The world's biggest interbank transfer network, SWIFT, says it will no longer handle transactions by Iranian banks blacklisted by the EU. In this quick explainer, RFE/RL looks at how the move will limit Iran's ability to trade internationally amid controversy over its nuclear activities.
What is SWIFT and why is its ban a blow to Iran?
SWIFT is an acronym for an electronic process that is familiar to everybody who has transferred money overseas from one bank to another. To make the transfer, your bank asks you for the receiving bank's SWIFT code, or electronic address.
The letters include the recipient bank's identifying initials plus a country and city code telling where the bank is located. Without the SWIFT code, your bank cannot make the transfer.
But there is more to SWIFT than that.
SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, is also a physical institution based in Belgium which forwards the electronic transfer order from your bank to the recipient. If it refuses to forward the money transfer message, the transfer request cannot be completed.
On March 15, SWIFT agreed with the European Union not to forward messages to any Iranian bank or individual that is blacklisted by the bloc.
That bans some 30 Iranian banks from the global financial network, banks which Tehran currently depends upon to import and export goods and, most importantly, sell its oil internationally.
How did SWIFT become involved in the Iran sanctions regime?
The decision by SWIFT to accept the request of the EU is the latest step in a methodical effort by Western states to create a sanctions regime directly targeting the Iranian government's financial base, particularly revenues from oil exports.
In recent years, the United States has warned countries and companies that want to do business with the U.S. against having commercial relations with an expanding list of Iranian government entities, shipping companies, and key banks, including Iran's Central Bank, which handles most payments for oil deals.
The EU has significantly joined the effort by saying it will stop new imports of Iranian oil as of July this year.
But getting SWIFT to ban blacklisted Iranian banks is the first time Western governments have reached so deep into the global banking system to short-circuit money transfer mechanisms.
It is significant because it takes the "voluntary" out of cooperation with the sanctions regime -- countries and companies which may still want to do business with Iran will now need to find alternative ways to get money to Iran to pay for the oil or other exports they buy.
Will Iran be able to circumvent this latest tightening of Western sanctions?
Tehran has proven to be both imaginative and resilient in bypassing sanctions, largely because its still has key economic partners ready to work with it. These include China, India, and Turkey, which show no signs yet of joining the West's sanctions regime.
China, Iran's biggest oil customer, openly dismisses U.S. sanctions while India, the second-largest customer, transfers payments to Iran through Turkish banks. The Turkish banks, in turn, feel safe because Turkey, which imports 30 percent of its oil from Iran, is also reluctant to join the sanctions effort.
Enlisting these three countries, as well as many smaller Asian countries, in the sanctions regime is a key priority for Western officials, who recognize that cutting off formal financial channels does not necessarily spell an end to ways money can be transferred between willing partners.
Among the transfer mechanisms that are likely to be more widely used by Iran in the future to bypass closed banking channels are barter deals.
Gerald Knott, an oil expert at the Cyprus-based Middle East Economic Survey, thinks that this would be particularly true of Asian countries, which "might be less tied in to international finance."
"More barter deals might occur because of that, to enable the Iranians to still earn some income from oil exports that way," he says.