Jake Miller
In January 2023, Iran and Russia connected their interbank payment messaging systems to boost trade and financial transactions. This move comes as both countries face Western sanctions, with Iran cut off from the Belgium-based SWIFT financial messaging service since 2018 and some Russian banks being kicked off the platform following the invasion of Ukraine. The link will allow Iranian banks to transact with Russian lenders and conduct business outside the US financial system. According to Mohsen Karimi, Deputy Governor of Iran's Central Bank, about 700 Russian banks and 106 non-Russian banks from 13 different countries will be connected to the system. This development highlights the deepening economic and diplomatic ties between Tehran and Moscow as they seek to withstand economic isolation and build new partnerships.
| Characteristics | Values |
|---|---|
| Purpose of Connection | To boost trade and financial transactions, bypass sanctions, and withstand Western economic influence |
| Date of Connection | 29 January 2023 |
| Banks Involved | 700 Russian banks, 106 non-Russian banks from 13 different countries, several dozen Iranian financial institutions |
| Payment System | Russia's Financial Messaging System of the Bank of Russia (SPFS), Iran's SEPAM national financial messaging service |
| Previous Sanctions | Iranian banks were disconnected from the SWIFT system since 2018 due to sanctions; some Russian banks were also cut off from SWIFT after the invasion of Ukraine |
| Political Context | Both countries face legitimacy crises and seek to strengthen economic and diplomatic partnerships outside the West |
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What You'll Learn
Iran and Russia bypass sanctions
Iran and Russia have been the targets of numerous international sanctions imposed by various countries and international entities. The United States, in particular, has imposed sanctions on Iran since 1979, following the seizure of the U.S. Embassy in Tehran. Other countries that have sanctioned Iran include France, Germany, the United Kingdom, Japan, the European Union, and Australia. These sanctions aim to restrict Iran's nuclear, missile, energy, shipping, transportation, and financial sectors.
In recent years, both Iran and Russia have sought to bypass these sanctions and reduce their dependence on Western financial systems. On January 29, 2024, the two countries signed a memorandum of understanding to connect their interbank payment messaging systems. This move will allow Iranian banks to transact with Russian lenders and conduct business outside the US financial system. According to Mohsen Karimi, Deputy Governor of the Central Bank of Iran, about 700 Russian banks and 106 non-Russian banks from 13 different countries will be a part of this system.
The link between the Iranian and Russian banking systems is an alternative to the SWIFT financial messaging service, from which both countries have been disconnected. Iran was removed from SWIFT in 2018 when the Trump administration reimposed sanctions, while several Russian banks were kicked off the platform after the country's invasion of Ukraine in 2022. By connecting their banking systems, Iran and Russia aim to boost trade and financial transactions despite the sanctions they face.
Additionally, Iran and Russia have been working to strengthen their economic and political ties. Russia has become Iran's biggest investor, and the two countries have removed the U.S. dollar from their bilateral trade transactions. They have also deepened their cooperation in the petrochemical industry and the transfer of weapons. These efforts to bypass sanctions are part of Moscow's broader push to promote alternatives to Western-dominated institutions.
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The US sanctions Iran's nuclear deal
In 2018, the US withdrew from the Iran nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA), and reimposed sanctions on Iran. This decision was made by President Donald Trump, who claimed that the deal was flawed and that Iran had violated its terms. As a result, Iran has been disconnected from the Belgium-based SWIFT financial messaging service, which is crucial for international banking. This has isolated Iran from the global financial system and hindered its ability to engage in international trade.
The US sanctions on Iran's financial sector have targeted Iranian banks, including the Central Bank of Iran, limiting their ability to transact with foreign banks and conduct international business. These sanctions have contributed to economic hardship in Iran, with rising inflation and unemployment affecting the Iranian people. In response, Iran has sought to strengthen its economic ties with other countries, particularly Russia, which is also facing Western sanctions due to its invasion of Ukraine.
In January 2023, Iran and Russia linked their interbank communication and transfer systems, allowing them to bypass the SWIFT system and conduct financial transactions outside the US financial system. This move was intended to boost trade and financial transactions between the two countries and reduce their dependence on Western financial institutions. According to Iranian officials, this link is immune to sanctions and helps repair the financial channel between Iran and the world.
The US sanctions on Iran's nuclear program have also had significant consequences. Iran claims that it has endured the harshest measures possible and that all possible sanctions have already been imposed on the country. Tensions escalated when Israel and the US carried out strikes targeting Iran's military and nuclear infrastructure, resulting in casualties and the destruction of nuclear sites. Iran has responded by developing long-range strike capabilities and asserting that its missiles can reach Europe and potentially target US cities.
The US has defended its decision to withdraw from the Iran nuclear deal, arguing that it is focused on preventing Iran from acquiring a nuclear weapon. The deal aimed to prolong Iran's "breakout time," or the time it would take to gather enough fissile material for a nuclear weapon, from 2-3 months to 1 year or more. It also included robust monitoring, verification, and transparency measures to ensure Iran's compliance. However, critics argue that the US sanctions have reached their maximum effect and that further diplomatic efforts are needed to resolve the standoff between the two countries.
