Iran, Russia Link Banking Systems Amid Western Sanctions

Ryan Morgan
By Ryan Morgan
January 30, 2023Business News
Iran, Russia Link Banking Systems Amid Western Sanctions
Russian President Vladimir Putin (R) meets with his Iranian counterpart Ebrahim Raisi on the sidelines of the Shanghai Cooperation Organisation (SCO) leaders' summit in Samarkand, Uzbekistan, on Sept. 15, 2022. (Alexandr Demyanchuk/Sputnik/AFP via Getty Images)

Iran and Russia are linking their banking systems together, in the face of growing international sanctions against both countries.

Iran’s official news agency announced that the Central banks of Iran and Russia had reached an agreement on Sunday to connect their national interbank communication and transfer systems, making it easier to complete transactions between the two countries.

The decision to further connect the banking systems of the two countries comes after the United States, European Union, and other Western allies removed select Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a system for facilitating transactions between banks across the world. The Western allies disconnected Russian banks from SWIFT in February 2022 in retaliation for Russia’s invasion of Ukraine.

“Under the deal, the national banking messaging systems of the two countries were connected, making it possible for all member banks of the national banking messaging system of Iran to exchange banking messages with all banks in Russia,” Central Bank of Iran (CBI) Deputy Governor Mohsen Karimi said.

Karimi said the agreement allows Russian and Iranian banks to process transactions between countries without needing to use SWIFT. He said 700 Russian banks and 106 banks from 13 other countries can now connect with 52 Iranian bank branches to process transactions.

Economic Pressure on Russia and Iran

In addition to seeing some of its banks disconnected from SWIFT, Russia has faced a growing number of sanctions since it launched its large-scale invasion of Ukraine last year. The United States and its Western allies have sanctioned individuals, including Russian President Vladimir Putin and his family members, and politicians and businessmen with ties to Putin and the Russian government.

The United States and its allies have also worked to ban imports of Russian oil in efforts to further isolate the country from the global economy after its invasion of Ukraine.

The United States has imposed dozens of sanctions against Iran since 2018, after President Donald Trump withdrew from the 2015 Iran nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA). Though President Joe Biden has considered bringing the United States back into the JCPOA, sanctions continue to be placed on Iran, including in retaliation for violent Iranian government crackdowns on protests last fall.

The United States has also placed new sanctions on Iran in punishment for its alleged support of Russia’s invasion forces in Ukraine. Since October, Russian forces have used dozens of relatively cheap Iranian-made Shahed-136 drones—meant to crash into targets and explode—to strike critical infrastructure and defenses throughout Ukraine.

Iran claimed it had supplied only a few of the Shahed-136 loitering munitions to Russia before the invasion of Ukraine. The Ukrainian government has accused Iran of lying about the true number and timing of its drone shipments to Russia, saying it has shot down dozens of the Iranian-made drones in recent weeks.

Iran and Russia Strengthening Bonds

The growing economic sanctions against Iran and Russia, particularly in recent months, have brought the two governments closer together.

Since the start of the Ukraine war, Tehran and Moscow have acted to forge close bilateral ties as both capitals attempt to build new economic and diplomatic partnerships elsewhere.

CBI chief Mohammad Farzin welcomed the move on Sunday to connect Russian and Iranian banks, tweeting, “The financial channel between Iran and the world is being repaired.”

Iran has been growing both economic and military ties with Russia in recent years. In July, Iran submitted an application to BRICS, an organization of emerging economies that includes Russia and China. Putin has described BRICS as an organization that could provide mutual benefit between its member nations and could form “a truly multipolar system of interstate relations.”

Last year, Iran’s government also signed a memorandum of obligations to join the Shanghai Cooperation Organisation (SCO), a central Asian security body dominated by Russia and China.

Reuters contributed to this article.

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