Iran: CFT, FATF, and the Politics of Credible Execution

At its session on October 1, 2025, the Expediency Council approved Iran’s “conditional accession” to the Convention for the Suppression of the Financing of Terrorism (CFT). According to the Council’s spokesperson, this approval will be interpreted “within the framework of the Constitution and domestic laws.” Domestic and international media described the move as a step toward removing Iran from the FATF blacklist; earlier, in May 2025, the Council had also passed conditional accession to the “Palermo” convention (the UN Convention against Transnational Organized Crime).

The CFT (adopted by the UN General Assembly in 1999) sets common mechanisms for criminalizing the financing of terrorism, judicial cooperation, mutual legal assistance, and extradition. The treaty clearly accepts only one major reservation: the option to opt out of the dispute-settlement mechanism that refers cases to arbitration or the International Court of Justice. Broad claims such as “domestic law takes precedence over the convention’s obligations” are not internationally acceptable and would face objections from other states.

Iran’s “conditional” accession is less a legal headline than a mirror of the contradiction shaping the political economy of the current regime. To breathe in the global financial system, the government must move closer to shared standards of transparency, information exchange, and reliable adjudication; yet the ruling bloc tries to keep an exit door open so its “symbolic independence” and rent networks are not harmed. Whatever the resolution says, global markets price the quality of implementation. When each commitment comes with an “opt-out clause” beside it, the outward message is clear: there is a commitment, but it can be reversed. Banks, insurers, and risk-rating bodies respond to exactly these signals, producing a kind of “soft self-sanctioning”: a breeze of improvement on paper, but continued governance risk in practice.

Let’s read the situation through China’s approach

In this global frame, we need to look at China’s policy toward Iran. Beijing is the world’s largest energy importer, and its broader strategy—even while competing with the United States—is “economy plus de-escalation”: keeping trade costs low, securing stable shipping corridors, and avoiding price shocks. Every spike of tension around Israel—from Gaza and Lebanon to the eastern Mediterranean and the Red Sea—directly means, for China, higher war-risk insurance for shipping, the chance of rerouting around the Suez Canal, and rising energy prices. Marine insurance—priced mostly in Western markets—goes up with each geopolitical risk, and ships, to avoid danger zones, sail around the Cape of Good Hope; the extra time and fuel eat into the capacity China’s supply chains depend on. At the same time, the oil market adds a “Middle East risk premium” to global prices, and a big importer like China pays it right away. So for Beijing, managing the scope of the crisis around Israel is not a moral issue but a cold, technical calculation: relative stability there means stability in insurance, shipping, and energy.

This logic explains how China looks at Iran. China builds a regional “portfolio”: diverse, low-risk ties with Saudi Arabia, the UAE, Turkey, and even actors around Israel, so that a political shock in one place does not disrupt the whole corridor. In this portfolio, Iran—because of high secondary-sanctions risk, low legal transparency, unpredictable courts, and the strong role of quasi-state actors—drops to a transactional, short-term partner. The outcome is familiar: discounted oil in exchange for goods or limited projects that can be stopped quickly; no structural investment and no technology transfer at a scale that could change development paths. Even Chinese state-owned firms are cautious, due to the risk of losing dollar access, insurance, and supply-chain links; wherever legal and financial risk is not contained, they prefer to keep the “escape hatches” open: short contracts, heavy collateral, and termination clauses.

Read the headline: China’s banks lend to Saudi gas project while its funds sit out of BlackRock-led deal, sources say

How does Russia see it?

If we understand China through the logic of “low-tension economics and risk reduction,” Russia should be viewed through a different political tradition: the continuation of a colonial–imperial history from the Tsars to the Soviet era and today. From the Treaties of Gulistan and Turkmenchay, to the 1907 partition of Iran, the 1941 occupation, and the 1946 Azerbaijan/Mahabad crisis—then the Soviet “sphere of influence” in the Caucasus and Central Asia—this long line shows that Moscow has seen Iran and its neighborhood not just as a market, but as a security buffer and a bargaining platform with the West. Even “proletarian internationalism,” in practice, often translated into a kind of state imperialism: priority to the center’s survival and control of the periphery, including reliance on “managed instability.”

