Iran’s frozen assets, the last major stumbling block in negotiations with Washington

Talks to end the war with Iran and reopen the Strait of Hormuz appear, for the first time in three months, to be moderately on track. At least that is the impression conveyed by public statements and leaks from both sides: water is beginning to fill the deep negotiating well, which until now had been practically dry.

There remain, however, some significant stumbling blocks. Chief among them — according to hints from Iranian authorities last weekend — are the frozen assets owned by the Islamic Republic. A vast pool of money, equal to about one-third of the Asian country’s GDP, held in third countries and which Tehran now hopes to recover and that would offer the Iranian regime an economic lifeline that could help ensure its survival.

What are these frozen assets? They are funds generally deposited in checking accounts at foreign banks and, to a much lesser extent, real estate. Most stem from exports of oil and gas to third countries, not to the United States, although some are payments Tehran made to Western countries for arms transactions that never took place: the 1979 Revolution disrupted those deals and the sums already handed over were seized.

Iranian authorities have for years tried to persuade the countries holding those assets to loosen restrictions, stressing that the ultimate use would be the purchase of medicines or other basic goods, now scarce in the country and exempt from sanctions. Without success, of course: until the U.S. gives the green light, Tehran cannot access them.

How did the U.S. get those funds frozen? Thanks to so-called secondary or extraterritorial sanctions. Most economic penalties on Iran are “primary”: a sanctioning country or body (such as the UN Security Council or the EU) prohibits its companies and citizens from trading with Iran. The United States layered on secondary sanctions that bar entities in third countries from doing business with Tehran.

The weight of the U.S. economy, its dominance of the global financial sector, and the threat of sanctions for anyone doing business with the Islamic Republic forced companies that had been buying mainly Iranian oil and gas to withhold payment to Tehran. Had they not done so, Washington could have effectively cut them off from the global payments system thanks to the dollar’s near‑absolute dominance in international transactions.

How much money is involved? With little new information, the most recent estimates — some a decade old — place the base figure between $100 billion and $120 billion. That money, together with interest accrued over the years, would be crucial for rebuilding the country after the U.S.-Israeli bombings.

With Iran’s economy sized at a little more than $300 billion, the frozen assets would amount to roughly one-third of its GDP, an extremely large proportion unmatched by similar cases. Russia, for example, has about $340 billion frozen abroad since the invasion of Ukraine, but its economy is far larger than Iran’s: $2.6 trillion, according to International Monetary Fund (IMF) calculations.

Where are those funds? They are fairly dispersed and, paradoxically, only a small share is in the United States. About $12 billion is in Qatar, according to figures Iran’s authorities have circulated in recent days — the closest funds and the ones they hope will be the first to be unlocked. An estimated $7 billion is in India, $6 billion in Iraq and just over $1 billion each in Luxembourg and Japan. Almost all of them originate from oil and gas sales.

Around $7 billion that had been frozen in South Korea were transferred in 2023 to a third country whose name Seoul did not disclose, though it is presumed to be Qatar.

The latest estimates, from 2021, also indicated that about $20 billion belonging to Iran were held in China, its largest fossil fuel buyer, but Tehran does not include that sum among the blocked funds.

How might an agreement on unfreezing be structured? It seems unlikely the United States will agree to return the full amounts: that would be a historic defeat. There are, however, options for a partial, orderly unfreezing. In early April, the British news agency Reuters reported that both sides were close to agreeing on the release of about $6 billion in Qatar, half of what is deposited in that country.

Why is that money so important to Iran? The impoverishment of Iran’s economy, partly the result of sanctions, is one of the main reasons behind the recurrent waves of protests in recent years. The latest example were the demonstrations in January, sparked initially by an extreme crisis of hyperinflation and the devaluation of the rial, but which soon morphed into a political outcry. Those protests were crushed in a crackdown that caused thousands of deaths: 3,117, according to Iranian authorities, and at least 7,000 according to U.S.-based human rights organization Hrana.

If the Islamic Republic recovers at least part of those funds it could stabilize its currency, begin repairing the enormous war damage, and have a financial cushion to undertake social measures that would reduce discontent.

What would that release of funds mean for the U.S.? It suggests Washington has lowered its expectations in this war, or at least subordinated them to reopening the Strait of Hormuz. None of the goals the White House cited before and during the conflict have been achieved so far. Two of them are not mentioned in the draft under discussion to extend the peace agreement, at least according to what has been leaked: ending Iran’s ballistic missile development program and curbing Tehran’s financing of its network of non-state regional allies, especially the Lebanese Islamist party-militia Hezbollah. Meanwhile, the discussion about what was presented as the war’s main objective, Iran’s nuclear program, is being postponed.

If part of those funds are unfrozen, the Islamic Republic would gain an economic lifeline that could help ensure its survival. That possibility moves further away another objective initially mentioned by Trump, which he subsequently set aside: the overthrow of the Iranian regime.

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