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  1. The Explainer
12 November 2021

Why does the UK owe Iran £400m and will it pay the debt?

The UK’s non-payment of the debt has become the main obstacle to the release of detained British national Nazanin Zaghari-Ratcliffe.

By Ailbhe Rea

What connects a £400m debt to the last shah of Iran and the detention of Nazanin Zaghari-Ratcliffe and other dual British nationals in Iran?

Shortly before the 1979 Iranian Revolution that swept Mohammad Reza Pahlavi from power and ushered in an Islamic republic led by the Ayatollah Khomeini, the British government struck an arms deal with the shah, promising to deliver more than £600m worth of weapons and arms. But the UK ultimately failed to deliver all of the goods before the revolution: leaving the shah and his government both out of pocket and out of office. 

For decades, the British government maintained that its historic debt to the Pahlavi dynasty could not be claimed by the Islamic republic that replaced it, but in 2009, the international arbitration court at the Hague ruled that the republic’s rights as the “successor state” to the Pahlavi dynasty meant that the UK had an obligation to pay the outstanding debt.

But the UK now faces a different hurdle: international sanctions against the Iranian government mean that the British state cannot repay its debt without breaking those sanctions, thereby causing a diplomatic row between it and other countries that have sanctions against Iran. 

However, until the debt is paid, the Iranian government will continue to use the fate of dual nationals such as Zaghari-Ratcliffe as leverage. When Boris Johnson was the UK foreign secretary, he promised to repay the £450m debt, and as a result it is now being cited as a condition of Zaghari-Ratcliffe’s release.

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“It may well be that it was more complicated than he thought when he made the promise,” Nazanin’s husband, Richard Ratcliffe, told me when I interviewed him last week. “But the Iranians don’t care what he meant. They care what he said. The fact is, Nazanin and others are not coming home until his words are kept.”

Now Jeremy Hunt, Johnson’s predecessor as foreign secretary, has joined calls for the UK to repay the debt.

Paying the £400m debt would settle the British government’s accounts under international law and help pave the way for Zaghari-Ratcliffe’s release. But it would mean aiding a country that the UK government is at odds with and creating a further diplomatic headache. This may now, however, be the only way to secure the release of a woman whose continued detention is, for many, Boris Johnson’s fault.

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[See also: Richard Ratcliffe on his hunger strike: “It’s important she knows that I’m there for her.”]