Iran moves foreign assets amid sanction threat

Financial Times

Iran is moving foreign exchange out of European banks in advance of a possible referral to the United Nations Security Council and imposition of economic sanctions over its nuclear programme.

Ebrahim Sheibani, Central Bank governor, told reporters on Friday that Iran would "transfer the foreign exchange reserves wherever we consider expedient" and confirmed a shift from Europe had begun.

Mr Sheibani refused to give details or to say where the funds were going, although ISNA, the semi-official Iranian news agency, said the destination was southeast Asia.

On the internationall currency markets, the dollar fell briefly on Friday against the euro and safe-haven Swiss franc on the news .

"Clearly the Iran situation is the key focus at the moment, our view is that eventually it will settle down, but it's expected to rumble on for a while and so maybe at the margins slightly supportive of the safe-haven currencies like the Swiss Franc," Kevin Grice, senior economist at American Express Bank, said.

The Central Bank manages Iran's 'windfall' oil revenue, which could amount to around $25bn in the Iranian year ending in March 2006, and has kept an unknown amount in Europe.

"The nuclear issue and the chance of sanctions is the main reason for this," said an economy analyst in Tehran. "But there is also alarm from what Italy did."

A ruling by an Italian court last month upheld a 1996 US law that holds responsible for "terrorist" acts those nations designated by the US government as "sponsors of international terrorism".

A court in Rome ordered Banca Nazionale del Lavoro (BNL) to freeze an account held by the Iranian government, over the deaths of three Americans in the Israeli-occupied Palestinian territories at the hands of Palestinian bombers.

Iran has protested that its official accounts were protected by the Vienna Convention governing diplomatic relations.

But families of US citizens killed in the bombing of its Beirut embassy in 1983 by Hizbollah, the Lebanese Shia militant group, are planning to follow suit - asking European courts to seize Iranian assets after a US ruling that Iran should pay $126m in damages.

Davoud Danesh-Jafari, Iran's economy minister, said on Thursday the seizure of Iranian assets was both contrary to "global regulations" and damaging for Europe's banks.

"Such acts would make oil-rich countries anxious to transfer their capital out of European banks into safer places," he said.

While officials do not expect sanctions against Iran within the next few months - while diplomacy runs its course, and a compromise over the nuclear issue, probably brokered by Russia, remains possible - analysts are assessing their possible impact.

The media in Iran has this week highlighted the upward pressure on oil prices simply through talk of sanctions.

Iran exports around 2.5m barrels of crude a day and is the world's fourth largest producer.

The country has been subject to comprehensive American sanctions since the 1979 Islamic Revolution toppled the US-backed Shah. But many European companies - including the energy majors Shell, Total and Statoil - are active in Iran.