Iran pulling foreign currency from European banks


Published: Saturday, January 21, 2006 at 6:01 a.m.
Last Modified: Friday, January 20, 2006 at 11:09 p.m.

TEHRAN, Iran - A defiant Iran announced Friday it has begun pulling its foreign currency accounts out of European banks to protect its assets from possible U.N. sanctions over its nuclear program.

As analysts estimated the amount of those funds at up to $50 billion, Iran also called for a reduction in OPEC oil production - raising the possibility that the country would deploy its oil prowess in its standoff with the West.

Underlining his challenging stance, Iran's hard-line president, Mahmoud Ahmadinejad, held a meeting in Damascus, Syria, on Friday with leaders from the Palestinian militant groups Hamas and Islamic Jihad. The meeting came a day after an Islamic Jihad suicide bomber blew himself up in a Tel Aviv restaurant, wounding 20 people. Israel accused Iran and Syria of being behind the attack, a charge both countries denied.

The currency withdrawal signaled that Iran was willing to weather U.N. punishment rather than abandon its nuclear ambitions, which the United States and some in Europe say are to develop atomic weapons. Tehran insists its program is for peaceful purposes only.

Friday's move also deprives Europe of an important lever to influence Iran and could weaken its resolve to push Iran to give up key parts of its nuclear program, analysts said.

Even more daunting is the possibility that Iran - which has the world's fourth largest reserves of oil - could try to put a squeeze on petroleum.

Crude oil prices rose above $67 Friday amid concern over the Iranian nuclear dispute, unrest in Nigeria and al-Qaeda's threat of terrorist attacks in the United States.

It is feared that oil prices could surge much higher - even beyond $100 a barrel - if the U.N. Security Council imposes trade sanctions on Iran over its nuclear activities.

Iran's Oil Ministry confirmed Friday that the country is pushing for the Organization of Petroleum Exporting Countries to cut its overall production.

Ministry spokeswoman Souzan Shakourzadeh told The Associated Press the move was connected to the expected fall in demand for oil in the second quarter of 2006 and not to the nuclear dispute. She could not say how large a cut Iran is seeking.

Iran pumps about 4 million barrels of oil a day, making it the second largest producer in OPEC after Saudi Arabia.

The announcement of the withdrawal of Iran's foreign currency accounts from Europe came from the country's Central Bank governor, Ebrahim Sheibani.

"We transfer the foreign exchange reserves to wherever we deem fit," Sheibani was quoted as saying by the semiofficial Iranian Students News Agency. He would not say how much money was involved or where Iran would move it.

It was not immediately clear whether Iran's investments and property in Europe would also be affected.

Iran's assets in the United States were frozen shortly after the 1979 revolution that toppled the pro-Western Shah Mohammad Reza Pahlavi and installed a clerical regime.

Economists said the impact on the global economy would be muted since the amount is not large in comparison to other countries' reserves and since there was no sign the money would be shifted from dollars and euros to other currencies.

Analysts put the amount of Iran's funds in Europe at between $40 billion and $50 billion - far below the holdings of countries such as China, which had $819 billion at the end of December.

Swiss officials were tightlipped over whether Iran's move might include Switzerland, which is not part of the European Union, or if it meant more Iranian money might be on the way.

Peter Westin, chief economist for Moscow investment bank MDM Bank, said that Iran's good relations with Moscow made it a possible destination for Iran's foreign currency reserves. "In that sense Russia is a good option," he said.

Spokesmen for the Russian Central bank were not available Friday evening.

In the jittery oil market, traders pushed the price of light sweet crude for February delivery up $1.32 to $68.15 in New York trading. On the ICE Futures exchange in London, March Brent rose $1.01 to $66.24 a barrel.

Stuart Eizenstat, who helped negotiate sanctions against Iran after the 1979 hostage crisis, said the Iranian currency action could weaken European resolve to ensure that Iran does not acquire nuclear weapons.

"It's one less instrument of leverage," Eizenstat told AP.

European powers have drafted a resolution that calls for referring Iran to the council but stops short of asking for imposition of punitive measures against Iran. The International Atomic Energy, the U.N. nuclear watchdog, will meet Feb. 2 to discuss the draft.

Momentum gathered Friday for Europe to take steps against Iran with two senior officials speaking out against the country's nuclear activities.

Italian Foreign Minister Gianfranco Fini told the AP that Iran's nuclear program was testing the world's resolve. "The international community must have a defined, very precise, very united strategy," Fini said in an interview.

The head of France's armed forces, Gen. Henri Bentegeat, accused Iran of trying to obtain nuclear weapons. Iran "presents a major worry because it is a country that has shown extremely bellicose intentions," he told RTL radio.

Iran removed some U.N. seals from its main uranium enrichment facility in Natanz, central Iran, on Jan. 10 and resumed research on nuclear fuel - including small-scale enrichment - after a 2-year freeze.

Europe is trying to persuade Iran to give up enrichment, a process that can produce either fuel for a nuclear reactor or the material needed for a bomb.

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AP Business Writers Matt Moore in Frankfurt, Jane Wardell in London, Alex Nicholson in Moscow, Victor L. Simpson in Rome and Laurence Frost in Paris contributed to this report.

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