Beyond drones: interbank ties between Iran and Russia

With the war in Ukraine, Russia and Iran have become closer in a number of ways. Perhaps the most notorious at present is the military partnership between the two countries following the acquisition of Iranian drones by the Russian army. However, this cooperation also extends to other areas, such as financial and monetary cooperation.

Russia and Iran are the most sanctioned countries in the world. The sanctions imposed on the Iranian regime by the Trump administration isolated Tehran from the Swift interbank system. The same happened to Russia after the invasion of Ukraine. For this reason, both countries have taken significant steps to start interconnecting their banking systems. 

Moscow and Tehran have been pursuing this goal for a long time, even before the war in Ukraine. As early as January 2022, Iranian President Ebrahim Raisi met with his Russian counterpart Vladimir Putin in Moscow to discuss "monetary and banking issues". However, the main reason for the meeting was to finalise an agreement to boost trade valued at $10 billion a year, Middle East Monitor reported.

Raisi also reported that they discussed the development of measures to counter the dominance of the US dollar, as well as mechanisms to ensure the continuity of trade between the two countries and their national currencies. 

A month after the meeting, Russia decided to invade Ukraine, making it the most sanctioned country in the world, surpassing even Iran. As the war progressed, negotiations over the nuclear deal became more complex and Tehran moved further and further away from the West. Despite diplomatic efforts, the parties have not reached a clear conclusion.

At the same time, Iran and Russia began to significantly strengthen their ties in different sectors. With the aim of further cooperation in financial matters, last July the governor of the Central Bank of Iran, Ali Salehabadi, met with his Russian counterpart, Alexander Novak, in Moscow where they discussed the use of national currencies. "We will soon see the implementation of the agreements reached," Salehabadi told the Iranian business daily Ibena, which headlined the meeting as a "joint Iran-Russia plan to abandon the dollar and the euro". 

Subsequently, Putin himself visited Iran on his first trip outside the former USSR since the invasion of Ukraine began. Iranian supreme leader Ali Khamenei then stressed that the dollar 'must be gradually withdrawn from world trade', as reported by the Gulf Times.

Russia has been preparing for the current situation for some time. That is why it decided to develop a national interbank exchange system, the Bank of Russia Financial Messaging System (SPFS) - an alternative to Swift - which was first implemented in 2014. Since then, Moscow has sought to expand it to its BRICS partners and Asian allies, both in the Eurasian Economic Union (EEU) and the Shanghai Cooperation Organisation. However, the partner where it has found the most cooperation in this regard has undoubtedly been Iran. 

Moscow and Tehran are negotiating to integrate the Russian payment system MIR, created in 2014, and the Iranian banking system Shetab, established in 2002. This agreement would not only facilitate banking and financial exchanges between Iran and Russia, but would also allow the Iranian regime to trade with other EEU members of the MIR that have a free trade agreement with Tehran, such as Armenia, Belarus, Kazakhstan and Kyrgyzstan. "I believe that this payment system will soon be activated in Iran," said Iranian Deputy Foreign Minister for Economic Diplomacy Medhi Safari, according to the Russian news agency RIA.

However, even if this cooperation strengthens ties between Tehran and Moscow bilaterally or in the framework of the Eurasian Economic Union, The Jamestown Foundation stresses that it "cannot respond to all the financial, banking and trade challenges arising from Western sanctions imposed on both countries".

Tehran and Russia are trying to circumvent Western sanctions and reduce their dependence on the dollar. Currently, the US national currency is the hegemonic currency of world trade, although this could change in the future just as the world order established after the end of the Cold War is changing. 

For now, Chinese President Xi Jinping is already trying to counter the dollar's influence with the yuan, which he hopes to use soon to buy oil from the Gulf. During a summit with Arab countries in Riyadh, the Chinese leader pushed for the introduction of the yuan in energy trade, something that could weaken the US dollar. Xi said Beijing will continue to import large quantities of oil and gas from Gulf countries and will make payment in Chinese yuan, a Chinese Foreign Ministry statement said.