1.

IRAN MOVES FOREIGN ASSETS AMID SANCTION THREAT
By Gareth Smyth and Najmeh Bozorgmehr

Financial Times (UK)
January 20, 2006

TEHRAN -- Iran is moving foreign exchange out of European banks in advance of a possible referral to the United Nations Security Council and imposition of economic sanctions over its nuclear program.

Ebrahim Sheibani, Central Bank governor, told reporters on Friday that Iran would "transfer the foreign exchange reserves wherever we consider expedient" and confirmed a shift from Europe had begun.

Mr. Sheibani refused to give details or to say where the funds were going, although ISNA, the semi-official Iranian news agency, said the destination was southeast Asia.

On the international currency markets, the dollar fell briefly on Friday against the euro and safe-haven Swiss franc on the news .

"Clearly the Iran situation is the key focus at the moment, our view is that eventually it will settle down, but it's expected to rumble on for a while and so maybe at the margins slightly supportive of the safe-haven currencies like the Swiss Franc," Kevin Grice, senior economist at American Express Bank, said.

The Central Bank manages Iran's 'windfall' oil revenue, which could amount to around $25bn in the Iranian year ending in March 2006, and has kept an unknown amount in Europe.

"The nuclear issue and the chance of sanctions is the main reason for this," said an economy analyst in Tehran. "But there is also alarm from what Italy did."

A ruling by an Italian court last month upheld a 1996 U.S. law that holds responsible for "terrorist" acts those nations designated by the U.S. government as "sponsors of international terrorism."

A court in Rome ordered Banca Nazionale del Lavoro (BNL) to freeze an account held by the Iranian government, over the deaths of three Americans in the Israeli-occupied Palestinian territories at the hands of Palestinian bombers.

Iran has protested that its official accounts were protected by the Vienna Convention governing diplomatic relations.

But families of U.S. citizens killed in the bombing of its Beirut embassy in 1983 by Hizbollah, the Lebanese Shia militant group, are planning to follow suit -- asking European courts to seize Iranian assets after a U.S. ruling that Iran should pay $126m in damages.

Davoud Danesh-Jafari, Iran's economy minister, said on Thursday the seizure of Iranian assets was both contrary to "global regulations" and damaging for Europe's banks.

"Such acts would make oil-rich countries anxious to transfer their capital out of European banks into safer places," he said.

While officials do not expect sanctions against Iran within the next few months -- while diplomacy runs its course, and a compromise over the nuclear issue, probably brokered by Russia, remains possible -- analysts are assessing their possible impact.

The media in Iran has this week highlighted the upward pressure on oil prices simply through talk of sanctions.

Iran exports around 2.5m barrels of crude a day and is the world's fourth largest producer.

The country has been subject to comprehensive American sanctions since the 1979 Islamic Revolution toppled the U.S.-backed Shah. But many European companies -- including the energy majors Shell, Total, and Statoil -- are active in Iran.

2.

ASSETS SWAP OVER SANCTIONS FEAR

Times (London)
January 21, 2006

http://www.timesonline.co.uk/article/0,,251-2003034,00.html

Iran is transferring its assets from European accounts to other foreign banks to try to pre-empt possible U.N. sanctions over its nuclear program, a senior Iranian official said.

The official confirmed comments from Ebrahim Sheibani, the governor of the Central Bank, which were carried on the Iranian ISNA student news agency, that Iran had started transferring funds. There were no details as to where the funds might be heading. Mr. Sheibani said: “We transfer foreign reserves to wherever we see as expedient.”

The Asharq al-Awsat Arabic daily said that the Supreme National Security Council had ordered that $8 billion (£4.5 billion), about a quarter of its overseas assets, be moved to Singapore, Shanghai, Malaysia, and Hong Kong.

Iranian overseas holdings are thought to top $30 billion, of which $4.1 billion was in Britain at the end of September, according to Bank of England data.

3.

Germany

IRAN MOVES FOREIGN RESERVES OUT OF EUROPE
By Matt Moore

Associated Press
January 20, 2006 - 18:25 UT

http://www.businessweek.com/ap/financialnews/D8F8IMAG0.htm?campaign_id=apn_home_down&chan=db

FRANKFURT -- Iran's decision Friday to transfer its foreign currency reserves out of Europe ahead of possible U.N. sanctions could affect as much as US$50 billion in deposits, analysts estimated, and helped send oil prices above US$68 a barrel.

But economists said the impact on the global economy would be muted, with the figure not large in comparison to other countries' reserves and uncertainty about where the money would be moved and whether it would be shifted from dollars and euros to other currencies.

"The banking system in Europe is sufficiently well developed and stable enough that even a wholesale withdrawal of reserves within wide bands of uncertainty wouldn't likely cause severe problems," said Mark Austin, a currency analyst with HSBC in London.

Iran, under increasing international pressure over its nuclear program -- and mindful of the freezing of its U.S. assets after the 1979 seizure of the American Embassy in Tehran -- said it had begun transferring its reserves from European banks to an undisclosed location.

"We transfer the foreign exchange reserves to wherever we deem fit," Iran Central Bank Governor Sheibani was quoted by the semiofficial Iranian Students News Agency as saying. "We have begun transferring. We are doing that."

Sheibani would not say how much money was involved. Iran, which has insisted its nuclear program is aimed at generating electricity and not weapons, does not publish its foreign currency reserve figures.

Three analysts who did not want to be identified because the delicate nature of the information estimated that the figure was between US$40 billion and US$50 billion, while a fourth said it was more likely to be between US$25 billion to US$30 billion.

The range puts Iran's holding on about a par with the US$54 billion that Algeria holds, and is far below the holdings of countries such as China, which had US$818.9 billion at the end of December.

