Iran to Pull Funds From European Banks Over Nuke Dispute

Iran is moving its foreign currency reserves out of European banks as a pre-emptive measure against any possible U.N. sanctions over its nuclear program, the Central Bank Governor said Friday.

Ebrahim Sheibani told reporters that Iran has started transferring the foreign currency reserves from European banks to an undisclosed location, the semiofficial Iranian Students News Agency reported.

"We transfer the foreign exchange reserves to wherever we deem fit," Sheibani was quoted by ISNA as saying. "We have begun transferring. We are doing that."

Sheibani would not say how much money was involved and it was not immediately clear whether Iran's investments in Europe would be affected by the move.

The decision caused few ripples in currency trading Friday, with most traders saying the news had already been factored into the market because the possibility of such a move had been raised earlier.

Iran is facing possible referral to the U.N. Security Council for its refusal to give up its uranium enrichment program. The council has the power to impose economic and political sanctions.

Gary Samore, an expert on Iran and vice president for international programs at the McArthur Foundation in Chicago, said the move reflected concern by Tehran that the Europeans might take unilateral measures amid the crisis over its nuclear program.

Iran's decision to pull out some assets "makes sense in terms of preparing for the possibility that Europe might take some measure to impose some financial sanctions," Samore said.

"I don't know that it changes the diplomatic formula — the key issue is still the question of whether or not the Western group can engineer a formal referral to the Security Council," he added.

European powers have drafted a resolution that calls for referring Iran to the 15-nation council but stops short of asking for punitive measures against Iran. The International Atomic Energy, the U.N. nuclear watchdog, will meet Feb. 2 to discuss the draft.

Iran's assets in the United States were frozen shortly after the 1979 Islamic revolution that toppled the pro-Western Shah Mohammad Reza Pahlavi and installed a clerical regime.

The move suggests Iran has taken the issue of possible U.N. sanctions seriously. However, it has insisted that it won't give up its right under the Nuclear Nonproliferation Treaty to enrich uranium and produce nuclear fuel.

Iran removed some U.N. seals from its main uranium enrichment facility in Natanz, central Iran, on Jan. 10 and resumed research on nuclear fuel — including small-scale enrichment — after a 2 1/2-year freeze.

The shift alarmed Western nations that suspect Iran may be trying to produce nuclear weapons.

Uranium enriched to low levels is used to produce nuclear fuel for use in reactors producing electricity but further enrichment makes it suitable for use in building nuclear bomb.

Iran has rejected U.S. accusations that it was seeking to develop atomic bomb, saying its nuclear program is geared merely toward generating electricity.

Iranian experts say Iran's accounts are protected by the Vienna Convention governing diplomatic relations, arguing that any seizure of the Iranian assets would be against international regulations.

Iran has previously complained that Britain blocked raw uranium it bought before the 1979 Islamic revolution; Germany refused to complete its only nuclear power plant and Paris has refused to release Iran's uranium materials despite having a share at a uranium enrichment plant in France.

Analysts said moving the reserves would not necessarily affect what currency is held and therefore had little impact on markets.

"The euro briefly wobbled on reports that Iran was pulling its deposits from European banks out of concern over possible sanctions," said Dan Katzive, a currency strategist at UBS in Stamford, Conn.

"However, we would point out that a change in the domicile of bank deposits need not entail a shift in currency allocation. In other words, euros, dollars, and other currencies can be held in offshore accounts," he told Dow Jones Newswires.