Iraqi Banks Sanctioned By US Over Iran Say Ready To Face Audit
Fourteen Iraqi private banks sanctioned by the United States over allegedly helping siphon US dollars to Iran said Wednesday they were ready to face audits.
Fourteen Iraqi private banks sanctioned by the United States over allegedly helping siphon US dollars to Iran said Wednesday they were ready to face audits.
US financial authorities last week barred 14 Iraqi banks from conducting dollar transactions as part of a wider crackdown on dollar smuggling to Iran via the Iraqi banking system, Iraqi central bank officials have said.
The sanctioned banks have asked for assistance from the government. Iraqi central bank (CBI) Governor Ali al-Allaq said on Wednesday the institution was following up on the issue and he had no indication the US would sanction more Iraqi banks.
He also noted that other banks were able to cover the market's needs for dollar transactions, with the 14 sanctioned banks representing just 8% of external transfers.
Allaq said the transactions tied to the sanctions took place in 2022, before the CBI enforced tighter regulations on dollar transfers.
Those measures are in line with US regulations aimed at curbing the illegal siphoning of dollars to Iran and applying pressure on Tehran along with US sanctions imposed over its nuclear program and other disputes.
Haider al-Shamma, speaking on behalf of the 14 sanctioned banks, said on Wednesday the sanctions could further weaken Iraq's currency.
The latest US sanctions, along with previous ones on eight banks, have left nearly a third of Iraq's 72 banks blacklisted, two Iraqi central bank officials said.
"Forcing sanctions on a third of the Iraqi private banks from conducting dollar transactions will have negative consequences not only on the value of the Iraqi dinar, but it will have a very big impact on foreign investments," al-Shamma said.
"Our banks have nothing to do with political tensions but are independent financial institutions."
(Report by Reuters)
According to a report in Aftab News website, affiliated with reformists, the government borrowed around $12 billion from four major quasi-private banks in three months ending June 21. To ensure availability of funds, it issued directives to these banks to reduce lending to the private sector, causing the loss of 500,000 jobs amid an already serious economic crisis.
The government borrowed more than 4,000 trillion rials, or more than $8 billion just from Bank Mellat, both for its own operating expenses and for money-losing public and semi-public companies run by political appointees and well-connected insiders.
Fully government owned banks issue no figures, and it is not clear how much they have lent to the government, but Aftab News warned that government borrowing is much higher at these banks that are run by appointed officials. The semi-government banks, such as Mellat, are traded on Tehran stock exchange and issue financial reports.
The issue is that these banks faced with balance sheet problems when they lend excessively to the government, are forced to borrow from the Central Bank of Iran (CBI), which in turn has to print more money, fueling inflation. Official numbers indicate that the annual inflation is hovering around 50 percent, but some observers recently claimed that in fact inflation has reached 70 percent.
A market analyst said in April that “The growth rate of the monetary base has reached 38 percent and liquidity has reached 34 percent. This unprecedented gap means that the government is printing more money and making up for the budget deficit by heavily borrowing from banks and forcing them to borrow from the central bank.”
As a result of increasing money supply, the rial has fallen 12-fold in the past 5 years and has halved in value in the past one year. It is now trading around 500,000 to one US dollar.
The former governor of Iran's central bank Abdolnasser Hemmati, who is among the outspoken critics of the current administration, also said in March that “in order to control inflation and rial’s exchange rate, the government should take serious measures to reverse growing liquidity.”
It is not entirely clear why the government is so much short of money when its oil exports have substantially increased since 2021, reaching a reported volume of 1.5 million barrels per day.
The only reasonable explanation is that it offers deep discounts to those who are willing to risk US third-party sanctions, which are mainly Chinese refineries. According to some estimates, Iran is able to offload its crude oil for just $40 a barrel, or half that of current global prices. Moreover, it is not being paid in hard currency, and part of the sales are based on barter for needed imports.
Economists expect the inflation rate to accelerate if no major economic improvement takes place. Currently, Iran’s only hope is for the United States to lift its sanctions or agree for third countries to release around $20 billion of Tehran’s frozen funds. But some say even in that case, the reprieve will be a temporary one, as the current government has proven to haveextremely weak management abilities.
Iran International has obtained information that the security organs have advised the government to delay the implementation of its plan to decrease the fuel quota for diesel-powered vehicles until after the death anniversary of Mahsa Amini, who was beaten to death by the hijab police in September 2022. The tragic event ignited months of protests that became the boldest uprising against the regime since its establishment in 1979.
Informed sources told us that the administration of Ebrahim Raisi planned to introduce a tight rationing system aimed at reducing diesel consumption by 25 percent, adding that security officials deemed the possible protests and strikes by truck drivers "dangerous" in the current situation.
Truckers, who do the heavy lifting of transporting goods mainly to and from Iran’s border areas and ports across the country, have already held several rounds of weeks-long strikes that brought the flow of goods and the supply chain to a grinding halt. Prices of fuel and equipment are already among their numerous grievances amid high inflation, and the regime seems unable to cope with new rounds of union action that can take place.
Reza Gheibi, an economic journalist, told Iran International Tuesday that the Raisi administration’s plan to remove subsidies for essential goods last year has already taken its toll on the consumer market, with food prices recording the highest rate of inflation. Earlier in the day, the price of bread in Iran’s northeastern Razavi Khorasan province increased by 40 percent, triggering concerns that a similar price hike will be implemented across the country.
