Why Britain owes Iran £450m – and why it might finally pay it back

Britain may be preparing to pay off a decades-old debt to Iran as part of a deal to bring jailed journalist Nazanin Zaghari-Ratcliffe home from Iran. In a move understood to be aimed at improving diplomatic relations between the UK and the theocratic state, Boris Johnson is reportedly considering sending £450m owed to Iran from a botched arms deal. Ms Zaghari-Ratcliffe’s husband Richard appears to be on board with this approach, telling the Sun: “It is important that the UK honours its international legal obligations, so that Iran can honour its legal obligations.” Senior government sources have said they believe Ms Zaghari-Ratcliffe may be being held as “collateral” to secure the debt repayment. A spokeswoman for the Government warned: “It is wrong to link a completely separate debt issue with any other aspect of our bilateral relationship with Iran.” However, she also pointed out that the Treasury released the funds to pay the debt in 2002 – only to run into EU sanctions blocking its payment. But how has Britain ended up in this position? Britain and the Shah

Before the Iranian revolution of 1979, Britain and Iran had relatively close relations, with Britain offering support to the Persian state in exchange for concessions in sectors such as oil and banking. The relationship was bumpy at times: in 1953, Britain urged the CIA to carry out a coup against the democratically elected Prime Minister Mohammad Mosaddegh, who had nationalised the oil industry. But with the Shah back in power, Iran was considered an ally – and suitable for arm sales. Cash for tanks

That meant, from 1971 to 1976, the Shah – faced with the rise of Arab nationalists in Iraq and elsewhere – turned to Britain for a large order of tanks: 1,500 Chieftain battle tanks and 250 repair vehicles in total. The bill added up to £650m, and the Shah paid it up front, rather than on delivery. Britain managed to deliver 185 tanks to Tehran before history got in the way. The Islamic Revolution

Then came 1979, the Shah’s exile and the creation of the modern Islamic Republic of Iran. Relations between London and Tehran went south quickly, with Britain suspending all diplomatic relations. The United States became even more implacably opposed to the new regime when its embassy was seized in November of 1979, leading to a hostage crisis and several decades of bitter relations. Iran was no longer an ally of the United Kingdom, and it was no longer reasonable to send state-of-the art tanks there. The Iranians, now under the stewardship of the Ayatollah Khomeini, asked for £450m of the £650m total back. Britain ignored them, sold some of the tanks to Saddam Hussein (who promptly used them against Iran) and continued about its business. International court Except it didn’t. Iran’s current government might have a certain reputation in the West, but it is still protected by the law. Thus began three decades of legal wrangling in a trade court in the Netherlands, leading to a decision, eventually, in 2009 that Britain should repay the money. Expecting this, International Military Services Ltd (the state-owned company that made the deal with Iran) and the Treasury agreed to deposit the balance with the High Courts as far back as 2002. The money never made its way to Tehran however, sitting instead in an independent trust in the UK.

The reason for this – and the reason why all of this is still a live issue, almost 40 years on, is the existence of international sanctions on Iran, which Britain is bound by. Some of these were lifted by Barack Obama’s “Iran deal”, in which the US, UK, France, Germany, Russia and China agreed a deal to stop the country’s nuclear programme in exchange for loosening some sanctions. But sending money to the Iranian defence ministry now would still be a breach of the united front shown by various global powers, especially at a time when Donald Trump has attempted to undermine it himself.

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