Italy's financing agencies have agreed to provide Iran with nearly EUR 5 billion in credit lines and export guarantees.

The move may signal a green light for medium-sized European banks to write letter of credit (L/C) business with Iran, but first tier international banks are expected to hold back on writing business with the Islamic Republic for some time yet.

State support

Italy's deal with Tehran is regarded as one of the most significant since the landmark nuclear agreement in January led to lifting of international sanctions, with Rome sending a strong signal that its state agencies have resumed business links.

The Cassa Depositi e Prestiti, Italy's state financing agency, will issue EUR 4bn in credit lines to Iranian public entities for them to fund big infrastructure projects such as railways and motorways.

Italy's export credit agency, Sace, will guarantee those transactions by providing EUR 4bn and an additional EUR 800m in funding for Italian SMEs doing business with Iran.

Game changer

The Italian credit lines and guarantees are described as a "game changer" in a report in the Financial Times which quotes a senior European businessman saying the move will "open doors to a long line of medium-sized European banks and businesses who were worried about the consequences of doing business with Iran."

There are mixed views on how soon banks will resume L/C business with Iran (DC World News, 10 April 2016), but first tier international banks are expected to hold back until the US substantially or completely repeals legislation covering sanctions on Iran.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.