One of Iran's most important links to the world financial systemwill be severed as part of the stepped-up campaign to pressureIran's leaders to abandon any ambitions to develop nuclearweapons.

The Society for Worldwide Interbank Financial Telecommunication,known as Swift, the dominant messaging service for internationalfinancial transactions, said today it would halt service for sometwo dozen Iranian banks that have been sanctioned by the EuropeanUnion, including Iran's central bank.

The cutoff, effective March 17 at 4 p.m. London time (noon NewYork time), is a response to EU regulations issued today that banfinancial messaging services for entities subject to an EU assetfreeze.

“This EU decision forces SWIFT to take action,” Lázaro Campos,chief executive of Belgium-based Swift, a cooperative of 10,000member banks and organizations in 210 countries, said in astatement. “Disconnecting banks is an extraordinary andunprecedented step for Swift. It is a direct result ofinternational and multilateral action to intensify financialsanctions against Iran.”

David Cohen, U.S. undersecretary of Treasury for terrorism andfinancial intelligence, said in a statement that Swift's decision“reflects the growing international consensus that substantiallyincreased pressure is needed to convince the Iranian regime toaddress the international community's concerns about its illicitnuclear activities.”

Analysts interviewed said Swift's move will complicate Iran'sability to make and receive payments, including for its sales ofcrude oil, which account for more than half of the Iraniangovernment's revenues, according to the U.S. Energy InformationAdministration and the International Monetary Fund.

“Booting Iranian banks out of Swift will impact oil payments atthe margin, but the big impact will be on what Iran buys, ratherthan what it sells,” Trevor Houser, an energy analyst and partnerat Rhodium Group, a New York-based economic research firm, said inan interview today.

Houser said Iran likely will “find workarounds for large,strategically important and government-facilitated oil payments.But small Iranian businesses that rely on interbank electronictransfers to pay for everything from food to electronics importsare going to have a hard time buying from abroad.”

Iran is the second-largest producer in the Organization ofPetroleum Exporting Countries.

Oil Price

Oil fell for the third time in four days on reports thatPresident Barack Obama discussed a release from the U.S. StrategicPetroleum Reserve with U.K. Prime Minister David Cameron. Crude oilfor April delivery declined 32 cents to $105.11 a barrel on the NewYork Mercantile Exchange. It was the lowest settlement since March6. Futures are up 6.4 percent this year.

In January, U.S. lawmakers proposed legislation targeting Swiftand its board, whose chairman is Yawar Shah of Citigroup Inc. anddeputy chairman is Stephan Zimmermann of UBS AG, if it continued toprovide services to sanctioned Iranian banks.

Senator Roger Wicker, a Mississippi Republican and co- sponsorof the Senate legislation, said in an interview today he wasencouraged by the actions taken by the EU and Swift today.

“Without access to Swift, the ability of these banks to movemoney through electronic transfers will be significantly curtailed,moving us all one step closer to blocking terror-financing andproliferation-supporting institutions from the global financialsystem,” he said. “It is my hope that continued pressure from notonly the U.S., but the entire international community will furtherhinder the Iranian regime's efforts to advance its nuclearprogram.”

Mark Dubowitz, a sanctions specialist in Washington who advisedU.S. lawmakers on the Swift legislation, said today's decision, ifstrictly implemented, could limit the ability of Iran's banks “tomove billions of dollars in financial transactions, and put immensepressure on Iran's leaders to reconsider their policies.”

In its 39 years, Swift has never expelled an institution. Swifttransmits an average of 17 million financial messages a day,facilitating trillions of dollars in cross-border payments,officials said. According to its annual report, 19 Iranian memberbanks and 25 financial institutions sent and received 2 millionmessages through Swift in 2010.

Swift's unprecedented action, Dubowitz said in an interview,underscores “the growing political isolation of Iran as it becomesthe first country to be expelled from what is the financialequivalent of the United Nations.”

Further Measures

Swift authorities said last month they were prepared to complywith any new EU regulations that compelled them to halt servicesfor EU-sanctioned Iranian entities. Swift's general counsel BlanchePetre made a trip to Washington to discuss the issue with aides toU.S. lawmakers.

Representative Brad Sherman, a California Democrat who co-sponsored House legislation proposing sanctions on Swift, saidtoday's action is “a positive step, but we need to cut off allIranian banks from the international system.”

“Sooner or later, the EU will feel compelled by Iranianintransigence to apply this and similar measures to all of Iran'sbanks, not just the central bank and the designated banks,” Shermansaid in an interview.

Legislation that Sherman introduced last week would punish thosewho facilitate transactions and financial messaging services forany Iranian bank, not just those sanctioned for illicit activitiesby the U.S. or the EU. Sherman said he expects Senator Mark Kirk,an Illinois Republican, to propose a similar measure in theSenate.

Swift said today that it complies with all relevant sanctionsand regulations of the jurisdictions in which it operates, whichincludes the U.S.

Today's action is one of dozens of new measures adopted sinceNovember by the U.S. and the EU in an effort to squeeze Iran'seconomy and compel its leaders to abandon any illicit aspects ofthe country's nuclear program.

U.S., European and Israeli officials have accused Iran ofseeking the capability to build a nuclear weapon. United Nationsatomic inspectors, in a report released Nov. 8, raised questionsabout possible military dimensions of Iran's program. Iran says itsprogram is solely for civilian energy and medical research.

Catherine Ashton, the EU's foreign policy chief, said last weekthat world powers are ready to resume negotiations with Iran toaddress the international community's concerns about the PersianGulf country's nuclear program.

Swift's announcement is here, and an earlier story on the EU sanctions is here.

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