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Russia and Iran launch payment system as an alternative to Swift

Iran says banks no longer need to rely on western-based payment system, as Russia becomes Iran's biggest investor
Russian President Vladimir Putin and Iran's President Ebrahim Raisi hold a meeting in Tehran, on 19 July 2022 (AFP)

Iran and Russia have linked their banking systems, a senior Iranian official said on Monday, a move that will allow the two heavily sanctioned countries with deepening economic ties to trade and conduct business outside the US financial system.

The two connected their interbank communication and transfer systems. Since the 2018 reimposition of sanctions, Iran has been disconnected from the western-based Swift financial messaging system, while many Russian banks were kicked off the platform following Moscow’s invasion of Ukraine.

"Iranian banks no longer need to use SWIFT ... with Russian banks, which can be for the opening of Letters of Credit and transfers or warranties," deputy governor of Iran's Central Bank, Mohsen Karimi, told the semi-official Fars news agency.

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Swift is a Belgium-based financial messaging platform that allows trillions of dollars’ worth of money to cross borders daily and be transferred into bank accounts. It’s also used for foreign exchange settlement and trade. US banks often act as intermediaries in the transactions.

The decision to create an alternative payment system is the latest sign that Iran and Russia are moving beyond a marriage of convenience in hotspots like Syria, to a more comprehensive partnership against the West.

Tehran has already emerged as one of Russia’s key foreign arms suppliers with drone shipments, but the two are also deepening economic cooperation in the face of western sanctions. Last year. Javad Owji, Iran's minister of oil, said that Tehran agreed to use national currencies for the settlement of trade and energy payments with Russia.

Both countries have attacked the dominance of the US dollar in the global financial system. US sanctions carry heft because the bulk of global trade is conducted in the greenback.

Russia's central bank declined to comment on the deal signed on Sunday. According to Karimi, "about 700 Russian banks and 106 non-Russian banks from 13 different countries will be connected to this system”. He didn’t name the foreign banks.

'Prioritisation of the East'

Both countries have deepened ties amid isolation in the West. Vladimir Putin's first trip outside the former Soviet Union since invading Ukraine was to Iran. Putin has promised to accelerate Iran's bid to join the Shanghai Cooperation Organisation (SCO), a central Asian security bloc designed as a counterweight to western influence in Eurasia.

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Officials who are sanctioned by the US, including Russian security chief Nikolai Patrushev, have been welcomed in the Islamic Republic while Russian business tycoons have turned to Iran for help on navigating western sanctions.

Henry Rome, a senior fellow and Iran specialist at the Washington Institute for Near East Policy, told MEE previously that Tehran’s budding relationship with the Kremlin marked “the end of Iran's neither-East-nor-West ideal, and a prioritisation of the East”.

Monday's announcement on banking comes as Russia supplants China as the Islamic Republic’s biggest investor, Donya-e Eqtesad, an Iranian newspaper reported on Saturday, citing a senior Iranian trade official.

The countries face mounting economic challenges, however, and western sanctions have forced them to compete over oil and petroleum product sales.

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