Iran’s Khamenei to Putin: Isolate US by dumping the Dollar

By Juan Cole | (Informed Comment) | – –

The president of the Russian Federation Vladimir Putin visited Tehran on Wednesday for consultations with President Hassan Rouhani and the country’s clerical leader, Ayatollah Ali Khamenei.

Khamenei is quoted by Tahrir [Liberation] as saying that Russia and Iran could cooperate to isolate the United States and blunt the effectiveness of US Treasury Department sanctions, through the bilateral use of local currencies instead of the dollar for international transactions.

Khamenei is bringing this up because Washington has put new sanctions on Iran. One of the ways Washington has of hurting Iran is to kick it off international bank exchanges operating with the dollar. In the severe sanction years of Obama, that step mightily interfered with Iran’s ability to trade, since without being part of the banking exchanges, which work in dollars, Iran had no way of receiving or remitting money in the course of trade transactions. Iran probably fears that Trump will try to get Iran kicked off the currency exchanges again.

The severe sanctions have been dropped, but Khamenei does not trust Trump and wants a back up. If Russia accepts riyals and Iran accepts rubles, neither country needs dollars and the US has no way of interfering in such trade deals. The drawback is that if Russia accepts payments in a soft currency like the Iranian riyal, it pretty much has to buy things from Iran with it. During the severe sanctions years, Iran did similar transactions with India, accepting rupees for petroleum and then buying manufactured goods from India.

Khamenei also looked forward to linking Iranian ports on the Gulf with St. Petersburg by rail. All through the last two centuries, Great Britain worried that Russia would move south to gain a war water port. Now, it seems that Anglo-American hostility to both Russia and Iran may be producing exactly that outcome.

The Moscow Times writes,

” At the trilateral talks, Presidents Rouhani, Putin and Aliyev signed the Tehran Declaration, declaring their intent to develop three-way cooperation in fields including the long-awaited International North-South Transport Corridor (INSTC) which will connect Moscow to the Persian Gulf.

Part of the plan is to build the INSTC, a 7,200-kilometre multimodal transport network. Using major junctions including Iran’s sole oceanic port of Chabahar, Tehran, Bandar Abbas, Bandar Anzali, Baku, Astrakhan and Moscow, it is to utilize sea, rail and road transit routes to connect Iran, Afghanistan, Central Asia, the South Caucasus, Russia and the Indian sub-continent.

The Russian oil company Rosneft announced a strategic plan with Iran to cooperate with the Iranian state oil company, saying it will sink $50 billion into Iran investments.

Putin reassured the Iranian leadership that Moscow stands behind the nuclear accord.

The Iranian newspaper Alef group argues that Putin’s trip has four goals.

1. Cooperation in completing infrastructural rail and road links between the two countries. India has built a port at Chabahar in Iran, to bypass Pakistan and China, from which it hopes to transship goods from India to Russia and Central Asia. This project could lead to a huge increase in the volume of Russian trade with countries to its south.

2. Safeguarding the 2015 Joint Plan of Collective Action (JCPOA) or nuclear deal between Iran and the UN Security Council, in the face of the attempt of Donald Trump to destroy it.

Putin said of Donald Trump’s speech to the UN attacking the nuclear deal, “I could never imagine that the US would act this way.”

3. Consultation on the future of Syria after the end of ISIL (ISIS, Daesh), out of a conviction that Iran is the only reliable partner for Russia in the Middle East.

4. Cooperation in influencing the price of petroleum and natural gas in global markets.

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Related video added by Juan Cole:

Al Jazeera English: “Putin in Tehran speaks of cooperation on Syria and nuclear deal”

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18 Responses

  1. Great post. Very interesting and informative.
    I wonder how much the financial analysis of this proposed transportation infrastructure relies on continued world use of oil and natural gas, something that you, Juan, argue persuasively is on the way out.

  2. A number of nations are looking at ways to minimise their dollar dependence. Many feel the US benefits unduly from the present situation. Behind all else there appears a disturbing element of irresponsibility in the management of the US$, given its role in global affairs. Then the US is seen overtly to employ the dollar as a weapon in the advancement of its own political interests. This inevitably makes others look to ways around it. Mutual currency trade between Iran and Russia is one local manifestation, but China’s Yuan stands the best chance of puncturing the US$ monopoly. China is apparently likely shortly to launch an oil futures market in Shanghai link to rt.com. This may well have been on the agenda when the Saudi King visited Putin recently. From another direction there are the negative effects sanctions have on European, particularly German, trade with Russia. The same applies to European trade with Iran if Congress reimposes more serious restrictions. Unless the US, perhaps its next IMF head, takes serious account of what is happening it may become too late.

