In Major Reversal, U.S. Lifts Restraints on Iranian Income From Electricity Sales

Latest Developments

The Biden administration this week reportedly issued a national security waiver allowing Iraq to pay for the import of Iranian electricity by depositing cash in Iranian bank accounts throughout the world. This move constitutes a dramatic shift in U.S. policy, establishing a new extraterritorial banking system for Tehran to alleviate the regime’s growing balance of payments crisis. The decision may be part of a broader U.S. effort to provide sanctions relief for the Islamic Republic in exchange for the regime holding off on the production of weapons-grade uranium.

By issuing an unprecedented waiver likely tied to a nuclear arrangement with Iran, the Biden administration may be violating the Iran Nuclear Agreement Review Act, which requires the submission of any deal with Iran for congressional review. Similarly, companies that do business with Iran under this waiver may inadvertently flout other sanctions codified in U.S. law.

Expert Analysis

“The Biden administration is providing a major relief valve to Tehran by helping the mullahs set up a new extraterritorial banking system to alleviate their economic crisis. Private sector firms that are encouraged to use these new banking channels should think twice since it’s more than likely they’ll be violating other sanction laws in the process that could lead to prosecutions and major fines in the future.” — Richard Goldberg, FDD Senior Advisor

“The Biden administration seems determined to provide sanctions relief to Iran without approval from Congress. Lawmakers must constrain the administration and insist upon its legislative prerogative to review any deal between Washington and Tehran.” — Tzvi Kahn, FDD Research Fellow and Senior Editor

Significant Sanctions Relief for Iran

Since 2018, the United States has authorized Iraq to import electricity from Iran on the condition that all payments are placed into an escrow account in Iraq, trapping Iran’s money and maintaining as much economic pressure on the regime as possible. By allowing Iraq to pay money into Iranian accounts outside of Iraq, the Biden administration is turning back the clock on U.S. sanctions policy, helping Iran evade the intended pressure of U.S. sanctions and establish the infrastructure for a new extraterritorial banking system. Once this infrastructure is in place, the Biden administration could issue additional waivers allowing Iran’s other trapped funds to move to accounts throughout the world.

Complicating Factors for Banks and Exporters

Given the complexity of U.S. sanctions on Iran, including the prohibition of all transactions with the Central Bank of Iran, most Iranian banks, and Iran’s major energy institutions, policymakers will need to press for detailed answers on how the new U.S.-sponsored Iranian banking system will be implemented. The questions Congress raises will point to increased risk for private sector firms entertaining business with Iran’s global network of accounts.

Related Analysis

“Iraq to Pay Iran with Oil for Billions of Dollars in Debt,” FDD Flash Brief

“Non-Enforcement of U.S. Oil Sanctions on Iran Hits New High,” FDD Flash Brief

“U.S. Releases Funds to Pay Iran’s Debts,” FDD Flash Brief