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The Central Bank Of Iran

The Central Bank of Iran, or Bank Markazi, is the keeper of the Islamic republic's economy, overseeing monetary policy, foreign exchange, and the domestic banking system.

Founded in 1960, it is state-run and ultimately answerable to the country's politicians.

According to the bank's website, the institution also functions as "banker to the government" by holding national accounts and funding state entities.

And as the economy of Iran largely runs on its major export, oil, so too does its Central Bank.

Oil profits account for some 70 percent of government revenues, even as international sanctions against Tehran, put in place due to its rogue nuclear program, have dented foreign investment in its state-owned oil fields.

According to David Cohen, the U.S. Treasury's undersecretary for terrorism and financial intelligence, those sanctions are creating a projected loss of $14 billion a year in oil revenues for the Islamic republic through 2016.

Testifying last week before lawmakers, Cohen said Iranian oil was mainly being sold today to Spain, Turkey, Japan, South Korea, China, and India.

The payments, usually made in U.S. dollars, are processed through the Central Bank.

That's where sanctions come in.

Attacking Iran's Oil Exports

If the Obama administration heeds lawmakers' calls to sanction the bank -- now coming loud and clear after the alleged Iranian plot to kill the Saudi ambassador to Washington -- international companies would essentially have to choose between doing business with Washington or doing business with Tehran.

That is, paying the Central Bank for oil purchases would mean facing prohibitively high penalties in any transaction with U.S. entities.

If countries try to get around using Iran's Central Bank when paying for oil, Iran would have to resort to highly irregular means to get the money it's owed.

"When Iran sells its oil, it [would have to] either take cash in suitcases, which is not practical, or it's got to enter into barter deals with countries, which also would affect it," explains Hossein Askari, the Iran professor of international business and international affairs at George Washington University in the U.S. capital.

Bartering, Askari explains, means Iran would not receive any monetary payment for its oil, but rather, would have the amount it's owed deducted from the imports it buys.

Some reports say Iran is already employing the technique.

'Radioactive, Dangerous, And Empty'

Targeting the Central Bank of Iran would have an impact beyond state oil revenues as well.

Due to international sanctions already in place that target the country's financial sector, the foreign accounts of many Iranian commercial banks have been closed, forcing the Central Bank to step in.

"The accounts of most -- or all, actually -- Iranian commercial banks abroad have been closed," Askari says, preventing them from accepting payments. What this means is that the Central Bank has basically begun "doing what commercial banks would be doing. It has actually stepped into the breach."

Crippling the Central Bank, then, would leave Iran scrambling to find a way to accept payments for just about everything.

The argument that the United States would use in sanctioning the Central Bank -- and the argument it would use to try to convince allies to do the same -- is that in financing the Iranian state, it finances both nuclear activity and, in the case of the recent plot, terrorism.

The U.S. Treasury has also expressed concern in the past that the Central Bank and others have requested their names to be removed from international transactions in order to make it more difficult to track their involvement in financing international terrorism and other illegal activities.

A number of U.S. officials say that specifically, the Central Bank assists the Quds Force, an elite unit of Iran's powerful Revolutionary Guard, in funneling money to Hizballah and Hamas.

It remains to be seen if Washington will indeed move to enact the sanctions. Doing so would potentially endanger the fragile global economy and drive up the price of oil.

However, if the goal is to turn Iran's banking sector into, as U.S. Congressman Gary Ackerman (Democrat-New York) recently put it, "the financial equivalent of Chornobyl -- radioactive, dangerous, and most of all, empty," then targeting the Central Bank is a potent option.

-- Richard Solash