    A currency has to have some collateral, blind optimism is not enough, and although I am not qualified to join the dots, I feel the US dollar somehow uses our environment and its resources for that purpose and is burning them up. It is salutary to go back to the first verses of Genesis and wonder if we are not in some entropic fashion reversing our world to that state when, …the earth was without form and void; and darkness was upon the face of the deep.

    • The thing is, China owns too much US-dollar denominated debt for them to want to attack the dollar.

      • China will not attack the US dollar directly, but . . .

        For many years, China has been quietly dumping USA dollar debt. Even though China has been low-key, their actions have been noted in the Asian financial and technology press (most of which publish in English as well as Chinese, Japanese, etc). While the USA is an important market for China, China’s Asian and European markets, where they will trade in other currencies are becoming their dominate trade markets meaning less dollars to deal with.

        Remember, China is a “long term” culture versus the USA “short term” culture.

      • Yes and no. For the past few years, China has been quietly lowering the percentage of US $ debt it holds and has ramped up its gold holdings. It has also launched crude oil futures contracts priced in yuan and convertible into gold thus allowing exporters such as Iran and Russia and now Venezuela to bypass the US dollar and the necessity to have US dollar holdings in their current accounts.

  3. To be surprised by this Iranian attitude is to deny ever knowing to where all of this U.S. sanction business was taking the U.S. in regard to it’s relationships abroad. I mean come on now, when you have the kind of majority the U.S. has on it’s sanction list, why you should then come to realize that with more, and more countries being added to this list, that it was only a matter of time until the U.S. would be standing all alone.

  4. China and Russia periodically float the idea of introducing some new, convertible currency that could displace the US dollar, at least in the Eurasian region. (At one point they were talking about pegging it to a basket of commodities.) I wonder why they don’t just do it. A lot of people would buy some, even if they don’t switch to it 100%.

    • They say that if you must strike the king, strike to kill. They may not be ready to deal with those consequences yet. The creation of Bretton Woods required a world war and an unprecedented concentration of power in the hands of one country; its collapse required the backup of OPEC making US $ convertible to its oil. It’s like everyone’s been holding their breath since 1971, fearing where their own complex interests are interconnected if the $ finally falls.

  5. A map of iran’s rail network is surprisingly informative. Since 79 they have built links to Pakistan, Central Asia, China (through Central Asia), to their Indian Ocean ports. Improved links to Russia through Azerbaijan have been in progress for some time. They are building two links to the Iraqi network, and working on the Turkish link (bypass the Lake Van ferry). All this is addition to significant extensions/improvements to the internal network. They clearly aim to restore their old position as the landbridge between Europe and Inner Asia.

    • The 500 years of Euro-Causasian dominance were also the years when shipping was the cheapest, most convenient way to move goods intercontinentally. Can internal land routes take over as the best option again? Note that rail lines can be entirely electrified. Shipping now is a black sheep in the global environmental crisis because of the lack of national jurisdictions, fueled by bunker oil, the worst oil that comes out of refineries.

    • All part of “Silk Road 2” which China is actively advocating. China wants a secure, stable way to trade with most of the world that the USA can not interfere with.

      Right now, China is concentrating on connecting Europ and Asia, but I will not be surprised if China builds a rail tunnel under the Suez canal or the Red Sea so it has direct rail access to Africa.

  6. The typo in the sentence ” All through the last two centuries, Great Britain worried that Russia would move south to gain a war water port” is actually just perfect, the warm water port the British feared was always about “a war port,” a military advantage that Russia might somehow gain (especially in a territory the 19th Century British imperialists thought they owned, the road to India).

  7. The problem here is that China is not onboard.
    It holds 400 billion in US currency and is owned billions in USD as well. Its major customer is the US (the Wal-Mart effect).

    It needs to ween itself off the USD addiction and free the world

  8. Could you say that Russia, and Iran too I guess, involvement in Syria could be an effort to gain another war(m) water port outside the confines of the Black Sea?

  9. Laughable – deals like this are always announced but fail to materialize in any way that undermines the dollar. The dollar is used not because of some US agenda but because it’s value is stable, predictable and it’s market is liquid and transparent. No one is going to trust the ruble or the yuan because it subject to extreme political whims whereas the dollar despite all of the US hating rhetoric is not because of the large secondary market. The only nations that can’t trade in dollars has been Iran and North Korea and both of these were done with full international cooperation.

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