Iran's efforts to revamp its economy after the devastation of the Iran-Iraq war and years of post-revolution adjustments have for more than a decade focused predominantly on Europe, an already thorny relationship consistently hindered by United States pressures.

Now, in the age of the 'War on Terror', the US has gained an invaluable tool in its attempts to isolate Iran, linking the persistent spectacle of the downing of the Twin Towers with not only the Iranian political establishment but the entire country, a fallacious connection that Europeans are proving ready, if not eager, to lap up.

Thus US officials can now associate Iran's entire banking system with a vague terrorist threat and Europe looks set to balk. That the US treats Iran's 'support of terrorism' as "self-evident" renders superfluous the arduous task of presenting evidence connecting any Iranian bank with any actual explosion.

Leading the assault on Iran's financial sector is the US Treasury Department's Financial Crimes Enforcement Network (FinCEN), whose 'Guidance to Financial Institutions on the Continuing Money Laundering Threat Involving Illicit Iranian Activity', March 20th, tars every Iranian banking institution, state-owned and private, as a potential supporter of terrorist activity.

As the seasoned economic affairs commentator John McGlynn notes, this smear is most likely intended to be used by FinCEN to 'justify application of one its most powerful sanctions tools, a USA Patriot Act Section 311 designation.'

Under section 311 FinCEN is endowed with 'a range of options that can be adapted to target specific money laundering and terrorist financing concerns. '

What this means for national and third party banks is that they are potentially liable to complete isolation from the US financial system, as was the case for Chinese Banco Delta Asia (BDA) following unsubstantiated allegations of the illegal activity of North Korean clients.

What is the international financial and corporate community's response?

Indications are that Europe is ready to continue to toe the American line. Despite early resentment, 2007 saw scores of German firms ultimately buckle under US pressure coming from figurehead Stuart Levey, the Treasury Department's Deputy Secretary for Terrorism and Financial Intelligence, to cease trading with the Islamic Republic.

Most notable was Siemens' withdrawal from all locomotive deals subsequent to their $450 million involvement in developing Iran's railway network. The International Herald Tribune reported the total fall in February this year:

"The [German Economic Ministry] report shows a drop in German exports to €3.2 billion, or $4.7 billion, in 2007 from €4.3 billion in 2005.
Meanwhile, government guarantees that exporters will be paid for their goods sold to Iran have more than halved, to €503.4 million in 2007 from €1.16 billion in 2006."

Chancellor Angela Merkel emphasized in November that Germany, along with other European countries, intended 'to reduce our own trade relations with Iran,' noting that the German government was restricting export guarantees and German banks had moved to halt business with Iran.

France under Sarkozy has been a vocal mouthpiece for US policies, with French Foreign Minister Bernard Kouchner declaring last September that his country should prepare for war with Iran, and apparently intends to cut off all transactions with Iranian banks once existing payments go through. President Nicholas Sarkozy has also reportedly pressured Total and Gaz de France not to seek any new deals with Iran.

Elsewhere, British-Dutch oil group Shell and Spain's Repsol look set to pull out of a $10 billion project in South Pars, British banks Standard Chartered and HSBC have significantly scaled down their presence in Iran and earlier this month Barclays Bank decided to close the accounts of Iranian banks Saderat and Melli and those of all their staff.

Last week saw Gordon Brown purport to impose sanctions (imaginary at the present) 'that will freeze the overseas assets of the biggest bank in Iran, the bank Melli,' to the delight of visiting diplomats.

Britain's canine servitude is well established and while France and Germany may not be able to withstand further chastisement following the aggressive US response to their opposition to the invasion of Iraq, not all European countries are so readily intimidated.

Switzerland's Foreign Minister Micheline Calmy-Rey was recently in Tehran to oversee the signing of a $28 billion energy deal between a Swiss firm and the state-owned National Iranian Gas Export Co.

Meanwhile, Austrian state-owned oil group Osterreichische Mineralolverwaltung (OMV) recently entered a preliminary deal to exploit Iran's natural gas reserves in a deal that will amount to over $30 billion over the next 25 years, prompting strong criticism from Merkel and her State Secretary for Foreign Affairs Reinhard Silberberg.

Thus it is only a handful of Europeans who are denying themselves access to the Iranian market and its resources.

Iran now find its old Silk Road partners the more welcoming and autonomous traders. China has overtaken Germany as Iran's second largest trading partner (the first being the UAE), with the fall in German business mirrored by a significant rise in Chinese annual trade in the region of $20 billion.

