Swift, the body that handles global banking transactions, says it will cut Iran’s banks out of the system on Saturday to enforce sanctions.
The move will isolate Iran financially by making it almost impossible for money to flow in and out of the country via official banking channels.
It will hit its oil industry, but may also have a heavy impact on Iranians who live abroad and send money home.
The move follows EU sanctions against Iran over its nuclear programme.
The US and its allies accuse Iran of trying to develop nuclear weapons – a charge it denies.
Almost all banking transactions pass through Belgium-based Swift, the Society for Worldwide Interbank Financial Telecommunication, which is sometimes called the “glue” that holds the financial system together.
Swift will pull the plug at 1600GMT on Saturday, in what is all but the final blow to Iranian business dealings.
Its announcement coincides with news that major money exchange houses in the nearby United Arab Emirates have stopped handling Iranian rials over the last several weeks, something that had further reduced Iran’s ability to trade and acquire hard currency.
Iran had already been largely frozen out of the global banking system by US anti-money laundering legislation which made it risky for banks around the world to do business with Iran, including trade financing.
One Iranian businessman said Swift’s move would make it now impossible to conduct business with Iran.
Morteza Masoumzadeh, a member of the executive committee of the Iranian Business Council in Dubai and managing director of the Jumbo Line Shipping Agency told the Reuters news agency: “If Iranian banks cannot exchange payments with banks around the world then this will cause the collapse of many banking relations and many businesses.”
Lazaro Campos, chief executive of Swift, said: “Disconnecting banks is an extraordinary and unprecedented step for Swift. It is a direct result of international and multilateral action to intensify financial sanctions against Iran.”
A company statement said the EU sanctions made it impossible for it to continue allowing European banks to deal with Iran, and had forced it to take the action.