Iran's political elite is divided over the nation's refusal to comply with international financial regulations under the Financial Action Task Force (FATF), which has placed the country on its blacklist.
The hardline faction has ramped up their opposition to the international anti-money laundering and counter-terrorism financing body after eight years of its appeals for compliance.
The infighting within the government comes at a time when Iran’s economy is grappling with sanctions, inflation, and widespread public dissatisfaction, posing challenges for new President Masoud Pezeshkian’s administration. The FATF demands compliance with global rule on money laundering and terrorism financing among other requirements.
Iran continues to fail to meet FATF requirements to exit the organization’s blacklist, a designation that continues to isolate the country from international financial systems. However, the hardline faction, embedded within Iran’s power structure, views compliance with FATF as a threat to Iran’s regional influence, particularly its financial and military support for its proxy groups like Hezbollah and Hamas which the Islamic Republic has built to exert military influence across the region.
Abolfazl Aboutorabi, a member of Iran’s parliament, made the case against FATF clear in a statement earlier this week. He described the organization as "a tool and weapon in the hands of the enemy to pressure us so that we are forced to hand over our data to them."
Aboutorabi’s comments encapsulate the mistrust that many within Iran’s political elite have towards international institutions, fearing that adhering to the FATF’s standards would jeopardize Iran’s ability to maintain its alliances with regional proxy forces, which Tehran views as essential to its defense and regional strategy.
One of the most contentious aspects of the FATF debate in Iran is the Palermo Convention, which requires member countries to combat transnational organized crime.
Aboutorabi and other opponents argue that joining this convention would result in Iran labeling groups like Hezbollah and Hamas as "terrorist organizations," a move they say would cripple Iran’s ability to support what they call "liberation movements."
"If we join the Palermo Convention, we are cutting off our own strong arms," Aboutorabi warned, reflecting the belief among hardliners that FATF compliance would weaken Iran’s hand in the region.
The new president faces growing resistance
The internal discord over FATF poses a challenge for President Masoud Pezeshkian, who was elected on promises of economic reform. After an election campaign marked by low voter turnout and public disillusionment with the political system, Pezeshkian secured victory by promising to address the country’s dire economic situation amid the worst crisis since the founding of the Islamic Republic. But fulfilling these promises has become an uphill battle, as regional instability, particularly growing tensions with Israel, further complicate the situation.
Critics of FATF, bolstered by hardline media outlets like Kayhan, have framed the debate as a matter of national security. The newspaper, which frequently echoes the sentiments of Iran’s conservative establishment, wrote in a recent editorial that "we are in the middle of a war," and argued that joining FATF would tie Iran’s hands in supporting Hezbollah and other groups.
Kayhan accused the pro-FATF camp of “failing to grasp the gravity of the situation,” asserting that FATF membership would be tantamount to surrendering Iran’s strategic capabilities.
In late June, Iran remained on the FATF's blacklist after a meeting in Singapore. The blacklist status means that Tehran is subject to increased scrutiny and restrictions from international financial institutions on top of banking sanctions imposed by the United States.
Toby Dershowitz, Managing Director of the Foundation for Defense of Democracies, explained that being on the FATF blacklist carries both "reputational and real consequences," deterring foreign investment and complicating trade relations. "It sends a message to the whole financial system…that basically says it’s not safe to do business with Iran," Dershowitz said.
However, not everyone believes that exiting the blacklist will solve Iran’s problems. Nour News, a media outlet close to Iran’s Supreme National Security Council, stated on X on Tuesday that the government’s efforts to leave the FATF blacklist would not lead to improvements in foreign trade due to the "oppressive sanctions" still in place. Iran has been sanctioned for its nuclear program, support for Russia's war on Ukraine and rights abuses by the US and European countries.
The outlet emphasized that Iran should prioritize national production and strengthen ties with neighboring countries and regional economic organizations instead. "Focusing on national production and regional economic cooperation holds a higher priority," the post read. However, the policy of isolationism has further plunged Iran's economy into crisis.
President Pezeshkian’s administration continues to face pressure to resolve the FATF issue. According to Mahdi Ghodsi, an economist with the Vienna Institute for International Economic Studies, FATF compliance could help normalize trade relations and reduce Iran’s reliance on black-market oil sales.
Ghodsi pointed out that while Iran continues to sell oil through intermediaries in countries like Malaysia, the profits from these sales primarily benefit a small group of government insiders, leaving ordinary Iranians to suffer the consequences of international isolation.
