The biggest shifts have come in the way Iran sells its oil and holds its foreign reserves. Some 60% of the $40 billion of oil that Iran exports each year is paid for in currencies other than the dollar, National Iranian Oil Co. says. In recent months, Iran started pressuring Japanese refiners—who get 15% of their crude from Iran—to pay in yen. On July 18, Nippon Oil said it would comply, and others are now likely to follow suit.
Ultimately, Iran may have little choice in whether it uses the greenback. U.S. Treasury officials have been lobbying foreign bankers, especially Europeans who have helped keep Iran's economy ticking, to sever all business links with Tehran, whether in dollars, euros, or other currencies. "As a first step, we've seen financial institutions cutting off dollar business with Iranian institutions," says Stuart A. Levey, Under Secretary for Terrorism & Financial Intelligence at the Treasury Dept. Now, he adds, "a number of significant financial-industry players have said they will completely cut off business." Swiss bank UBS has said it's breaking ties with Iran-based companies, while Deutsche Bank (DB
) and Commerzbank (CRZBY
) will no longer process transactions denominated in dollars for Iranians.
Tehran worries that it is getting frozen out of the global financial system, but it's also turning the currency spat into a display of populist anti-Americanism. Less than 30% of Iran's $60 billion or so in foreign reserves is now in dollars, and that number will continue to fall, Central Bank Governor Ibrahim Shaibani said in February. Iranian authorities also are working to exorcise the greenback from the broader economy. Until recently the dollar had served as a kind of parallel currency to the Iranian riyal. But local businesses are now barred from opening letters of credit in dollars, and the Commerce Ministry won't even issue an import license if dollars are involved, one businessman says. "The country has shifted to euros," he says, "but everyone still calculates in dollars."
How much damage is all of this doing to Iran's economy? So far, Washington's pressure and Tehran's response are mainly increasing costs for Iranian businesses. One prominent entrepreneur says the new regime has made imports as much as 5% more expensive because businesses must pay for raw materials in euros, so they incur currency-conversion fees and face higher volatility.
U.S. pressure may wind up further weakening Iran's already shrinking private sector and increasing the country's dependence on bilateral deals with emerging energy consumers such as China and India. And the longer the currency fight goes on, the colder Iran's already chilly investment climate will become. Says Koichiro Tanaka, an analyst at the Institute of Energy Economics in Tokyo: "It's getting difficult to do business with Iran." By Stanley Reed, Jane Sasseen, and Babak Pirouz