BRUSSELS — Dozens of Iranian banks were blocked from doing business with much of the world as the West tightens the financial screws on a country it wants to prevent from developing nuclear weapons.
The Belgium-based company that facilitates most international bank transfers on Thursday took the unprecedented step of blocking 30 Iranian banks from using its service. The move is likely to hurt Iran's all-important oil industry and make it difficult for citizens to receive money from relatives living abroad.
The move by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is part of a broader effort by Western nations to isolate Iran financially and force it to demonstrate that it is not trying to develop nuclear weapons. Iran says that its nuclear program is for peaceful purposes only, but officials in many other countries believe otherwise.
SWIFT said it was forced by recent European Union sanctions to discontinue service to the Iranian banks beginning Saturday. SWIFT is a secure private network used by nearly every bank around the world to send payment messages that lead to the transfer of money across international borders.
The chief executive of SWIFT, Lazaro Campos, described the move as "extraordinary and unprecedented."
"It is a direct result of international and multilateral action to intensify financial sanctions against Iran," he said.
There was no immediate reaction from the Iranian government or the banks involved. Not all Iranian banks are subject to EU sanctions, and oil experts say there will be ways for Iran to sell oil without using SWIFT.
Still, blocking Iranian banks' access to SWIFT is "tightening the noose" on Iran, said Ali Ansari, an expert on the Middle East at the London-based Chatham House think tank.
Sanctions long in place have failed to convince Iran to return to nuclear talks; the EU, which imports about 14 percent of Iran's oil, plans to institute an embargo on Iranian oil in July.
The regime has been able to withstand these sanctions in part because high global oil prices have provided Iran, the world's third largest exporter, with record oil revenues. Iran exports 3.5 million barrels of oil per day, about 4 percent of the oil consumed in the world. Last year, Iran generated $100 billion in revenue from oil, up from $20 billion a decade ago, according to IHS CERA, a consulting firm.
Iran is expected to continue to sell to India, China and other major oil customers that are not participating in the EU embargo.
But by forcing SWIFT to expel Iran, Western nations are trying to make it more difficult for Iran to sell oil even to willing customers. A single oil tanker can hold $100 million worth of oil, making electronic bank transfers crucial.
Analysts expect Iran to try to skirt the sanctions in a few ways. It may exchange oil for cash, gold or other commodities directly. It may try to mingle its oil with oil from other countries in international terminals and pipelines to mask its origins. It could get help from the central banks of countries friendly to Iran.
"Throughout the history of the oil trade, someone always gets around trade embargos one way or another," said Jim Ritterbusch, a veteran oil trader and analyst.
Also, Iranian banks that have not been sanctioned by the EU could sell oil.
Analysts say by reducing the number of customers for Iranian oil and making it more difficult to pay, Iran will be forced to accept a lower price for its oil and likely be unable to sell all that it hopes to.
Judith Dwarkin, chief energy economist at ITG Investment research, said Spain and Japan are already reducing Iranian imports and Europe's large oil companies have also cut back ahead of the July deadline. Iranian oil shipments have already slipped in recent months. In Feburary they fell to a 10-year low, according to the International Energy Agency.
Saudi Arabia has said it would increase production to make up for any shortfall resulting from the sanctions. Still, analysts say that will likely drive up prices because it will reduce the amount of wiggle room — called spare capacity in the industry — that the world's oil producers have to make up for shortfalls elsewhere.
Oil markets were largely unaffected by Thursday's announcement; traders had already pushed prices higher in recent weeks in anticipation that Iranian supply would be disrupted. Analysts say these worries have made oil $10 to $20 per barrel more expensive than they otherwise would be. In New York. Oil settled at $105.11 per barrel Thursday.
Washington and allies Britain, France and Germany have taken a tough approach toward Iran over the nuclear issue but have run into resistance from Russia and China. The six nations have agreed to meet with Iran to negotiate a solution, but East-West disagreements within the group are greater than ever. Talks between the seven nations ended in failure more than a year ago in Istanbul, Turkey.
SWIFT facilitates not only large bank-to-bank transfers, but small ones as well, which could lead to unintended consequences. Many Iranians, including opponents of the current regime, live abroad and send small amounts of money to their families in Iran back home on a regular basis.
Mark Wallace, a former U.S. ambassador to the United Nations who heads a group called United Against Nuclear Iran, wants all Iranian banks to be included in the sanctions.
"We should not be allowing any Iranian banks access to the international markets," he said. Still, he said, the sanctions are already having "real bite," by crimping oil exports, leading the devaluation of Iranian currency, and making it harder for companies and Iranian elites to move money.
"The Iranian banking system is embattled," he said.
Fahey reported from New York. Chris Kahn contributed to this story from New York. Follow Don Melvin on Twitter at http://twitter.com/Don_Melvin and Jonathan Fahey at http://twitter.com/JonathanFahey .