Iran’s parallel economy gives it upper hand in nuclear talks
The Wall Street Journal this month reported that Iran has set up a covert banking and financial system to deal with annual trade worth tens of billions of dollars — banned under the sanctions imposed by the US. The newspaper also revealed documents related to financial transactions conducted by dozens of Iranian proxy companies through 61 accounts in 28 foreign banks in China, Hong Kong, Singapore and Turkey, which were worth hundreds of millions of dollars in total.
The revelations are nothing new. Iran — buckling under the weight of sanctions for decades — has pursued several means to circumvent sanctions to maintain its financial and trade relations with the world. During Mahmoud Ahmadinejad’s second term as president, Iran made coordinated efforts to counter sanctions, especially those related to the oil and financial sectors.
There can be no doubt that Iran has developed significant expertise in establishing and managing covert financial, banking and commercial networks. This expertise was clearly manifested amid the Trump administration’s implementation of its maximum pressure campaign. These networks enabled the regime to ensure that the blow from the sanctions was softened, in what became known as the country’s “strategic patience” strategy. Officials have repeatedly spoken about Iran’s means to circumvent the sanctions — including sanctions on its oil exports — and secure revenue from its trade with other countries. Some countries, such as China, which has formed a vital alliance with Iran in the face of its rivalry with the US, helped Tehran to establish such networks. It was also assisted by entrepreneurs wishing to take advantage of such covert activities.
As a result of the Trump administration’s coordinated campaign against the regime and its ferocious efforts to render Iran’s means ineffective, Washington managed to track down several financial and banking networks, as well as the companies that attempted to help Tehran circumvent the sanctions. While Donald Trump was in the White House, the regime suffered from the most severe internal crisis since the revolution, with currency depreciation and other economic woes fueling social unrest. During Trump’s presidency alone, Iran was rocked by three of the biggest popular protests the country has ever witnessed, in addition to constant factional protests across the country. Moreover, the US sanctions managed to prevent Iran providing its overseas militias with resources and weapons, which impacted its regional clout.
When the Biden administration took office, it immediately began acting on its vengeful impulses against Trump’s policies, especially toward the nuclear deal. The first step in its Iran policy was to call into question Trump’s maximum pressure campaign. The Biden administration insisted that this campaign had brought Iran closer to possessing nuclear weapons than ever before. As a result of this belief, the US immediately began a rapid and wide-ranging reversal of the maximum pressure campaign.
The US began appeasing the Iranian leadership for the sake of charting a path toward reviving the nuclear deal. Washington even offered a gratuitous gift to the regime, saying it would dismiss the sanctions that are in place and expect nothing in return. As a result of the Biden administration’s Tehran-friendly policy, Iran’s financial and banking networks began to grow their economic benefits by engaging in foreign trade unimpeded. Each gain Iran manages to make while the sanctions are still in place enables it to gain greater importance at the nuclear negotiating table. Iran has even adopted a strategy to separate the nuclear talks from the country’s domestic problems, since the leadership feels that the US sanctions have become toothless.
There can be no doubt that Tehran has developed significant expertise in establishing and managing covert financial, banking and commercial networks.
Dr. Mohammed Al-Sulami
It is this complacency from the US that has enabled Iran to set up the biggest covert networks ever run by a government to facilitate its trade with the outside world, rendering the US sanctions wholly ineffective. This provides solid evidence for Russia and any other country facing US sanctions that they can be easily circumvented with impunity. Indeed, Iran is now offering Russia its expertise in evading US and Western sanctions, with Moscow and allied countries like China obviously having a strong motive to mitigate the impact of US sanctions. These three nations — Russia, China and Iran — are pursuing a revisionist approach to restructure the global order that is currently dominated by the US, with Iran’s success in this respect cementing the supreme leader’s position at home and giving a boost to the policies of the hard-liners, particularly in their hostility toward America.
Having succeeded in boosting its economy and trade with the outside world through these covert networks, Iran is now setting its own terms for achieving a better and more sustainable nuclear deal as it already seems a hair’s breadth away from resolving its economic problems independently of the deal. It is normal that the US Department of State has announced that returning to the nuclear deal with Iran is neither imminent nor certain and that Washington is preparing itself for the scenarios that see a mutual return to the nuclear deal or no return to full compliance with the terms of the deal. Undoubtedly, this puts Biden in an extremely awkward position, since he suspended the campaign of maximum pressure against the regime despite it being a significant deterrent, successfully drying up Iran’s financial and trade channels, cutting off supplies provided by Tehran to its militias, and curtailing the illegal activities sponsored by the regime.
There is no question that the Biden administration has squandered its predecessor’s legacy and failed to employ or build on the pressures and sanctions to get a better deal with Iran. At this point, it is sufficient to point out that Iran currently exports nearly 1.5 million barrels of oil per day, compared to the lowest point of 300,000 bpd at the end of the former Trump administration’s term.
In addition to building its nuclear knowledge, which has enabled it to shorten its nuclear breakout time to less than a year following America’s withdrawal from the nuclear deal, Iran has managed to build a parallel economy run by clandestine networks at home and overseas — a factor that encourages it to flatly reject the idea of making any concessions, whether in the nuclear talks or in regard to any other contentious issues.
More importantly, Iran plans to make this clandestine financial infrastructure a main pillar in facilitating the ongoing operation of its illegal activities — including the smuggling of weapons, financing of militias and money laundering. All this means that Iran has no need or motive to join or comply with the Financial Action Task Force or to ensure that its activities are subject to international scrutiny and oversight.
So, if a nuclear deal is achieved, will Iran retain at least part of its operational networks to serve its devastating purposes and activities? Nobody knows.
- Dr. Mohammed Al-Sulami is President of the International Institute for Iranian Studies (Rasanah). Twitter: @mohalsulami