The Bank for International Settlements says data indicates Iran had US$23.5 billion in the international bank system at the end of June 2005. That total represented a 10 percent increase compared to six months earlier, according to the Basel, Switzerland-based BIS.

Steve Barrow, a fixed income strategist at Bear Stearns in London, said the latest IMF data indicated that Iran holds around US$35 billion-US$40 billion in overseas assets.

"But the problem really for the market is knowing where it might be. Obviously, the authorities have spoken about repatriating and taking money out of Europe, which probably suggests they have always been wary of holding assets in the U.S.," Barrow said.

"But just because you invest with European banks doesn't mean you can't hold U.S. assets. Just as with any other central bank or monetary authority, you don't find out what proportion of foreign currencies they hold."

Several large European banks, including Germany's Deutsche Bank and France's BNP Paribas, declined to comment.

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

Iranian assets in Swiss banks at the end of 2004 totaled 1.4 billion Swiss francs (then-US$1.2 billion; then-euro900 million), a 25 percent decrease compared to the year earlier, according to statistics from the Swiss National Bank.

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 and no one answered phones at Vnesheconombank, Russia's state-owned foreign banking arm.

Currency analysts said it was difficult to gauge how the move [might] affect the European banking sector or if it would lead to a domino effect with other Middle Eastern countries doing the same in a bid to undermine countries deemed hostile to the Middle East.

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

Earlier this week, Iranian Economy Minister Davoud Danesh-Jafari warned that any sanctions from the West could, by disturbing Iran's political and economic situation, raise oil prices "beyond levels the West expects," the English-language Tehran Times reported.

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 the AP, adding that Iran's principal area of leverage over the Europeans are the 5.5 million barrels of oil that it produces each day, much of it for export.

"People are afraid of a boycott of oil," Eizenstat said. He added that some in Europe fear they would be "cutting their own throats" if a sanctions regime include a ban on Iranian oil imports.

Iran's decision caused few ripples in currency trading Friday, with most traders saying the news had already been factored into the market.

Barrow said it would be an issue for markets if up to US$35 billion to US$40 billion in overseas assets was returned quickly to Iran, "but we probably won't know until after we see the markets move."

------

AP Business Writers Jane Wardell in London, Alex Nicholson in Moscow and Laurence Frost in Paris contributed to this report.

4.

IRAN SHIFTS BILLIONS FROM BANKS IN EUROPE AMID FEARS OF U.N. SANCTIONS
By Ewen MacAskill and Jill Treanor

** Tehran's nuclear stand-off intensified by transfers; British invite to Afghan talks irks wary Americans **

Guardian (UK)
January 21, 2006

http://www.guardian.co.uk/frontpage/story/0,,1691815,00.html

The Iranian government has started moving billions of pounds in assets from Britain and the rest of Europe in case international sanctions are imposed over the nuclear crisis.

Ebrahim Sheibani, the governor of the Iranian Central Bank, confirmed Tehran had started shifting funds, according to Iranian news agency ISNA.

Mr. Sheibani said: "We transfer foreign reserves to wherever we see as expedient. On this issue, we have started transferring. We are doing that."

Iran's pre-emptive action marks a significant escalation in the stand-off between Iran and the West. It is the firmest sign yet that Tehran fears sanctions will be imposed. The move is defensive, as the amount is not big enough to worry European banks. But it pushed oil prices to a four-month high above $67.

Western diplomats cautioned that ISNA occasionally misquoted government figures. But a senior Iranian official told Reuters that the report was accurate.

Britain, France and Germany, backed by the U.S., are to press for Iran to be referred to the U.N. Security Council at a meeting of the International Atomic Energy Agency, the U.N.'s nuclear watchdog, on February 2. The Americans and Europeans claim Iran is engaged in a covert program to build a nuclear weapon. Iran denies the charge.

The Bank of England estimates Iran held about £2.25bn in assets in Britain at the end of last September. Iran's total overseas assets are reckoned to be about £17bn, held mainly in Europe and Asia. The funds could have been transferred from Europe to Asia.

Iran has bitter memories of its U.S. assets being frozen shortly after the 1979 Islamic revolution. The U.S. has kept sanctions in place since then.

The Security Council could impose worldwide sanctions but such a proposal could be vetoed by Russia or China. If the Security Council was blocked, the U.S. could pressure Britain, France, and Germany into applying sanctions, ranging from a travel ban on the Iranian leadership to a freeze of assets or a full-scale trade ban. Such a ban would hit hardest in Germany, Italy, and France.

Tehran could opt for a series of retaliatory measures. The Foreign Office confirmed late last year that Tehran had imposed an unofficial trade ban on Britain by delaying imports.

Turkey's energy ministry yesterday announced that the flow of natural gas from Iran had dropped almost 70%, a worrying development as an extreme cold snap is predicted. Iran, the world's fourth largest oil exporter, could also disrupt oil supplies, sending prices soaring and creating havoc in Western economies.

U.S., British, French, German, and other diplomats are to discuss Iran on the sidelines of a conference on Afghanistan in London on January 31 and February 1. The next day, the Europeans are planning to table a resolution at the IAEA in Vienna calling for referral to the Security Council.

The British government has invited Iran, as a neighbor of Afghanistan, to the London conference but Tehran has not yet responded. The U.S. is wary of direct contact with Iran and a US official said: "If Iran attends, we will have to look very closely at the seating plan."

General Henri Bentegeat, head of France's armed forces, said yesterday that Iran "presents a major worry because it is a country that has shown extremely bellicose intentions."

But Sergei Kiriyenko, head of the Russian atomic energy agency, remained hopeful of a solution. He said Iran was looking at a compromise put forward by Moscow under which its uranium enrichment would be carried out in Russia.

He said Tehran "considers our proposal extremely interesting and is prepared for detailed discussions."