Further incalculable amounts of trade are conducted through the Dubai free-trade zone. Shortly after Siemens' premature withdrawal, Tehran Urban & Suburban Railway Company signed a substantially larger contract with China Northern Locomotive & Rolling Stock Industry Group.

China, followed by Japan, is now the largest market for Iranian oil, while Singapore has become Iran's biggest gasoline customer.

Meanwhile, Russian energy sector giants are busy securing lucrative deals in Iran, with LUKoil exploiting Iran's Azadegan oilfields and Gazprom involved in Iran's gas reserves. Although the former initially bowed to the US extraterritorial 'ban' on third country investments in Iran of over $20 million, it has subsequently resumed all activities.

India has also defied the long arm of US law by going ahead with a pipeline deal with Iran (to which Pakistan is also party) despite enormous pressure to withdraw. The Indian government did, however, vote against Iran at the IAEA (triggering a withering attack from various factions of India's polity); a contradiction which highlights the decisive place India finds itself with a choice between Asian unity or US 'partnership'.

Even trade with South Korea, a recipient of strong US political support, is proceeding unabated in an upward trend, reaching $8 billion in 2007. This while the US-Korea Free Trade Agreement, said to be US's second largest trade agreement ever, is in the process of finalisation.

As such, it is essential for the US to find ways to undermine Asian trading with Iran if it is to justify European abstinence. One often-reported 'success' has been the supposed reluctance of European banks to open letters of credit for Iranian clients.

This is nothing more than a red herring, because - as anyone involved with documentary credits knows - it is the importing client's bank that opens a letter of credit and, since Iranian clients have their accounts with Iranian banks, the much-trumpeted refusal of European banks to open letters of credit for Iranian clients (i.e. clients they did not have) is completely inconsequential.

Naturally, Iranian banks continue to open letters of credit for their Iranian clients and world-wide exporters who accept these continue to export their goods to Iran, without ever needing to rely on a European bank, just as they have done in the past.

Indeed the US is severely limited in the extent to which it can coerce Asian compliance. Unlike the USA, which has an astronomical foreign trade deficit, China, enjoys the largest Forex reserve in the world.

The Chinese and other Asian countries have long taken cooperative measures to counter US hegemonic controls. A major tool is the Asian Energy Security Grid. This is being pursued by China and Russia as an alternative to US-led Western control of the world's energy resources. Iran is an integral partner to the group, which sees natural enemies Russia and China pushed together to counter US threats to their sovereignty.

More significant is the Shanghai Cooperation Organization (SCO), to which Iran is an observer and the US has been refused access. Iran has now applied for a formal membership, and is likely to be welcomed as such soon.

According to its website the SCO seeks 'cooperation in political affairs, economy and trade, scientific-technical, cultural, and educational spheres as well as in energy, transportation, tourism, and environment protection fields.'

Recent developments include moves towards common energy products in alternative fuels, a free-trade zone and joint military exercises, indicating a drive in the direction of serious collective political and security clout. Vladimir Putin used the SCO 2007 summit to announce Russia's resumption of regular long-range bomber patrols, a move which caused quite a stir in the West and accusations of Russian aggression.

On the US domestic side, with big business salivating at growing access to the enormous Chinese market, corporate interest groups have sufficient incentive to oppose policies that will undermine US-China relations.

If the US fails to coerce Asian countries into compliance on Iran, its ability to determine European trade will be severely weakened. With all this business flowing Asia's way it may not be too long before Europe decides that it has had enough of being the biggest loser in US foreign policy on Iran, which is the Middle East's largest - and still largely untapped - market, especially in the coming lean times. The US cannot enforce sanctions on all European traders and sufficient defiance of the cross-Atlantic decree alone will ensure autonomy from it.

Almost thirty years ago, the late Ayatollah Khomeini noted that 'the greatest favour the USA has done Iran has been its trade embargo.'

Once again, Iran has become the unintended beneficiary of US aggression, after being indisputably the greatest beneficiary of the US invasion of Iraq.

In addition to spurring the country to build a solid domestic industrial and defence infrastructure, and achieving self-sufficiency in key sectors of agriculture, America's ill-conceived attempts to economically isolate Iran have snapped the country out of the Eurocentricism that had distracted it.

The newly-awakened Iran now seeks instead to cement alliances with the world's next superpowers. To avoid relying exclusively on Asia, the Islamic Republic should also look to rebuild its relations with Europe and indeed the rest of the world, yet it need not fear any crippling effect of US-prompted European withdrawal, at least as long as its Asian partners refuse to bow to the wistful hegemon-in-decline.