Unlocking Iran’s frozen funds and building mutual trust

One of the most important issues in the ongoing diplomatic efforts between Iran and the United States concerns Iran’s frozen assets, reportedly worth more than USD100 billion. These funds, accumulated over decades from oil sales and other revenue sources, remain locked away in foreign banks due to US and international sanctions. These sanctions, which began in 1989, have grown in scope over time, particularly after Iran’s currency programme. While these assets legally belong to Iran, they remain inaccessible, placing significant pressure on Iran’s already fragile economy.

Iran’s foreign assets are spread across several countries, with varying amounts held in each. Japan holds about USD 1.5 billion, China around USD 20 billion, India roughly USD 7 billion, and both Qatar and Iraq about USD 6 billion each. Luxembourg holds USD 1.6 billion, largely from private Iranian investors. In the United States, Iranian private investors have approximately USD 2 billion spread across various locations. While these sums are substantial, they remain frozen, deepening Iran’s economic crisis.

These frozen funds have become central to broader negotiations — not as the only issue, but as one of several key points in complex talks between Tehran and Washington. After months of conflict in the Middle East, the Islamabad Talks were convened in Pakistan in April 2026 to stabilize a fragile ceasefire and explore avenues for a lasting peace agreement between the United States and Iran. Hosted and mediated by Pakistan, these talks represented the first high-level direct engagement between the two nations since the 1979 revolution. While the initial round of talks in Islamabad did not yield a formal agreement, and a second round, arguably, was stillborn, the fact that both sides are engaging — even intermittently — offers a window for diplomacy. Pakistan’s role as mediator reflects its strategic position in the region, close ties with both Tehran and key Gulf states, and its unique diplomatic “hedging” approach to bridge seemingly irreconcilable positions.

Though the process has been slow, the ongoing engagement suggests that both sides see value in continuing the talks. If the Islamabad Talks or future negotiations collapse without progress, the fallout would extend well beyond frozen assets and bilateral grievances. A failure in diplomacy risks further escalation into conflict, which would deepen instability across the Middle East and create widespread economic consequences. For Iran, the inability to access these funds would prolong its financial isolation and exacerbate the country’s economic hardships. For the United States, a breakdown in talks would mean the continuation of maximum pressure on Iran, possibly leading to greater economic destabilization and further alienation of the Iranian people.

The fallout would not be limited to Iran and the US. The Gulf Cooperation Council (GCC) countries, already dealing with regional tensions, would face greater instability. A failed negotiation could force these countries to choose sides more decisively, impacting their relationships with both the US and Iran. These tensions could escalate existing conflicts, especially in Yemen and Syria, where GCC countries are heavily involved. Equally significant is the Strait of Hormuz, a critical chokepoint for global oil and gas trade. Should negotiations fail and Iran choose to block or restrict the passage of oil through the Strait, the global oil market could experience a sharp price increase, with ripple effects on the world economy. Countries like Pakistan, which rely on energy imports through the Strait, would face higher energy costs, worsening inflation and energy shortages. Moreover, Pakistan’s strategic relationship with Saudi Arabia, which includes a defence presence in the kingdom, could place the country in a difficult position. A continuation of tensions in the region could pull Pakistan deeper into the conflict, with serious repercussions for its security and economic stability.

While the stakes are high, there are concrete steps that the US could take to rebuild trust and pave the way for renewed negotiations. A critical part of this would be partial release of funds or easing of sanctions, particularly on humanitarian goods. The US could begin by releasing a portion of Iran’s frozen assets for humanitarian purposes, such as food, medicine, and essential supplies, signalling goodwill and a willingness to engage in dialogue. Lifting secondary sanctions on foreign companies that do business with Iran could further demonstrate a genuine intent to de-escalate. Beyond financial measures, the US could take steps to reduce military posturing in the region, signalling that it is committed to diplomacy over confrontation. A commitment to engage in multilateral talks through frameworks like the Islamabad Talks could also reassure Iran that the US is serious about seeking a negotiated settlement rather than pursuing unilateral action.

But trust must be mutual — Iran also needs to take concrete, reciprocal steps if negotiations are to break the cycle of mistrust and long-standing hostility. Iran must clarify its red lines diplomatically, demonstrating a willingness to engage on key sticking points, such as its nuclear programme and regional security concerns. Offering verifiable confidence-building measures would also help, such as inviting neutral observers into certain areas or agreeing to temporary transparency measures in exchange for incremental relief. Iran could also support ceasefire implementation by adhering to terms that limit hostile operations, creating space for political progress.

By committing to reciprocal trust-building — where both sides make tangible, verifiable steps — the path toward a negotiated settlement becomes shorter and more credible. A failure to reach an agreement over frozen assets and broader disputes between Iran and the United States is simply too high. Continued economic pain, geopolitical instability, and threats to regional security make diplomacy not just preferable, but essential. The Islamabad Talks underscore that negotiation is still possible, even if progress has been slow. With measured trust-building steps from both sides, and sustained mediation by Pakistan and the international community, there remains a real chance to move beyond conflict and toward a stable, mutually acceptable outcome. If both Iran and the US embrace reciprocal engagement rather than unilateral demands, they can reduce the risks of further violence and build a foundation for lasting peace.

Copyright Business Recorder, 2026