"So these are the people who we don't know. They are not part of the government. They are hidden financial apparatus that nobody cares about," Ghodsi told Iran International. "They're benefiting the government, but at the same time, they're benefiting themselves enormously."
"Whoever attacks us will be hurt and will pay a price. Our attack will be deadly, precise and above all surprising, they will not understand what happened and how it happened, they will see the results," Gallant added.
Earlier on Wednesday, US President Joe Biden together with Vice President Kamala Harris and Israeli Prime Minister Benjamin Netanyahu spoke in a phone call in a bid to form a united front on Israel's likely counterattack to the Oct. 1 missile barrage
White House press secretary Karine Jean-Pierre said the call lasted around 30 minutes but provided no details beyond calling the discussion “productive, it was direct.”
Asked in an interview with CNN about the discussion, Harris declined to elaborate, saying the call was "classified".
A photograph released by Netanyahu's office showed the prime minister along with top military and government aides participating.
A visit to Washington DC planned for the previous day by Israel's Defense Minister Yoav Gallant was cancelled without explanation, underscoring rifts at home and abroad over Netanyahu's war aims.
Both Gallant and Biden have feuded with Netanyahu about Israel's conduct of a year-long military campaign in Gaza following the Hamas-led attack by Palestinian militants on Israel on October 7.
The US president telephoned Israel's President Isaac Herzog rather than Netanyahu to convey his condolences on the one-year anniversary of the assault which killed around 1,100 Israelis, most of them civilians.
The two leaders have not spoken since August and their lack of a working relationship has complicated efforts to reach a ceasefire in Gaza and Lebanon, and after Iran's Oct. 1 attack on Israel with nearly 200 missiles, about how Israel should respond.
The United States, Western and Arab powers helped repel the onslaught, which killed a lone Palestinian man and was dismissed as a failure by the United States.
A previous missile salvo by Iran on Israel in April only provoked a muted Israeli response after the United States urged its ally not to escalate tensions further.
Biden has said Israel should not target Iran's nuclear sites and publicly counseled against hitting its oil facilities, though he maintained that the two allies were in constant coordination about the appropriate retaliation.
Harris, the Democratic candidate to succeed Biden, on Tuesday described Iran and the United States' main threat, while her opponent former President Donald Trump criticized Biden for not blessing an attack on nuclear sites.
The MPs argue that Iran's supreme leader Ali Khamenei can reconsider his religious ban on nuclear weapons on the grounds that the circumstances have changed.
“To create deterrent capability and ensure national security, the ability to develop nuclear weapons is necessary,” Iranian MP Mohammad Reza Sabaghian said Wednesday. “While having nuclear weapons is possible for Israel, Iran must pursue nuclear weapons for self-defense.”
Iranian officials have repeatedly asserted that the country's nuclear program is peaceful, referring to a religious ruling by Khamenei prohibiting weapons of mass destruction, including nuclear bombs.
But growing tensions between Iran and Israel has led some hardliners in Tehran to push for stronger measures, questioning the permanence of that ruling.
"In the context of jurisprudence, time and place can influence the modification of rulings, and secondary rulings can replace primary ones," another Iranian MP Hassanali Akhlaghi Amiri said on Tuesday.
The ruling, or fatwa, is not a legal document but an advisory opinion on Islamic law offered by a high-ranking cleric. It is not set in stone and can be changed at any time.
His remarks come as the hardline Javan newspaper, closely aligned with Iran's ultra-conservative factions, has recently called for a shift in Iran’s nuclear doctrine. Following Iranian missile attacks on Israel earlier this month, the outlet argued for an immediate "transformation" in the Islamic Republic’s nuclear program.
Javan also questioned whether Israel, if facing an existential threat, might issue threaten Iran with a nuclear attack. "Is the possibility of Israel issuing a clear or secret nuclear ultimatum out of the question?" the article asked, hinting at the possibility of nuclear escalation between the two adversaries.
Tehran’s stockpile of uranium, currently enriched to 60%, could potentially be refined to weapons-grade 90% in as little as two weeks. The shift in doctrine would likely be a signal of Iran's willingness to develop nuclear weapons if Israeli military actions threaten its core interests.
Former Israeli Prime Minister Naftali Bennett recently urged Israel to seize the opportunity to cripple Iran’s nuclear program after last week's attack in which 181 ballistic missiles were sent by Iran to the Jewish state.
