Corporate Debt Review

How Iran Plans to Evade US Financial Sanctions


As the deadline for resumption of US sanctions against Iran approaches (November 4), more indications are surfacing on how Teheran will evade them.

Sanctions will encompass two primary objectives: impeding Iranian oil exports; and preventing access to international banking and financial transfers. The former directly (and quite adversely) impacts the flow of revenue to Iran. The latter makes the export of any product that requires foreign exchange much more difficult.

And it is the sanctions on global banking that are the broader and more serious threat to Iran.

Much of the surviving oil trade will likely involve payments in kind or contract swaps. China has been utilizing a massive trade surplus with Iran to fund oil purchases for years. Meanwhile, as I have discussed here previously in ECRG Intelligence, Moscow has been moving to design trading mechanisms that allow Iranian crude to pass into the global market as Russian throughput.

This time around Teheran has the support of Russia, China, the EU, and erstwhile US allies France, the UK, and Germany, along with second-level banking support from supposed NATO ally Turkey.

At the UN General Assembly meetings in September, foreign ministers from all of the non-US signatories to JCPOA (Joint Comprehensive Plan of Action, the nuclear accord from which Trump unilaterally withdrew) announced the creation of a “special purpose vehicle” independent of the dollar to further trade with Iran. That has been further augmented by a recurring conversation among countries under US sanction (Iran, Russia, and Turkey) about using cryptocurrencies to avoid those segments of the international banking network relying upon the US.

For its part, Teheran has taken serious moves into the crypto space to bypass Washington’s sanctions. President Hassan Rouhani ordered the Iranian National Cyberspace Center (NCC) to draft a plan for the nation’s own cryptocurrency backed by the rial – Iran’s rapidly depreciating local currency.

The rial may be the crippling weakness in any such approach, but sources tell me that Iran is well along in plans to employ a private blockchain-based on Hyperledger Fabric technology. Bank Markazi (the Iranian central bank) earlier this year prevented domestic entities from dealing at all with cryptocurrencies. However, under the plan it will now be able to issue new crypto coins whenever necessary. Iran will also use foreign-based front companies to acquire essential materials, while also using markets for metals such as gold, silver, or platinum.

Iranian contacts acknowledge that the developing push back against US sanctions will result in lower oil exports and, thereby, declining revenues. On the other hand, they also are convinced that the plan to export some crude bypassing the sanctions will succeed.

Yet to a person they admit that it is access to global banking that is most disconcerting.


The sanctions have two stages. The first has already rolled out. The “meat” arrives in the second on November 4. That latter stage will force the SWIFT financial messaging system to disconnect Iranian banks from the world, while also targeting Iran’s energy and financial sectors, significantly restricting the activities of Bank Markazi and other state banks’ oil exports, ports and the shipbuilding industry. It returns Iranian entities and businessmen to the US government’s blacklist – meaning any third-country bank, individual or company that deals with them would risk heavy fines and significant “secondary” sanctions that could cut them off from US dollar-dominated global markets.

Iran’s strategy has been telegraphed for months by European supporters of JCPOA. The use of European central banks to process payments to Iran, thereby turning the application of US sanctions into a direct sovereign contest with apparent American continental allies, was approved at a June meeting in Sophia. Two weeks ago, European leaders announced the plan had been fine-tuned and that payments to Iran could also be processed in a way that made them far less dependent on American dollars.

However, this geopolitical bluster may have a major vulnerability. European banking contacts tell me out that the proposed payment approach depends on the SWIFT system keeping Iranian banks connected to its system. Every Iranian bank has a SWIFT code. So long as these banks remain connected to the system, a door to sanctions evasion is always left open.

In 2012, Congress authorized a presidential prerogative to impose financial sanctions on the board of Brussels-based SWIFT if they refused to disconnect blacklisted Iranian banks. At that time, a passage of sanctions by the US Senate Banking Committee was enough to prompt the EU to order SWIFT to disconnect Iranian banks. Of course, in those days, the European Union and the US were on the same side. Not so these days.

Nonetheless, the SWIFT board remains composed of financial institutions. If those institutions believe the US will enforce the Iran sanctions, it may well accede to Washington. It will require some concerted action by the EU (physically located a few blocks away from the SWIFT headquarters in Brussels) to prevent that acquiescence.

Turkey’s Day

In all of this, the position of a non-JCPOA nation – Turkey – is becoming central. Ankara has already declared it will not abide by the US sanctions and Istanbul banks are rumored to be active in designing bypass conduits connecting Iran, Russia, and China. Yet, it is uncertain how strongly Turkey will persist in the effort.

As Al-Monitor journalist Fehim Tastekin told me, neither Turkish-Iranian trade volumes nor investments benefited from the lifting of sanctions in 2015. To the contrary, Turkish energy-related imports peaked between 2011-2012, along with hundreds of millions of dollars worth of gold exports (sustained through Obama era waivers) in those same years. Turkish-Iranian energy-related trade volume was higher under sanctions. In addition, Turkish banks and an Iranian-Turkish businessmen (Reza Zarrab) carried out one of the biggest sanction evasion schemes in recent US history.

Other sources agree that these two factors-combined with Turkish President Recep Tayyip Erdogan’s harsh criticism of US sanctions-could lead to the further economic isolation of Turkey. Erdogan has in the past referred to both the US and Iran as allies. But energy needs may prove more important than American pressure. Iran accounts for 17% of Turkish natural gas imports; Russia 52%. Recall also that between 40% and 50% of the nation’s electricity is dependent upon that gas. According to end of 2017 figures, Turkey is the fifth largest trading partner of Iran.

Erdogan’s view on US actions is one thing. But sanctions on Iranian oil and the worsening Venezuelan oil supply is expected to lead to a sharp increase in global oil prices – all to the detriment of the precarious, energy-dependent Turkish economy. Moreover, the country is more dependent upon piped gas and tanker oil shipments from Iran now than it was a decade ago.

The truth of the matter is that the new US sanctions will adversely affect both the Turkish energy sector and its broader economy more than those imposed last time around. At the end of last month, Turkish refineries began reducing Iranian crude imports, replacing that volume with Russian and Saudi crude. A request for, and American agreement on, an exemption may prove essential. Ankara received such a waiver from Washington the last time.

Then there is the ongoing story of Iranian oil throughput. As one contact close to the situation said last week, “Turkey has been carrying Iraqi oil combined with Kurdish oil for years via the Kirkuk-Ceyhan oil pipeline, but Baghdad, Teheran, and Erbil [the seat of the Kurdish Regional Government] also agreed a while ago to carry Kirkuk oil to world markets through Iranian pipelines. That trade has already begun. Iraqi SOMO (the State Organization for Marketing Oil) announced last week that it temporarily cut Kirkuk oil exports to Iran because of a problem with customs regulations. That prompted the following comment from my contact: “I believe that as a result of the sanctions against Iran, Iraq will have to cut its oil and gas relations with Iran and it will force Baghdad to reconsider increasing oil sent out via Turkey [i.e., Ceyhan].”

The Turkish situation may be somewhat better on the natural gas side. By the end of 2019, alternative pipelines from Russia (Turkish Stream) and the Caspian (TANAP) will make dependence on Iranian gas less acute.

Whether Turkey actually allies with the JCPOA nations intent on evading US sanctions remains to be seen. It is still unclear how the EU, Russia, China, the UK, France, and Germany will be able to implement a genuine payments system bypassing both the US dollar and the dollar-based global banking system.

As one of my banking colleagues wryly put it: “Right now, it looks like smoke and mirrors, or perhaps bottlecaps and phantom banks.”

About the Author


Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.