Major international banks wary of heavy US penalties will be reluctant to restore ties with Iran even if sanctions are lifted in a possible nuclear deal, bank executives and advisers told Reuters, likely denting Iran’s ambition to attract foreign investment to revive its battered economy.
After several years of being frozen out of the global banking system and most trade with the West, Iran is eager for sanctions to be lifted so it can draw in foreign companies and attract investment to upgrade its long-neglected energy sector, the report said.
Tehran and six world powers (P5+1) are negotiating to hammer out a deal over the Iranian nuclear energy program that could terminate all nuclear-related sanctions against Iran.
Yet without more bank financing and a means of transferring funds in and out of Iran, that commercial potential could remain largely untapped, stunting hopes for a post-agreement investment boom. Banks’ reluctance to deal with Iran highlights the risk that its economy will not get quick relief.
Lured by the world’s fourth-largest oil reserves and second-largest natural gas reserves, oil majors such as Shell have expressed interest in entering Iran. Airlines and automakers are also interested, according to diplomatic sources and people close to the industries, eyeing Iran’s 80-million population.
But about a dozen international banks, mostly European, have been stung by US penalties for sanctions-busting totaling nearly $14 billion since 2009, raising industry fears that the risk of engaging Iran would overshadow any gain.
Banks recently hit by penalties include BNP Paribas and Commerzbank, while several others including Deutsche Bank, Societe Generale and Credit Agricole are under investigation, according to people familiar with the matter. BNP Paribas had to forfeit $8.9 billion.
Under a framework agreement reached between six major powers and Tehran in April, Iran agreed to limit its nuclear energy program in exchange for sanctions relief. Crucial details, including the timing of sanctions removal, still need to be worked out ahead of an end-June deadline for a final deal.
But the deal would only lift nuclear-related measures.
Banks targeted by US authorities have generally been accused of knowingly moving millions of dollars through the US financial system on behalf of Iranian, Sudanese, and other entities subject to economic sanctions. The banks hid the transactions, in part by stripping wire information identifying sanctioned entities so they would not raise red flags.
Companies have already experienced difficulties operating in Iran due to banking problems.
China to the Rescue?
The banks based in countries such as China and India are likely to be less worried about the risks, because they have less business in the United States and do not believe their own countries would re-impose sanctions on Iran. These banks could expand their Iran business in the event of a deal, said Gary Hufbauer, a former Treasury official and sanctions expert at the Washington-based Peterson Institute, the report said.
But many remain cautious. Banks have shied away even from legitimate trade with Iran. The existing sanctions include waivers for food and medicine imports. The kind of long-term investments crucial to revamp oil infrastructure will be difficult without the participation of major international financial institutions, Reuters reported, citing experts.
In the country’s most recent five-year plan, Iranian officials called for $230 billion of investment in the petroleum sector, mostly to expand oil and gas production.
Iran shares the world’s largest natural gas field with Qatar. The resource has made the Persian Gulf periphery country the world’s largest exporter of liquefied natural gas. Iran, by contrast, has often turned a net importer of gas to meet its needs.
One chief executive of a large European bank said it could help his country’s major companies with payments and loans if they go into Iran, the report said. Other than that, the bank has no interest and will not pursue any private client business in Iran, he said.
