Beyond Drones: Interbank Ties Between Iran and Russia

With the war in Ukraine, Russia and Iran have come closer in many ways. The military partnership between the two countries, following the acquisition of Iranian drones by the Russian military, is perhaps the best known at present. But this cooperation also extends to other areas, such as financial and monetary cooperation.

Russia and Iran are the most sanctioned countries in the world. Sanctions imposed on the Iranian regime by the Trump administration have isolated Tehran from the Swift interbank system. The same thing happened to Russia after the invasion of Ukraine. For this reason, the two countries have taken significant steps to begin interconnecting their banking systems.

AFP/ DENIS LOVROVIC – Russian branch of Sbertbank in the center of Zagreb on February 28, 2022

Moscow and Tehran have been pursuing this goal for a long time, even before the war in Ukraine. As early as January 2022, Iranian President Ebrahim Raisi met his Russian counterpart Vladimir Putin in Moscow to discuss “monetary and banking issues”. However, the main reason for the meeting was to finalize an agreement to boost trade valued at $10 billion a year, according to the Middle East Monitor.

Raisi also indicated that they discussed the development of measures to to counter the dominance of the US dollaras well as mechanisms to ensure the continuity of trade between the two countries and their national currencies.

PHOTO/FILE — Sanctions imposed on the Iranian regime by the Trump administration have isolated Tehran from the Swift interbank system

A month after the meeting, Russia decided to invade Ukraine, making it the most sanctioned country in the world, overtaking even Iran. As the war progresses, negotiations over the nuclear deal become more complex and Tehran moves further and further away from the West. Despite diplomatic efforts, the parties did not reach a clear conclusion.

At the same time, Iran and Russia have begun to significantly strengthen their ties in different sectors. In a bid to strengthen cooperation in financial matters, the governor of the Central Bank of Iran, Ali Salehabadi, met his Russian counterpart, Alexander Novak, in Moscow last July, where they discussed the use of national currencies. . “We will soon see the implementation of the agreements reached,” Salehabadi told Iran’s business daily. Ibenawho titled the meeting as a “Iran-Russia joint plan to abandon the dollar and the euro”.

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AFP/HO/ KHAMENEI.IR – Ali Khamenei welcoming Russian President Vladimir Putin in the presence of his Iranian counterpart Ebrahim Raisi

Subsequently, Putin himself visited Iran, on his first trip outside the former USSR since the start of the invasion of Ukraine. Iranian Supreme Leader Ali Khamenei then pointed out that the dollar “must be phased out of world trade”as reported by gulf times.

Russia has been preparing for the current situation for some time. That is why it decided to develop a national interbank exchange system, the Bank of Russia Financial Messaging System (SPFS) – an alternative to Swift – which was first implemented in 2014. Since Moscow has since sought to extend it to its BRICS partners and its Asian allies, both within the Eurasian Economic Union (EAEU) and the Shanghai Cooperation Organization. However, the partner where she has found the most cooperation in this regard is undoubtedly Iran.

AFP/KONSTANTIN ZAVRAZHIN – Russian President Vladimir Putin addresses the sixth summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA) in Astana, October 13, 2022

Moscow and Tehran are negotiating the integration of the Russian payment system MIR, created in 2014, and the Iranian banking system Shetab, established in 2002. This agreement would not only facilitate banking and financial exchanges between Iran and Russia, but also allow the Iranian regime to trade with the other members of the EEU of the MIR which have a free trade agreement with Tehran, such as Armenia, Belarus, Kazakhstan and Kyrgyzstan. “I think this payment system will soon be activated in Iran”Iranian Deputy Foreign Minister for Economic Diplomacy Medhi Safari said, according to the Russian News Agency RIA.

However, even if this cooperation strengthens the ties between Tehran and Moscow bilaterally or within the framework of the Eurasian Economic Union, the Jamestown Foundation stresses that it “cannot address all financial, banking and trade challenges arising from Western sanctions imposed on both countries”.

REUTERS/DADO RUVIC – Western sanctions are hitting the rouble hard, the value of which has fallen sharply since the start of the war in Ukraine

China tries to reduce the influence of the dollar on the energy market

Tehran and Russia are trying to circumvent Western sanctions and reduce their dependence on the dollar. Currently, the US national currency is the hegemonic currency of world tradealthough this may change in the future, just as the world order established after the end of the Cold War is changing.

AFP/NICOLAS ASFOURI — Xi met with Saudi royals, Gulf Cooperation Council members, other Middle East leaders

For now, Chinese President Xi Jinping is already trying to counter the influence of the dollar with the yuan, which he hopes to use soon to buy oil in the Gulf. At a summit with Arab countries in Riyadh, the Chinese leader pressed for introduce the yuan in energy trading, which could weaken the US dollar. Xi said Beijing will continue to import large amounts of oil and gas from Gulf countries and make payment in Chinese yuan, according to a Chinese Foreign Ministry statement.

Beyond Drones: Interbank Ties Between Iran and Russia