The financial squeeze on Iran tightened considerably after 2007, as the US Treasury increased its efforts to persuade foreign governments and private entities to follow the financial sanctions against Iran that had long been in place but not consistently implemented, says Erich Ferrari, an attorney specializing in US Office of Foreign Assets Control (OFAC) legislation and author of The Iranian Transactions Regulations Practice Guide.
Revenues from crude oil exports – currently around 2.2 million barrels a day – serve as Iran's main source of foreign exchange, with earnings from oil sales deposited into National Iranian Oil Company (NIOC) accounts held in banks overseas. Revenues are then transferred to the Central Bank, which converts them into rials, Iran's local currency, and deposits them into the Treasury’s accounts for allocation into the state budget.
Sanctions' double whammy
Since 2010, the NIOC has experienced a decline in oil export sales and so been forced to store more unsold oil than the country's typical seasonal storage levels, according to oil ministry officials. Meanwhile, heightened international enforcement of financial sanctions against the Islamic Republic have constrained the NIOC's access to company earnings from oil sales overseas.
Since oil export revenues are Iran's primary source of foreign exchange, monetary policy makers inside the Islamic Republic's Central Bank are finding it increasingly difficult to facilitate foreign currency transactions and regulate the depreciation of Iran's currency, say local financial advisors and economists.