Today, under the pressure of war and sanctions, Russia views semi-isolated Iran in three ways at once: as a sanctions-bypass corridor (Caspian/North–South route/shadow fleet), as a security–military partner for dual-use technologies, and as a rival-supplier whose discounted oil keeps Asian markets flexible for deals. Here, the Islamic–Eastern capitalist oligarchy inside Iran works to Moscow’s advantage: quasi-state networks, opaque contracts, security intermediaries, and legal loopholes match well with Russia’s rent-seeking accumulation model—personalized deals, energy/goods barter, secret swaps, and extracting concessions from factional rifts. The outcome is short-term rewards but long-term erosion: persistent discounts, direct competition with Russian oil in Asia, and commitments that can be halted at any time.

The key difference with China is this: Beijing enters through the door of institutions and predictability and avoids getting entangled in local factions; without a verifiable drop in governance risk, it does not bring structural investment. Moscow, by contrast, tolerates higher political risk and profits from the same inward-facing networks—the more isolation and ambiguity, the stronger its bargaining power. Put simply, leaning on Russia without unlocking transparency and impartial adjudication keeps Iran in an old center–periphery architecture: a periphery whose “managed instability” benefits the Kremlin but, for Iran, means a lock-in to rent cycles, non-transparent contracts, a race to the bottom on discounts, and legal isolation. If “turning to the East” is to be more than a slogan, Iran must step away from the Russian tradition of bargaining in the shadows and answer in China’s language—verifiable stability; otherwise, “getting closer to Moscow” is just another version of the same rent-based dependency.

The Islamic Republic is the crisis, not the clash with the West

Turning inward means viewing Iran’s political economy through two bourgeois poles that—even while they compete—jointly drive foreign policy and shape Iran’s image in the world. Relative political stability is impossible without a real economic opening; yet within the framework of the Islamic Republic, the prospect of such an opening remains fundamentally uncertain. This system saved Iranian capitalism from the blade of the anti-monarchist revolution of 1979, but at the same time kept the engine of modern capital accumulation inside a cage of ideology and extra-legal mechanisms. Capitalism wants to run and must make profit, but financial transparency, impartial adjudication, and legal predictability—the prerequisites for running—contradict the current power structure. The result is a semi-integrated economy that looks “destabilising” to the West and “high-risk” to the East.

The first pole—pro-Western capitalist nationalism—seeks to present itself as the local representative of the dominant capitalist bloc: pro–free market, anti-communist, accepting Western hegemony, and even using religion and tradition instrumentally for social discipline. To reduce the cost of capital and reconnect to financial networks, it needs consistent implementation of rules like AML/CFT, accession to international arbitration, and genuine de-escalation. In foreign policy, once it gains the upper hand, it signals that Iran should become a “reliable pro-Western platform.” But for this to work, the shift must be so clear and ideological that it leaves “strategic ambiguity” behind—and here the system’s historical ceiling appears: from within the Islamic Republic, a transparent, full-scale turn to the West is hard to achieve. Even if this pole prevails, Iran’s image would improve only temporarily: a lower risk premium, reopened banking channels, cheaper marine insurance, and even China’s cautious willingness for longer-term investment—provided there is sustained de-escalation around Israel, which directly shapes war-risk rates and the Suez–Mediterranean route. At home, the price of this path is likely rapid privatisations, tighter labour discipline, and deeper dependence on Western conditionality.

