Iran Aims To Submit Funds Frozen In South Korea To Arbitration
Iran’s government has submitted a bill to parliament to approve sending the case of $7 billion frozen by South Korean banks to arbitration.
Iran’s government has submitted a bill to parliament to approve sending the case of $7 billion frozen by South Korean banks to arbitration.
Media in Tehran published a letter by President Ebrahim Raisi sent to parliament speaker Mohammad Bagher Ghalibaf on Saturday.
The funds were frozen at two Seoul banks after the United States withdrew from the 2015 JCPOA nuclear accord and imposed sanctions on Iran, including its banking sector. South Korea owed the money for oil imports before full US sanctions kicked in in May 2019.
It is not clear why the Iranian government needs a parliamentary vote for sending the dispute to arbitration, except to try to build a stronger case. The letter also does not mention what kind of arbitration Tehran has in mind.
The frozen funds have been the subject of long negotiations between Tehran, Seoul and Washington over the past two years, as the Biden administration launched talks with Iran in April 2021 to revive the JCPOA. Many reports and statements point to possible release of the funds in exchange for several US citizens held hostage in Iran.
Both the nuclear talks and the prisoner release talks have not succeeded in making meaningful progress. However, US officials say that efforts to secure the release of four Americans continue. Apparently, one US condition is to set up a mechanism for the disbursement of the funds for purchasing only non-sanctionable goods by Iran such as food and medicine.
There are similar frozen assets in Iraq, Japan and elsewhere that Iran desperately needs amid a serious economic crisis and continuing sanctions.
Earlier this week, the Biden Administration announced that some of Iran’s frozen funds in Iraq will go to Oman, acting as a conduit to release the money for purchasing non-sanctionable goods under US supervision. Iraq owes Iran around $11 billion for imports of gas and electricity, but US banking sanctions prohibit dollar transactions with Iran. In June, the US agreed to make $2.7 billion available for Iran’s humanitarian needs.
Despite this development, the Iranian currency, the rial, has not shown improvement and continues to trade at around 500,000 rials per US dollar, as its value has drastically depreciated in the past year.
Businessman Masoud Daneshmand expressed doubts about the impact of the released funds, stating that the Iranian government would not receive any cash directly. Instead, after Iran purchases goods like wheat, it can present invoices, and Oman will release the money following US verification. Hence, the government will not have additional funds to impact the currency market.
Others, however, disagree with this perspective. Some argue that any released funds, even for food and medicine, could free up other foreign currencies for purposes such as supporting armed proxy groups in the region or producing military equipment such as drones that are supplied to Russia for its invasion of Ukraine.
Amidst the ongoing economic crisis, Iran’s annual inflation is estimated to be somewhere between 50-70 percent, in the absence of reliable figures. However, what is certain is that food prices have risen much faster. Media and even regime politicians have been saying for months that food price inflation is around 100 percent.
Nevertheless, Ahmad Kimiyai, an economist, believes that the release of frozen funds, though not in cash dollars, is still beneficial. It allows some assets to enter the country despite sanctions and can be used for humanitarian imports, addressing shortages of food and medicine.
However, he said it is much better that the money can be used for humanitarian imports instead of cash transfers. “This is better than if the money reached the government, because it might be tempted to do populist acts,” referring to cash handout schemes to the population.
“Now we are certain that goods will be imported that can reach the people’s dinner tables,” and help with shortages of medicine, Kimiyai said.
On the other hand, businessman Kamran Soltanizadeh, who is the head of Iran’s currency exchangers indirectly criticized government propaganda highlighting that the US has released the frozen funds. He argued that there has been no official statement about exactly how much, when and how funds have been released.
He also stressed that the Iranian government is injecting dollars and other hard currencies into the forex market to support the rial, and if it were not for these interventions, the national currency would have fallen further.
The Harakat Hezbollah al-Nujaba group, a part of Iran-backed Shiite militia Hashd al-Shaabi – also known as Popular Mobilization Forces – warned of consequences to the US military presence and its dominance over Iraq's oil sector and its economy.
Akram al-Kaabi, Harakat Hezbollah al-Nujaba's leader – a US-designated terrorist who is regarded as one of the main operatives of Iran’s Revolutionary Guards' Quds Force in Iraq – said, “this is the last warning” to Americans who have flooded the country with ongoing political and economic crises. “We have repeatedly warned about the US interference in the country’s internal affairs and provoking strife,” he said.
The leader of the group -- unofficially operated by the IRGC's Quds Force that provides funding, weapons, and training to its members – added that if the US forces do not leave Iraq and Washington does not stop “blatant interference and evil in our country, there will be broad and decisive measures by the heroes of Iraq who did not and will not accept humiliation and indignity.”
The remarks came in a statement on Wednesday after 14 Iraqi private banks sanctioned by Washington over helping to siphon US dollars to Iran said they were ready to challenge the measures and face audits and called on Iraqi authorities to provide assistance.
US financial authorities last week barred the Iraqi banks from conducting dollar transactions as part of a wider crackdown on dollar smuggling to Iran via the Iraqi banking system. The latest sanctions, along with earlier sanctions against eight banks, have left nearly a third of Iraq's 72 banks blacklisted, two Iraqi central bank officials said.
Haider al-Shamma, speaking on behalf of the 14 sanctioned banks, said on Wednesday the sanctions could further weaken Iraq's currency, which has fallen from under 1,500 dinars per US dollar last week to 1,580 as of Wednesday.
The dinar tailspin against the dollar has worsened since the New York Federal Reserve imposed tighter controls on international dollar transactions by commercial Iraqi banks in November to halt the illegal siphoning of dollars to Iran.
Iraq's central bank says the dinar's depreciation is also tied to merchants, including some undertaking illegitimate financial transactions, sourcing currency from the black market rather than the official platform. Under the curbs that took effect in January, Iraqi banks must use an online platform to reveal their transaction details. But most private banks have not registered on the platform and resorted to informal black markets in Baghdad to buy dollars.
Iran International revealed in May that Qassem Soleimani, an aide to former IRGC’s Quds force commander, is a key figure in money laundering for Tehran. Earlier in the year, Iran International also unraveled some details about the inner workings of a Quds force unit tasked with smuggling money from Iraq to Iran, proving that the Islamic Republic’s embassy in Iraq is also involved in money laundering operations aimed at funneling revenues from oil and gas exports back to Iran.
This financial network is bypassing the US sanctions at the cost of the Iraqi economy. An informed source in Baghdad told Iran International late in December that Washington has received reports that Iraq is still conducting trade with Iran using US dollars despite sanctions.
