US may allow dollars to be used in doing business with Iran

United States may soon tell foreign governments and banks to begin trading in dollars with Iran

Photo by: Reuters (Archive)
Photo by: Reuters (Archive)

Treasury Secretary Jack Lew.

The United States appears to be laying the groundwork to let Iran begin trading in dollars, experts believe, after a landmark accord with the West last year saw the country limit its nuclear programme in exchange for the lifting of sanctions.

Treasury Secretary Jack Lew said in Washington Wednesday that US sanctions should not be used lightly, though a Republican-controlled Congress remains dead set against easing restraints on Tehran.

"We must be conscious of the risk that overuse of sanctions could undermine our leadership position within the global economy, and the effectiveness of our sanctions themselves," he told The Carnegie Endowment for International Peace.

Lew said Washington must be willing to ease sanctions when they have actually worked, even if this is delicate in the case of Iran.

After the historic accord of July 2015 among Iran and major western powers to lift sanctions previously imposed because of Iran's nuclear program -- which the West feared was aimed at building a bomb -- Tehran has kept its word, Lew said.

And now it is up to the United States to keep its word, he added.

US and Iranian delegations in Lausanne, Switzerland, March 29, 2015. (Reuters Archive)

However, non-nuclear-related sanctions against Iran that were imposed because of what the US says is its support for terrorism and regional destabilisation, remained in force, Lew said.

He added that the US administration had explained to the foreign business community what it now can and cannot do in Iran, making implicit reference to the worries of European banks.

Mark Dubowitz, of the Foundation for Defense of Democracies, said Lew's remarks signaled that the administration of President Barack Obama is preparing to make "a major concession to Iran" by giving it access to the US dollar. He said this change would be adamantly opposed by the US Congress.

"It seems clear to me that the administration is seriously considering giving Iran access to the use of the US dollar for business transactions," Dubowitz said.

A money changer counts out US dollars for a customer in Tehran's business district, Iran, January 20, 2016. (Reuters Archive)

A battle with Congress

At issue are operations called U-Turn transfers, which would allow Iranian and foreign banks to engage in financial transactions in dollars by having access to offshore clearing houses.

The United States banned these transfers -- which involved US financial institutions as intermediaries -- in 2008.

Last week, Ed Royce, chairman of the US House of Representatives Committee on Foreign Affairs, wrote a letter to Obama expressing concern that licenses might be granted that would allow such dollar transactions.

Dubowitz said Lew's tone suggests that the US Treasury is paving the way for a future easing of sanctions, as Iran is complaining that the United States has only stopped punishing Iran on paper, not in actual fact.

Iran's Supreme leader, Ayatollah Ali Khamenei, accused the United States last week of not fulfilling its commitments in the nuclear deal. He said Europe is wary of doing business with Iran, out of fear of the United States.

But Patrick Clawson, research director at the Washington Institute, which specialises in the Middle East, said the US treasury secretary’s comments speak more than anything to the domestic battle with the US Congress.

Clawson said opening the way for an easing of sanctions would be very difficult for the Obama administration.

He said Lew's comments were directed rather at dissuading Congress from approving new sanctions against Iran.