Iran has signed an agreement with Russia to trade crude oil for products with US dollars entirely absent from the transaction. The deal, which has been confirmed by the Russian media and Iran governmental authorities, needs to bypass the world’s reserve currency entirely due to the restrictions on trade in US dollars in Iranian banks. The deal has been under discussion since 2014 when Iran was still facing Western sanctions stemming from its nuclear program.

Domestic Oil And Gas Production

At the time, the Obama administration in the White House said this deal raises “serious concerns” and would not be consistent with the nuclear talks between world powers and Iran. Last year after sanctions were lifted from Iran the deal was deemed no long necessary by the Russian Energy Minister Alexander Novak. However, in March of this year, Novak said the deal was back on the table with Russia buying 100,000 barrels of oil per day from Iran and selling the Iranians $45 billion worth of goods.

While most of the Western sanctions on Iran were lifted in 2016 the country still faces significant challenges with trade, due to the remaining sanctions preventing banks from conducting transactions in US dollars.

In February, a report by the International Monetary Fund said that while Iran had been reconnected to SWIFT, Significant challenges prevent Iranian banks from fully-reconnecting to global banks still exist mostly due to remaining US sanctions. The largest obstacle to Iran reintegrating into the global financial system are the remaining US sanctions. These prohibit US financial institutions and companies from dealing with either Iranian companies or the Iranian government.

According to the IMF: “US dollar clearing restrictions have not been lifted and pose a significant challenge for non-US banks who may do business with Iran, but may not be paid in US dollars”

In order to bypass these restrictions Russia will reportedly pay for the Iranian oil with half cash and the other half in goods.