Iran – European Union – Society for Worldwide Interbank Financial Telecommunication (Swift): Swift, the communications provider for secure financial transactions for more than 10,000 financial institutions and corporations around the world announced it will disconnect Iran’s banks from the system.
On its home page, SWIFT published the following news item:
“Following an EU Council decision, SWIFT is today announcing it has been instructed to discontinue its communications services to Iranian financial institutions that are subject to European sanctions.
The new European Council decision, as confirmed by the Belgian Treasury, prohibits companies such as SWIFT to continue to provide specialized financial messaging services to EU-sanctioned Iranian banks. SWIFT is incorporated under Belgian law and has to comply with this decision as confirmed by its home country government.
“This EU decision forces SWIFT to take action” said Lázaro Campos, CEO of SWIFT. “Disconnecting banks is an extraordinary and unprecedented step for SWIFT. It is a direct result of international and multilateral action to intensify financial sanctions against Iran.”
The EU-sanctioned Iranian financial institutions and the SWIFT customer community have been notified of the disconnection, which will become effective on Saturday 17 March at 16.00 GMT. ”
According to its home page, SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,000 financial institutions and corporations in 210 countries. SWIFT enables its users to exchange automated, standardized financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest.
Special Comment: The news bulletin speaks for itself in identifying this as an unprecedented action by SWIFT, a very big deal. Even more, it is an unprecedented act of economic coercion against a state by an alliance system.
International economic analysts have commented on how this will eliminate nearly all conventional channels for Iran to buy or sell nearly anything in the global marketplace, except for face-to-face transactions, which the Indians are attempting to set up. Even those are being constrained because the United Arab Emirates plugged one hole in the sanctions net by halting the conversion of Iranian rials into hard currencies.
This is the first time outside of warfare that measures which target economic infrastructure have been used as a threat management tool in order to prevent an emerging threat from escalating into a crisis. This is a new weapon in its reach and depth that has been created by international communications technology, a form of economic blockade without using military force.
Over time, the disconnection seems likely to lead to a significant contraction of all kinds of economic activity, including a decrease of direct and indirect foreign investment; constraints on Iranian trade and travel; increased economic crimes, unemployment and shortages; and skyrocketing prices from smuggling and irregular transactions. Another possible ripple effect is that this might also stress Iran’s ability to support its proxies. Iran could consider this an act of war by the European Union.
The key measure of its success will be its effect on Iran’s nuclear weapons-related activities. For example, it might deter North Korea from providing further help because the leaders in Pyongyang sell their weapons services precisely to generate hard currency. They use banks and cutout financial institutions all over the world to circumvent their own set of sanctions.
The same may be said of the Russians, Chinese and others. Regardless of their positions on sanctions, they all support them now and will learn the true price of sanctions. This measure probably will not prompt Iran to abandon its programs, but it might contain them by limiting them to materials on hand.
European Union members should make contingency preparations for terrorist retaliation and for economic ripple effects on the international banking system.
Phi Beta Iota: An alternative financial system with major government banking is said to be under development. It may well be that this action–an action that appears to be well beyond any legitimate authority–will catalyze the growing irrelevance of the Western financial system and spawn multiple alternatives that route around the West completely. An Islamic banking system, like an Islamic information system, is long over-due for development.