U.S., Europe consider a risky penalty on Iran

The United States and Europe are considering unprecedented punishment against Iran that immediately could cripple the country’s financial lifeline.

But it’s an extreme option in the banking world that would come with its own costs.

The Obama administration wants Iran evicted from Swift, an independent financial clearinghouse that is crucial to the country’s overseas oil sales.

That would leapfrog the current slow-pressure campaign of sanctions aimed at persuading Iran to drop what the U.S. and its allies contend is a drive toward developing and building nuclear weapons.

It also could buy time for the U.S. to persuade Israel not to launch a pre-emptive military strike on Iran this spring.

The last-resort financial effort suggests the U.S. and Europe are grasping for ways to show immediate results because economic sanctions so far have failed to force Iran back to nuclear talks

But such a penalty could send oil prices soaring when many of the world’s economies are still frail. It also could hurt ordinary Iranians and undercut the reputation of Swift, a banking hub used by virtually every nation and corporation in the world.

The organization’s full name is the Society for Worldwide Interbank Financial Telecommunications.

In the financial world, the United States can’t order Swift to kick out Iran. But it has leverage in that it can punish the Brussels-based organization’s board of directors individually, possibly freezing their assets or limiting their travel.

Talks are focused now on having Europe make the first move.

Short of total expulsion, Washington and representatives of several European nations are in talks about ways to restrict Iran’s use of the banking consortium to collect oil profits.

The Obama administration is divided on whether the possible gain is worth the risk in trying to threaten Swift into kicking out a member country, in part because of concern that it would set back the global financial recovery.

Iran remains a global financial player despite years of banking sanctions, and blocking it from using the respected transfer system would be a black mark like no other.

More than 40 Iranian banks and institutions use Swift to process financial transactions, and losing access to that flow of international funds could badly damage the Islamic republic’s economy.

It also could hurt average Iranians more than the welter of existing banking sanctions already in place because prices for household goods would rise while the value of Iranian currency would drop.

Story Continues →

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.