Iran to remove funds from Europe in nuclear dispute

TEHRAN, Iran - Embroiled in a nuclear standoff with the West, Iran said today it was moving funds out of Europe to shield them from possible UN sanctions and flexed its oil muscles with a proposal to cut Opec output.

"Yes, Iran has started withdrawing money from European banks and transferring it to other banks abroad," said a senior Iranian official, who asked not to be named.

Central Bank Governor Ebrahim Sheibani was quoted as saying Tehran had started shifting funds. But he sidestepped a question on whether the assets would go to Asian accounts.

Financial markets reacted nervously to the uncertainty about Iran's foreign holdings, estimated at more than US$30 billion (NZ$44bn), helping send oil to a four-month high above US$68. US stock prices fell and the dollar dipped against the euro and the safe-haven Swiss franc.

The United States called the step an act of isolation. "I think it is an indication that Iran is further isolating itself from the rest of the world," State Department spokesman Sean McCormack said.

Although countries flouting UN sanctions would risk international condemnation, financial experts said some Asian countries, including Indonesia, Malaysia and Thailand, lack strong banking controls. This could allow Iran to disperse reserves into front companies and escape government intervention.

Lebanon and Switzerland were also cited as possible havens.

The United States and the European Union want the International Atomic Energy Agency, at an emergency board meeting on February 2, to refer Iran to the UN Security Council for pressure including possible sanctions.

Swift action is considered unlikely, however.

Russia, China and India, with major commercial interests in the Islamic republic, have urged caution.

IAEA chief Mohamed ElBaradei has refused an EU request to hasten a report on Iran's atomic activities so it would be ready for the February 2 meeting, diplomats said.

Officials close to the IAEA said ElBaradei also viewed as premature Western pressure to refer Iran to the Security Council. Diplomats said he had promised the Iranians they would have until the next regular IAEA board meeting on March 6 to increase access to nuclear sites and documents.

US lawmakers introduced a Senate resolution calling on the IAEA to refer the matter to the Security Council and urging Russia and China to support the efforts.

India, a nuclear weapons power with warming ties with Washington and an old friendship with Iran, advocated more talks between Tehran and the EU trio of France, Germany and Britain.

The European three scrapped the talks last week after Iran removed IAEA seals on uranium enrichment equipment and resumed a nuclear research program, which the West suspects is aimed at producing weapons. US and EU officials say Iran must reverse these steps for there to be more talks.

Iran, which is trying to avoid UN censure or sanctions, says its nuclear program is entirely peaceful.

Talk of shifting foreign assets indicates Iran is taking the sanctions threat seriously, with bitter memories of its US assets being frozen after the 1979 Islamic revolution. Those funds are still in dispute.

But imposing sanctions is complicated, said an international financing expert. "There are a lot of regimes in the world that lack the power or capacity to freeze assets, even if they have the political will to do so," said the expert, who spoke on condition of anonymity because of the issue's sensitivity.

Aside from potential Asian havens, Iran might be able to find shelters elsewhere. Tehran is allied with the Hizbollah guerrilla group in Lebanon, which controls some banks, making that country another possible destination for Iranian funds, said Victor Comras, a former US State Department official who analyzes terrorism financing and money-laundering.

But Iran would still need to keep many of its assets as official reserves, which could be easily identified for sanctions, if it hoped to maintain credibility in trade financing essential to its economy, Comras added.

In addition, Swiss banks would welcome Iranian money, a leading financial industry representative in Geneva said.

Flexing its oil muscle, Iran proposed slashing a million barrels a day from Opec production, saying the market was oversupplied. However, Opec is considered unlikely to cut production at a month-end meeting. Most traders are more concerned about a shortage of spare capacity and an array of geopolitical risks.

Iran is the world's fourth biggest oil exporter. Oil revenue, 80 per cent of its export earnings, is expected to exceed US$40 billion in the year to March 2006.

- REUTERS