Iran’s ultra-hardliners have been increasingly vocal on social media, advocating for retaliatory actions against Israel and pushing for the development of a nuclear bomb.
Supporters of former nuclear negotiator Saeed Jalili have been particularly critical of Iran's current leadership, accusing President Masoud Pezeshkian of failing to adequately respond to Israeli airstrikes in Gaza and Lebanon, a result of the October 7 Hamas-backed attacks on Israel.
In May, an adviser to Iran's supreme leader stated that Iran would reconsider its nuclear doctrine if Israel threatens its existence.
In April, amid rising tensions with Israel, which is widely believed to possess nuclear weapons, a senior Iranian Revolutionary Guards commander also warned that Israeli threats could lead Iran to alter its nuclear policy.
The head of UN nuclear watchdog has warned that Iran may be weeks away from having enough weapons-grade nuclear material.
The comments come amid growing concern over possible Israeli retaliation for last week's Iranian missile attack, as Iran's Foreign Minister Abbas Araghchi headed to Saudi Arabia and other Persian Gulf states for talks on Wednesday.
They followed discussions between Iran and Arab capitals last week on the sidelines of an Asia conference in Qatar, when Persian Gulf states sought to reassure Iran of their neutrality in any conflict between Tehran and Israel.
"Iran made it clear that any action by a Persian Gulf country against Tehran, whether through the use of airspace or military bases, will be regarded by Tehran as an action taken by the entire group, and Tehran will respond accordingly," the senior Iranian official told Reuters.
"The message emphasized the need for regional unity against Israel and the importance of securing stability," he said.
"It also made clear that any assistance to Israel, such as allowing the use of a regional country’s airspace for actions against Iran, is unacceptable."
The role of Persian Gulf Arab states will become more significant if an Israeli attack leads to US military involvement, as Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates all host US military facilities or troops.
Meanwhile Israel’s Channel 12 reported on Tuesday that the United States and Arab states have launched covert talks with Iran for a comprehensive ceasefire aimed at calming all war fronts at once.
The report said Israel isn’t currently involved in the initiative but added that senior Israeli officials have been informed about it.
The network noted that it isn’t clear how the efforts would affect Gaza, which is more complex than the rest of the fronts due to Israel’s desire to continue fighting even after a potential hostage deal and Hamas’s demand for an Israeli withdrawal in any deal.
One of the senior Israeli officials was quoted by Channel 12 as saying: “We are currently in a position of power, a ceasefire will be on our terms, including a [Hezbollah] withdrawal beyond the Litani [River] and the dismantling of all military Hezbollah sites in areas near the border.”
US President Joe Biden is expected to hold a telephone call on Wednesday with Israeli Prime Minister Benjamin Netanyahu that will include discussion of any plans to strike Iran, according to a person familiar with the matter who spoke with Reuters.
The official said Iran did not discuss the issue of Persian Gulf Arab oil producers raising output if Iranian production was disrupted during any escalation.
The likelihood of Israel targeting Iran’s oil sector has been widely discussed since Jerusalem made its intention of retaliation clear. However, Israel can target Iran’s export capacity or the domestic energy sector by targeting refineries.
Biden has said he would think about alternatives to striking Iranian oil fields if he were in Israel's shoes. Any such attack would drive up global oil prices just weeks before the US presidential election that can hurt Vice President Kamala Harris’s chances.
The Organization of Petroleum Exporting Countries, OPEC, which is de-facto led by Saudi Arabia, has enough spare oil capacity to make up any loss of Iranian supply if an Israeli retaliation knocks out some of the country's facilities.
Much of OPEC's spare capacity is in the Persian Gulf region. Iran has not threatened to attack the oil facilities of its Arab neighbors but has previously warned that if "Israel supporters" intervene directly their interests in the region would be targeted.
Top oil exporter Saudi Arabia has had a political rapprochement with Tehran since 2023, which has helped ease regional tensions, but relations remain difficult.
Saudi Arabia has been wary of an Iranian strike on its oil facilities since a 2019 attack on its key refinery at Abqaiq briefly shut down more than 5% of global oil supply. Iran denied involvement.
A Western diplomat in the Persian Gulf told Reuters that during Thursday's meeting in Doha, Iran made clear that Tehran had called for regional unity in the face of an Israeli attack and that it considered neutrality of Gulf states a bare minimum.
The diplomat said Iran had made clear that Tehran would keep a close eye on how each Persian Gulf country responded in the case of an Israeli attack, and also how US bases housed in their countries were used.
