Iran’s largest private sector banks.
These external and internal threats to routine banking between Europe and Iran could have significant knock-on effects for humanitarian trade.
Speaking on background, an executive at a major multinational commodity company described how even if food sales to Iran remain permitted under US sanctions, the imposition of secondary sanctions on Iran’s private sector banks could make the trade effectively impossible.
The Government Trading Corporation of Iran (GTC), the trading arm of country’s agriculture ministry, confirmed these concerns but insisted that contingency planning is underway.
A senior official involved in foreign trade for GTC said, “We are at the moment implementing measures to ensure that we won’t have problems concerning humanitarian trade.”
The official could not share further details, beyond explaining that any such measures will fall outside the boundaries of the banking system—a likely allusion to the use of barter trade, a method which helped sustain imports in the previous sanctions period.
“We will continue to conduct our business even after November sanctions are in place because we have had the experience of working under sanctions before and the sanctions didn’t stop us,” the official said. “You can be sure that sanctions will only serve to increase costs, not close the way entirely.”
The recent announcement that the European Union would be establishing a special purpose vehicle to facilitate humanitarian trade will offer some encouragement that a significant disruption to food imports can be avoided. But with the sanctions deadline just weeks away, the risks of dangerous supply shocks are rising by the day.