On the other side, the Eastern national-Islamic current seeks to preserve an indigenous, anti-Western capitalism, defending its ideological shield, quasi-state networks, and a protected domestic market. It accepts international rules only so far as an exit door remains and the “priority of domestic law” is preserved. Its foreign policy leans on Eastern alliances, parallel payment channels, energy-for-goods/project barter, and terminable contracts; regional tension is treated as a bargaining tool. But the world—especially risk-averse China, which pursues “economy plus de-escalation”—translates these signals into prices: costlier insurance, less secure sea lanes, shorter-term capital, and steeper discounts. Every spike of tension around Israel—which for Beijing means a jump in insurance risk and energy prices—caps the ceiling of ties with Tehran. In this scenario, Iran remains a discounted, high-risk supplier, and contractual credibility—the golden rule of any development partnership—never materialises.

In daily reality, there is rarely a total victory for either side; rather, a fragile balance of both: an unwritten division of labour in which the pro-West pole writes the standard text and the Eastern pole adds the caveats; one talks de-escalation, the other leverages tension. This duality moves foreign policy forward, but at the cost of sending a single message to money, energy, and insurance markets: “revocable commitment.” As long as political Islam and extra-legal rule keep institutions in suspension—and as long as the Israel–Palestine question and the region’s security order remain unsettled—long-term industrial capital will not travel into this uncertainty.

If the pro-West pole wins, Iran moves toward lower financial risk and a return to the mainstream, but with high social costs and the loss of traditional geopolitical levers. If the national-Islamic pole wins, “symbolic independence” and a wider security space are preserved, but the economy is trapped in discounts, expensive insurance, short-term capital, and legal isolation. And as long as both poles produce cosmetic compromises instead of root-and-branch institutional reform—budget and contract transparency, impartial courts, curbing para-state entities, and the rights to organise and collective bargaining—the “monster of the economy” keeps pushing the state to the edge of attrition. A real exit from the deadlock does not come from a nominal choice of “East/West,” but from internalising stability and predictability—the language both West and East understand. Only then can Iran’s global image shift from a “risk to be priced” to a “partner to be trusted.”

Our central question:

Why does uncontrolled tension around Israel mean higher costs for the Islamic Republic/Iran? Because the same mechanism that raises China’s fuel, insurance, and shipping costs at the same time reduces Beijing’s willingness to make long-term commitments in Iran. The more war-risk insurance goes up and sea routes become uncertain, the more China relies on relationships that contain tension: mediation, partner diversification, and countries with reliable courts. Put simply, Tehran’s “destabilization lever” loses effectiveness exactly where Beijing—due to its low-tension economic model—refuses to pay a political price. By contrast, any concrete sign of lower governance risk in Iran—consistent implementation of standards, curbing extra-legal powers, budget and contract transparency, and real respect for international arbitration—can lift the relationship from discounted spot trade to productive and technology investment.

Meanwhile, constant talk of “turning to the East” quickly becomes another name for short-term dependency. East and West share one habit: pricing risk. A Chinese bank, like a European one, does not buy the text of a decree; it prices how it is implemented. An Asian insurer, like one in London or New York, passes higher tension straight into war-risk rates. And an infrastructure consortium will not bring long-term money unless it trusts neutral adjudication, contract transparency, and predictable policy. Therefore, internalizing stability is the precondition for any effective bargaining with the East; without it, the East also “acts like the West”: short-term money, heavy collateral, and exit clauses.

If “East-ward orientation” is to become strategy rather than a slogan, Iran must speak the Eastern partner’s language: stability, transparency, and predictability. China pursues a low-tension economy and builds a diversified regional portfolio accordingly. As long as Iran does not send credible signals of legal and financial stability—and keeps using “tension as leverage”—its share of that portfolio will remain short-term deals with steep discounts.

The alternative is clear: close legal escape hatches, entrench impartial adjudication, rein in para-state power, and translate these reforms into long-term capital-and-technology ties. This is emancipatory realism: reducing risk without selling society short, expanding choices without unconditional surrender, and turning both East and West from discount buyers into development partners.

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