By Chris Cook

From Nuclear to NewClear

December 25, 2019 - 15:47

In the course of many visits to Iran over the years I have come to realise that no country is the subject of such fascination and mistrust in Iran as the United Kingdom. So my friends at 'Tehran Times' are interested to hear my thoughts in relation to Anglo-Iranian relations following the recent UK election. 

This election was fought and won by Johnson's Conservative party in order to “Get Brexit Done” so that the UK will now definitively – after three years of political paralysis - leave the European Union. I believe this result to be positive for Iran for two reasons, the first being Prime Minister Johnson as a person, and the second being the new role and responsibilities of Johnson's office as UK Prime Minister in international diplomacy and commerce for an independent UK.

Johnson as a Person

“Those are my principles, and if you don't like them....well, I have others.....” Groucho Marx.

As with President Trump it is a mistake to view Prime Minister Johnson through the lens of rational statecraft. Johnson combines intelligence, idleness and pure expedience in equal measure. He owes his success to his capacity to delegate strategy and responsibility to capable and diligent subordinates such as Dominic Cummings, the Grand Vizier to Johnson's Byzantine Caliph.

Perhaps the most important point for Iran's decision-makers to bear in mind with PM Johnson is that, like his father Stanley before him, he genuinely likes and respects Iran and Iranians, and the country's great culture, history and heritage. So, all things being equal, the accession to power of Johnson as a person is positive for Iran.

Johnson as UK Prime Minister

Unfortunately, all things are very far from equal for Iran in terms of access to the global economy, and the question is to what extent Iran's access may improve after UK's imminent Brexit departure from the European Union under Johnson's leadership.

While much is made of the UK's special relationship with the US, this has been poisoned by a unilateralist Trump administration which is thoroughly despised by the UK ruling class from which PM Johnson springs.  Despite a great deal of pro-American and anti-European rhetoric from within Johnson's party, the reality is that, not least for geographic reasons, two thirds of UK trade is with EU members and this is unlikely to change soon. 

PM Johnson is  pragmatic enough, and has a big enough parliamentary majority for the next five years, to allow his more anti-European & pro-US elements to say what they like while he does what he likes. So what practical steps could be taken to improve UK/Iranian relationship?

Trade Clearing

That PM Johnson is willing to engage with Iran was clear from his visit to Tehran two years ago in December 2017. Unfortunately for him, his predecessor PM Theresa May, under instructions from the US, killed the release to Iran via the banking system of long outstanding funds which could open the way to further trust-building measures. 

New financial technology (Fintech) presents new options for innovative UK trade clearing which enable bank payment channels to be transcended. In the energy field, the UK may go beyond the political EU Energy Union project which aimed to both create a pan-European market in energy as a commodity and support the Euro as a currency by securing € denominated debt on energy. 

The fundamental flaw of the INSTEX mechanism is that it is reliant on banks as payment channels, and no major bank wishing to clear dollars is prepared to participate in INSTEX even for trade permitted under US sanctions. The UK may now transcend the INSTEX Euro trade clearing mechanism by creating a complementary trade clearing system in London. 

So a new UK/Iran trade clearing system may directly connect businesses wishing to supply for use in Iran permissible technologies such as desalination and renewable energy in particular.

How may this be achieved?

Petro Fintech

Financial Technology is the combination of law & accounting with information and communications technology (ICT). A new generation of online businesses emerged around 2001 from the 'Internet Bubble' of complex and crazy ventures. A similar new wave of Fintech is now emerging from the initial wave of “Blockchain” secure shared databases and “Coin” financial instruments with complex and vulnerable connections to the conventional financial system.

In the field of energy fintech Venezuela's Petro instrument is an excellent case study. The first problem with this Petro is that it is technically backed, not by (say) gasoline or diesel fuel which the average Venezuelan can use, but by heavy grades of crude oil useful only to a few complex refineries. Secondly, this technical oil backing is useless even to complex refineries because Venezuela will not accept the Petro from them instead of dollars or even Euros in payment for oil.

In October 2008, the global banking system froze and the oil price collapsed, which OPEC mistook for lack of demand, but was simply due to the inability of oil buyers to clear payments using bank channels. Meanwhile, in Tehran I proposed, at a major conference chaired by H E Nematzadeh, a simple prepay instrument (“Petro”) returnable in payment for fuel supply. 

As an energy prepay (“credit”) instrument Iran's reality-based Petro will be issued by fuel producers or refiners, not by Iran's banks or government. The NewClear combination of transparent issuance, professional system management and mutual assurance by a Protection and Indemnity (P&I) club agreement will enable a Petro Clearing Union. 

Proofs of Concept

Every network is founded by its first connection. There is no reason why Iran's frozen assets in the UK, whether long outstanding debts, or ongoing gas production, cannot be mobilised using simple effective energy credit clearing. In this way, projects may be mobilised in Iran exempt from US sanctions and with suppliers and contractors willing and able to implement them, but unable to access conventional payment via banking channels.

Moreover, in Iran itself, all of the elements now exist to rapidly introduce the Petro domestically in order to reduce the initial frictions from reducing subsidies. 

My colleagues and I stand ready, as we have since 2004, to at last commence the implementation of a new generation of financial technology both domestically and in bilateral UK/Iran trade clearing: in this way Iran may advance from nuclear to NewClear agreements.

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