Have Moscow and Tehran essentially turned away from United States Dollar?

“Russia and Iran will transfer payments using an alternative system to the internationally recognized SWIFT money transfer network, Governor of Iranian central bank, Abdolnaser Hemmati”, has announced.

Instead of SWIFT, a system that facilitates cross-border payments between 11,000 financial institutions in more than 200 countries worldwide, the two countries will use their own domestically developed financial messaging systems – Iran’s SEPAM and Russia’s SPFS.

“Using this system for trade and business exchanges between EAEU (Eurasian Economic Union) member states can help develop and expand trade exchanges between the member states as well,” Abdolnaser Hemmati said.

Tehran is set to officially join the Russia-led free-trade zone, the EAEU shortly. The document on Iran’s participation was ratified in June by the nation’s parliament (Majlis) and President Hassan Rouhani has already ordered that the free trade zone agreement be implemented.

Earlier this month, Russian presidential aide Yury Ushakov said that Tehran and Moscow are developing an alternative to SWIFT. Russia began development of SPFS in 2014 amid Washington’s threats to disconnect the country from SWIFT.

The first transaction on the SPFS network involving a non-bank enterprise was made in December 2017. Around 500 participants, including major Russian financial institutions and companies, have already joined the payment channel, while some foreign banks have shown interest in joining.

Last year, Belgium-based SWIFT cut off some Iranian banks from its messaging system. It came after US President Donald Trump abandoned the landmark nuclear deal with the Islamic Republic and resumed US sanctions against Tehran.

Moscow and Tehran have essentially turned away from the greenback in bilateral trade, and are using the Ruble and Rial for payments. Turning to cross-currency trade was a vital issue for both Russia and Iran, and the two countries are planning to use all available means to boost these efforts.

“We have already essentially dropped the dollar in cooperation with the Iranians, we will rely on the Russian Ruble and the Iranian Rial, [and] in case of urgent need, on the Euro, if we have no other options,” the diplomat said. He added that banking structures in both countries have the potential to cope with this “difficult” task.

Despite efforts by European countries to keep trading with the Islamic Republic after the US pulled out of the nuclear agreement, their efforts still do not fully address Tehran’s interests, Dzhagaryan believes.

The diplomat said that the payment system recently created by France, Germany and the UK to facilitate trade with Iran raises “more questions than it answers,” claiming that it does not change the state of affairs for Tehran.

He explained that the Instrument in Support of Trade Exchanges (INSTEX) covers only items not blacklisted by the US, but does not apply to vital sectors of trade for Iran.

“Oil is the most important [sector] for Iran. It is a huge question if Europe can allow the proper volume of oil exports and flow of revenue to the Iranian budget,” Dzhagaryan stated. “EU countries should show that they can carry independent foreign policy without fearing any warnings from overseas partners.”

Russia along with several other countries, including India, China and Turkey – has been accelerating efforts to fight the dominance of the US currency in global trade amid rising tensions with Washington. Last year, Russian President Vladimir Putin called on the member states of the Eurasian Economic Union (EEU) to create a common dollar-less payment system for boosting economic sovereignty. The bloc, which consists of Russia, Kazakhstan, Belarus, Kyrgyzstan and Armenia, has free trade agreements with multiple partners across the globe, including Iran and China.