The regime, which has one of the world's largest oil and gas reserves, sells gasoline and diesel at extremely low, subsidized prices, charging less than 10 US cents for gasoline per gallon, or less than 3 cents per liter, while that of diesel is even 50 percent lower. Second only to Venezuela, Iran has the world’s cheapest gasoline price.
For years there has been talk of adjusting prices, but since 2018 Iran’s currency has dropped 12-fold and any increase needs to be huge to be meaningful in US dollars. However, fuel price hikes risk fanning the flames of further unrest. Before the regime dares to raise the prices in line with international market rates, it is inching towards decreasing its expenditures on fuel subsidies via curbing consumption, thus the policy of stricter rationing.
According to Gheibi, changes in the prices or quotas of diesel are even more sensitive than gasoline because of its consequences for the country’s transportation fleet.
The managing director of the National Iranian Oil Refining and Distribution Company said earlier in July that a total of 220 million liters of liquid fuel (gasoline and diesel) are used by the transportation fleet per day in Iran. Jalil Salari added that “If only this consumption volume were to be reduced by 10%, it could be spent on replacing the aging transportation fleet and infrastructure as well as in the oil industry.”
Amid reports of imminent fuel price rises and stricter rationing, the regime has put an unknown number of fuel stations on security alert and is conducting security drills in the middle of the night.
In November 2019, a government decision to increase fuel prices by 50–200 percent triggered a cycle of protests and unrest across the country that lasted for over two weeks. During this time, at least 1,500 civilians were killed by security forces.
Earlier this year, it started piloting a new plan in a number of small cities according to which citizens are still allowed to buy 60 liters (15.8 US gallons) of gasoline per month at the cheap price of 15,000 rials per liter, or less than 3 US cents. The new plan reportedly caps the premium gasoline at 150 liters (40 gallons) per individual per month.
In addition to extremely low prices that do not encourage saving fuel, Iran also faces gasoline and diesel shortages due to a lack of refining capacity. The low prices also lead to millions of liters of fuel being smuggled out of Iran daily, part of a large-scale global smuggling network. Iran’s heavy subsidies for fuel and electricity cost the country at least $50 billion a year, while the government struggles to secure foreign currencies amid US economic sanctions.
While the country is hugely dependent on revenues from crude oil exports, due to sanctions and mismanagement, it has failed to modernize the energy sector in general, with power shortages most of the year. Systemic corruption also further cripples the weak system.
The situation has been grave in recent years but since the administration of Ebrahim Raisi assumed office in 2021, the entire energy management system is going haywire even faster, drawing backlash from not only the public but even regime officials.
Abdolreza Farajirad told Entekhab news website in Tehran that the United States and Iran are exchanging messages through Oman and Qatar and this shows they are discussing deals.
Farajirad referred to US Secretary of State Antony Blinken's July 23 statements about Iran where he said, "it was a terrible mistake for the Trump administration to pull out of the nuclear deal reached with Iran in 2015," and commented that "I did not see any threats in that statement, although Blinken had also made it clear that "US officials are currently not talking about an agreement with their counterparts in Tehran."
The former Iranian diplomat argued that "What he said means that the US side is prepared for negotiations with Iran on the condition that Tehran does not threaten US interests and security in the Middle east."
He continued: "Blinken's remarks were positive. If Qatar and Oman also carry positive messages, this will mean that perhaps we are getting closer to a solution."
Entekhab wrote that other observers believe there might be a threat hidden in Blinken's statement. In effect, if US concerns about Iranian intentions to build nuclear weapons are not addressed, Washington might toughen its position.
Faraji Rad however argued that it was a positive point that Blinken was not focused on the nuclear issue in his remarks, although the United States naturally pursues its national interests.
Meanwhile, in reviewing signals Tehran and Washington have been sending to each other, proreform website Farau wrote: "Governments in Iran, regardless of their political affiliation, find out about the perils of sanctions after holding the presidential office for a few years. That is when rationality becomes prevalent."
The website was referring to hardliners currently controlling all branches of Iran’s government, who were staunchly opposed to the 2015 JCPOA nuclear accord, but now, facing harsh economic realities, realize that they have to find a way to have US sanctions lifted.
According to Fararu, the announcement by the State Department about transferring part of Iran's frozen assets in Iraq to Oman and renewed talks about US prisoners in Iran are positive developments, although some observers assess the removal of pro-Iran Robert Malley from the post of US special envoy for Iran could be a negative development for Tehran.
Fararu quoted former diplomat Fereydoun Majlesi who disagreed saying that regardless of recent developments, "there is no positive change under way!" Majlesi continued: "No positive change is likely for at least seven to 10 years. What is going on currently, will only increase the pressures on both sides.
Majlesi added that no positive change of attitude has been observed in Tehran or Washington during the past months to improve relations between the two sides although there have been opportunities for rapprochement."
Another observer, Omid Dabiri-Mehr also told Fararu that the Joint Comprehensive Plan of Action (JCPOA) is no longer on the agendas of the United States and Iran. There is no prospect for a rapprochement although a tendency is visible in Tehran to reduce the tensions with the United States.
He explained that economic problems including budget deficit and inflation and the destructive role of sanctions have finally made Iran aware of the cost of being at loggerheads with the United States.