The International Financial Institutions: An Ajar Door to the External Financing of Iran

Abstract

While two of the largest International Financial Institutions (IFIs) in the world, namely, the Islamic Development Bank and the Asian Infrastructure Investment Bank, still finance or are planning to finance infrastructure projects in Iran, other two of the largest IFIs, namely, the World Bank Group and the Asian Development Bank (ADB), have been vetoing any financing or participation of Iran in its governance, respectively, under the manifest influence of the United States (U.S.). Besides, the European Investment Bank, the so-called bank of the European Union, managed to resist strong pressures from France, Germany and the United Kingdom back in 2018 to create a special purpose vehicle that could allow the EU to circumvent U.S. sanctions and continue financing projects in Iran. It is interesting to note that international relations were once very different. In fact, Teheran was one of the three candidate cities to host the headquarters of the ADB back in the 1960s. We will discuss in this chapter the role played by IFIs in Iran, and vice-versa. We will frame the discussion in the theoretical frameworks of financial statecraft (Steil and Litan in Financial statecraft: The role of financial markets in American Foreign Policy. Council of Foreign Relations and the Brookings Institution, New Haven and London, Yale University Press, 2006) and of soft power (Nye in Annals of the American Academy of Political and Social Science 616: 94–109, 2008; Nye in Foreign Affairs 88 (4) (July–August): 160–163, 2009). Furthermore, we will show how, despite the U.S. sanctions, the Iranian economy still manages to obtain financing from IFIs. Finally, we will also debate the relevance of the IFIs in the context of the external financing of the Iranian economy. Looking forward, we will draw scenarios for the future relationship of Iran with the IFIs.