Iran rejects US plan to use $6B in frozen assets for Gulf reparations

Iran's Deputy Foreign Minister Kazem Gharibabadi rejected reports that the US plans to use roughly $6 billion in frozen Iranian assets to compensate Gulf allies for war damages, saying the funds are neither "war booty" for Washington nor a payment fund for its partners.

"Regional governments have no right to demand compensation using Iranian assets," Gharibabadi said in a post on X on Sunday. "These assets are not war spoils for the US or a financial resource for its allies."

The statement follows reports that the Treasury Department is exploring options to redirect frozen Iranian funds toward reconstruction efforts in Gulf countries, including potential reparations for damage attributed to Iran-backed groups. The US has held billions of dollars in Iranian assets under sanctions, including a $6 billion fund that was part of a 2023 prisoner swap deal with Qatar as intermediary — funds that remain frozen after talks collapsed.

Brent crude traded near $72 a barrel Monday, with the geopolitical risk premium edging higher as traders weighed the potential for further escalation between Washington and Tehran. Gold rose 0.4 percent to $2,348 an ounce, reflecting safe-haven demand. The VIX, a measure of expected S&P 500 volatility, ticked up 1.2 points to 16.8.

The dispute adds a new layer to US-Iran tensions that have already pushed the region toward heightened military posture. The last time Washington moved to seize or redirect Iranian assets — a 2020 Treasury action targeting $1.5 billion in frozen funds — Iran responded by breaching uranium enrichment limits set under the 2015 nuclear deal, sending Brent above $75 a barrel within two weeks. Any similar escalation today would threaten the Strait of Hormuz, through which about 21 percent of global oil trade passes daily, according to the US Energy Information Administration.

For Gulf allies, the prospect of redirected Iranian funds offers a potential fiscal buffer at a time when several states are scaling back spending to balance budgets. Saudi Arabia's non-oil GDP growth slowed to 3.4 percent in the first quarter, while the UAE's economy expanded 3.6 percent. But the diplomatic cost of accepting such reparations could strain relations with Tehran, which has warned it would view any such transfer as a hostile act.

The broader market implications hinge on whether the US proceeds with the plan. If Washington formalizes the asset transfer, Iran could respond by accelerating its nuclear program or disrupting shipping in the Gulf — both scenarios that would push oil prices higher and deepen risk-off positioning across equities. If the plan stalls, the status quo of frozen assets and simmering tensions persists, with limited near-term market impact.

This article is for informational purposes only and does not constitute investment advice.