Iran’s foreign currency exchange markets have been unmoved by Wednesday’s news that around $10 billion of frozen funds in South Korea and Japan is being released under a three-month extension of a United States waiver. The Iranian rial hovered at around 250,000 to the dollar, with just a small rise after the news broke.

Secretary of State Antony Blinken signed the waiver in March, and in June simply extended it for another three months. It is unclear why the news of the extension emerged July 14 other than the State Department decision to notify the US Congress.

The lack of reaction in the Tehran money market reflects a realization that the waiver will not allow dollars to reach Iran’s central bank. As a State Department spokesperson emphasized, "the waiver does not allow for the transfer of any funds to Iran.”

The waiver simply allows Japanese and South Korean companies to receive payment for Iranian exports shipped before former president Donald Trump's administration started enforcing its toughest sanctions in 2019. The waiver extension was needed because "these repayment transactions can sometimes be time-consuming," the spokesperson said.

Sanctions introduced by Trump after leaving the 2015 Iran nuclear deal – the JCPOA (Joint Comprehensive Plan of Action) – threatened action against third parties dealing with the Iranian financial system, so leaving Iran’s creditors unable to receive money owed. Yonap news agency reported Thursday that South Korean companies had mostly recouped debts of $87 million, while a total of $7 billion in Iranian money, most of which is money owed to Iran for oil exports, was frozen in the country’s banks.

Essential Imports

Hamshahri newspaper in Iran suggested any unfreezing of funds could reduce pressure on the Central Bank of Iran, which is short of dollars to pay for essential imports. But the nature of the waiver – unless supplemented by other, undisclosed moves – means it would not do this. Bahram Shakouri, chairman of the Iran-Japan Chamber of Commerce, told the newspaper he merely hoped the funds could be used to buy new imports for Iran.

Hamshahri reported the central bank has barely sufficient dollar reserves left to finance imports for another 30-45 days and that the clear preference of President Hassan Rouhani’s administration for quick agreement with the US on reviving the JCPOA, and easing sanctions, was due to an acute need for foreign currency.

An agreement between Iran and the US to revive the JCPOA would most probably free all Iranian frozen funds. The total sum is unclear, but South Korea and Japan hold around $10 billion dollars, Iraq another $6 billion, while there is $2 billion in Luxembourg and $1 billion in Oman. This amounts to around $19 billion.

Unknown Billions

The unknown is the amount of funds Iran has in China. The Iranian foreign ministry has said China does not owe any money to Iran, while Chinese companies have continued to discretely buy Iranian oil during two years of full US sanctions since May 2019. Chinese imports of 100,000-500,000 barrels of crude a day for two years have likely left some unpaid bills, some of which may have been settled by sending good to Iran. But some Iranian media have suggested China holds $20 billion of Iranian funds.

A US decision to fully unblock frozen Iran funds – which some put as high as $40 billion, around two-thirds of total oil receipts in 2018 – would provide a strong boost to Iran’s economy.

But that would require agreement in the Vienna nuclear talks on reviving the JCPOA, which Iran has put on hold until President-elect Ebrahim Raisi (Raeesi) takes office in early August. Some expect that Tehran will initial “the last two words and a dot” on the agreement, as Rouhani mentioned last month, once Raisi takes office, while others argue the new president will seek more favorable terms, thereby making early agreement far less likely.