Time to trade with Iran in national currencies

Thanks to US bullying of South African banks behind the scenes, the country’s trade with Iran has not been favorable, despite the signing of the Iran nuclear deal in 2015.

The reality is that South Africa’s political and diplomatic relations with Iran are excellent and our government departments have done everything in their power to promote a robust bilateral trading relationship, but the problem lies with banks.

South African banks need the backing of the South African Reserve Bank to do business with Iran. South Africa’s four major banks are not only conservative but extremely cautious, far more than banks in Europe or Asia.

Even though there was nothing stopping them from transferring money to facilitate trade with Iran over the past three years, they have cowed to subtle American pressure not to process any transactions with Iran.

The fact that the US has secretly been warning banks, financial institutions and insurance companies not to do business with Iran is a direct violation of Article 26 and 29 of the nuclear agreement.

With last week’s announcement by President Donald Trump that the US pulled out of the nuclear agreement, the pressure on banks not to facilitate financial transactions with Iran will be immense.

Trump has already warned that the US will again impose sanctions against Iran, and on any companies which continue to support Iran.

If South African trade with Iran had been reduced to Persian carpets and pistachios as a result of the unwillingness of South African banks to process transactions, South African traders may now find the price of those items in South Africa becoming even more expensive.

There was a time just 14 years ago when we were doing roaring trade with Iran, importing Iranian crude oil to the tune of $2 billion annually. Even 12 years ago bilateral trade was 10 times the amount it is today.

The question is whether the country is prepared to live with the status quo, or do something about it to live up to the ideals of an independent foreign policy.

Ironically, the Europeans and Asians have been filling the vacuum.

France, Italy, Germany, South Korea, China, Japan and India have been engaging in substantive trade with Iran since 2015. China has been doing $60 billion of trade with Iran annually.

South Africa needs to interrogate how banks in those countries have been transferring money, as it is clear that they have each found appropriate channels.

There is no doubt concern within the banking sectors in those countries about Trump’s threat to penalize banks that facilitate trade with Iran, but it seems governments in those countries may take matters into their own hands.

European countries have repeatedly insisted they will never leave the Joint Comprehensive Plan of Action (Iran nuclear deal), and a meeting of deputy foreign ministers is being scheduled in Europe to find a mechanism through which they can continue trading with Iran.

There has also been noise about Britain considering a banking system not linked to the dollar — this would be a seismic shift. The Europeans may choose to trade with Iran in euros.

Germany is particularly irked by the damage to its economy over sanctions against Russia, which had been a US demand. It is unlikely to capitulate this time in the case of Iran.

German Chancellor Angela Merkel pulled no punches in Washington recently when she articulated her strong support for the Iran nuclear deal. France’s Emmanuel Macron echoed these sentiments when he visited the US capital, and Britain’s Theresa May has called the Iran nuclear deal ‘vital’.

For all these countries Iran is an attractive investment opportunity that they are unlikely to pass up just because the Trump administration lays down the law. There is also the memory of just how painstaking the negotiations for the nuclear deal were.

Russia and China have deepening ties with Iran, and are even more likely to develop alternative mechanisms to get around the US banking threats.

It will be interesting to see whether at the upcoming BRICS Summit in South Africa if there is discussion on trading with Iran using another currency.

* Shannon Ebrahim is a journalist cooperating with The Sunday Independent.