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Russia invades Ukraine
On February 24, 2022, Russia invaded Ukraine, marking a significant escalation of the conflict between the two countries that began in 2014. This invasion sparked the biggest conflict in Europe since World War II, resulting in hundreds of thousands of military and civilian casualties. As of 2025, Russian troops occupy around 20% of Ukraine, and the war has caused a massive refugee crisis, with approximately 8 million internally displaced people and over 8.2 million fleeing the country.
In the lead-up to the invasion, Russia amassed troops near Ukraine's borders and issued demands to the West, including preventing Ukraine from ever joining NATO. Despite denying plans to attack Ukraine, Russian President Vladimir Putin announced a "special military operation" on February 24, claiming it was to support the Russian-backed breakaway republics of Donetsk and Luhansk.
The invasion followed a history of Russian aggression and attempts to exert control over Ukraine, including Russia's annexation of Crimea in 2014 and its support for Russian paramilitaries in the eastern Donbas region. Putin's actions have been interpreted as aiming to expand Russia's power, destroy Ukraine's statehood, and challenge NATO.
As a result of the invasion, Russia has faced widespread condemnation and sanctions from Western countries. In response to these sanctions, Russia has sought to strengthen economic and diplomatic ties with other nations, including Iran. In January 2023, Russia and Iran linked their banking systems to bypass Western sanctions and facilitate trade and financial transactions outside the US financial system. This move allows Iranian banks to transact with Russian lenders without relying on the western-based SWIFT payment system.
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Iran and Russia deepen economic ties
Iran and Russia have had a long history of geographic, economic, and socio-political interactions. Despite this, economic ties have traditionally been a weak point in the relationship between the two countries. However, since the Russian invasion of Ukraine, Moscow and Tehran have begun to invest heavily in the development of bilateral economic ties.
In January 2023, the two countries connected their interbank communication and transfer systems to boost trade and financial transactions as both countries chafe under Western sanctions. The move was welcomed by Iran's Central Bank chief Mohammad Farzin, who tweeted, "The financial channel between Iran and the world is being repaired."
The decision to link their banking systems follows Iran's signing of a free trade "memorandum" with the Russia-led EAEU. The memorandum of understanding, signed in Tehran on January 29, 2023, will see the financial messaging systems of all Iranian banks and all Russian banks linked to each other. This will allow Iranian banks to transact with Russian lenders and bypass the Belgium-based SWIFT financial messaging service, to which they lost access in 2018 due to U.S. sanctions.
The deepening of economic ties between Iran and Russia can also be seen in the context of their military cooperation. Russia is the chief supplier of arms and weaponry to Iran, and the two countries are military allies in the conflicts in Syria and Iraq. They have also cooperated in countering Turkish influence in Central Asia and the Caucasus and restraining Azerbaijani nationalism. Russia has also benefited from Iranian diplomatic support amid U.S.-led efforts to isolate it.
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Russia becomes Iran's biggest investor
Russia has become Iran's biggest investor, with both countries working together to bypass US sanctions. In January 2023, representatives of the central banks of Russia and Iran signed a cooperation agreement to simplify financial and banking operations. This agreement was made to boost trade and financial transactions between the two countries, as both have been disconnected from the Belgium-based SWIFT financial messaging service since 2018. Similar limitations have been placed on some Russian banks since the invasion of Ukraine.
The Iranian daily "Donya-e Eqtesad" reported that Russia has overtaken China as the country's biggest investor, with some $2.7 billion spent on two oil projects in the western province of Ilam. Ehsan Khandouzi, Iran's finance minister, stated that "China and Russia are our two main economic partners [and] Iran is going to expand its relations with them through implementing strategic agreements". According to the Iranian Ministry of Economic Affairs and Finance, the volume of foreign direct investment in the country for the financial year was $4.2 billion, with two-thirds of the investments coming from Russia.
The linking of the two countries' banking systems will allow them to trade and conduct business outside of the US financial system. Mohsen Karimi, deputy governor of the Central Bank of Iran, stated that about 700 Russian banks and 106 non-Russian banks from 13 different countries will be connected to the new system. This move comes as both countries deepen their ties amid isolation in the West. Russia's President Vladimir Putin chose Iran for his first trip outside the former Soviet Union since the invasion of Ukraine.
The economic partnership between Russia and Iran has been described as a "fundamentally new level of cooperation". Moscow has actively invested in various projects in Iran since 2022, including in the mining, industry, and transport sectors. However, the escalation between Israel and Iran has threatened these projects, with air strikes targeting Iran's civilian infrastructure, including its oil and gas systems. Despite this, Russia hopes to benefit from a new war, at least in the short term, as soaring oil prices will help to balance its budget without a major deficit.
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Frequently asked questions
Yes, as of January 2023, Russian and Iranian banks have linked their banking systems.
Both countries have been hit with Western sanctions and wanted to boost trade and financial transactions outside of the US financial system.
Russia's Financial Messaging System of the Bank of Russia (SPFS) is connected to Iran's SEPAM national financial messaging service. SPFS is the Russian equivalent of SWIFT, the global financial messaging and transfer system.
About 700 Russian banks are connected to Iranian banks.
Russia has become Iran's biggest investor. In addition, Iran signed a free trade "memorandum" with the Russia-led EAEU.
