What’s behind Iran and Russia’s efforts to link banking systems?

AL Jazeera – Feb 8th2023

By : Mazyar Motamedi

Tehran, Iran – “The financial channel between Iran and the world is being restored,” the new governor of Iran’s central bank, Mohammadreza Farzin, said last week when he announced that Iran and Russia have taken a significant step towards linking their banking infrastructures amid Western sanctions.

Russia has yet to comment but, according to the Central Bank of Iran (CBI), after years of work, the two countries have managed to connect Iran’s SEPAM national financial messaging service to Russia’s Financial Messaging System of the Bank of Russia (SPFS).

SPFS is the Russian equivalent of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the global financial messaging and transfer system, and its goal is to link it with other major powers like China and India. It started developing SPFS when it was previously threatened with expulsion from SWIFT for annexing Crimea in 2014.

The entirety of the Iranian banking system is cut off from SWIFT as a result of waves of US sanctions that started in 2018 when then-President Donald Trump unilaterally withdrew from Iran’s 2015 nuclear deal with world powers. Talks to restore the nuclear accord remain deadlocked.

But now, Iran says, all of its several dozen financial institutions can connect with Russian banks, in addition to more than 100 banks from 13 other – mostly Eurasian – countries that have access to SPFS.

But now, Iran says, all of its several dozen financial institutions can connect with Russian banks, in addition to more than 100 banks from 13 other – mostly Eurasian – countries that have access to SPFS.

The announcement comes as Tehran and Moscow have increasingly grown closer in the past year following Russia’s invasion of Ukraine, which triggered more Western sanctions against Russia. Iran has also been targeted for supplying Russia with drones, which it says were delivered before the invasion of Ukraine in February 2022.

Advancing economic ties is central to the relationship, with bilateral trade growing to more than $4bn last year for the first time ever, according to Iranian and Russian officials.

The Iranian government said last week that Russia, with $2.7bn, was by far the largest investor in the sanctioned Iranian economy in the first year since the August 2021 start of the presidency of Ebrahim Raisi.

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