Pakistan needs to initiate work on creating an alternative currency-based payment mechanism to enhance trade with Iran because barter trade limits volume, and also forge ahead on the issue of IPI pipeline with extreme care.

The proposals are under consideration in official circles that are discussing the situation emerging in the wake of possible revival of Iran’s nuclear deal with world powers, including the United States, informed sources told Business Recorder.

The sanctions regime imposed on Iran includes: (i) nuclear- and enrichment-related sanctions put in place by the United Nations Security Council (UNSC), US and EU before finalisation of the Joint Comprehensive Plan of Action (JCPOA) in 2015; (ii) nuclear- and enrichment-related new sanctions imposed after the US quit the deal in 2018; and (iii) some restrictions related to non-nuclear issues (like counterterrorism, human rights violations and torture), for instance, the counterterrorism sanctions imposed on the Central Bank of Iran (CBI), the National Iranian Oil Company (NIOC), and the National Iranian Tanker Company (NITC).

Secondary sanctions were imposed by the US on entities or individuals conducting business with designated individuals and entities.

Once the nuclear deal is revived, additional sanctions imposed on Iranian entities and sectors from 2018 to 2020, to the extent that they are inconsistent with the 2015 JCPOA, will be lifted (for example, sanctions on CBI, NIOC and NITC).

However, multiple sanctions consistent with JCPOA may remain. For example, sanctions and designation of officials and entities related to human rights violations, cyber activities, terrorism are likely to stay. These include sanctions on Mohammad Baseri, Ahmad Khazai, ministry of intelligence and security officers accused of violations.

Analysts argue that access to the US financial system will open Iran to a far broader range of international financing for trade and investment by enabling foreign banks to utilise the vast US-based liquidity for transactions.

Iranian officials fear that any Iranian funds that move through the US financial system risk being impounded or frozen by the US government or courts. Several bank accounts holding Iranian assets have already been frozen in the US.

It’s being feared that attempts will be made to block Iran’s funds in order to pay awards the US courts have announced for families of the victims of acts of terrorism allegedly backed by Iran.

Concerns in this regard will only grow after the recent US handling of the Afghan reserves in the US. So even after revival of the 2015 nuclear deal, Iran might not be allowed to finalise deals in dollar denomination and access US financial institutions, at least not immediately.

According to analysts, Pakistan should adopt the following policy going forward:

Careful approach

Even after successful revival of the nuclear deal, international financial institutions will either continue to avoid transactions involving Iran or there will be stringent scrutiny and strict compliance requirements. Iran is on the black list of Financial Action Task Force (high-risk jurisdiction) over the issue of financing of terrorists. Revival of JCPOA will not have an immediate and direct impact on Iran’s listing. This essentially means that either banks will not facilitate transactions with Iran or impose additional checks on all transactions.

The story was originally published in Business Recorder on April 02, 2022.