Sanctions Squeeze Too Tight?


An Iranian Bank designated as a proliferation financing risk by the U.S. Treasury Department
Photo Credit: Getty Images

By Kelsey Davenport

The Administration and Congress are increasing the pressure on Tehran, but in their attempts to tighten the squeeze with further restrictive measures this week, cracks in the international support for sanctions are beginning to show. The White House and the Hill would do well to remember that the purpose of sanctions is to drive Iran to the negotiation table, and not to drive international partners like China away from the United States.

Fractures began to surface after President Obama announced further sanctions on Iran in an Executive Order and the levying of penalties against Chinese and Iraqi banks for violations of the 2010 Comprehensive Iran Sanctions, Accountability and Divestment Act on July 31. Both banks were sanctioned for conducting financial transactions on the part of Iranian banks designated as involved with developing Tehran’s nuclear activities. Although the State Department is saying that the P5+1 (China, France, Germany, Russia, the United Kingdom and the United States) remains united and that these actions were directed against the bank and not China, Beijing does not seem inclined to silently swallow the penalties directed at its Bank of Kunlun. Shortly after the announcement, China called out the United States for what Beijing called a violation of rules governing international relations, and said it would pursue its opposition in Washington.

This represents the difficulties of extra-territorial sanctions; sanctions will have no impact if the provisions are not enforced, but if the US wants to continue restricting Iran’s oil exports and access to financial markets, it needs to keep China (the largest importer of Iranian oil) on board.

If Congress has its say, additional extra-territorial provisions could be signed into law soon, further sanctioning non-U.S. companies that conduct business with Iran and potentially angering countries like China even more. On Wednesday night, in a rare bipartisan effort, the House and Senate weighed in with their own ideas on how to intensify the pressure by passing the Iran Threat Reduction and Syria Human Rights Act of 2012. Some of the provisions in this legislation close important loopholes, such as the sanctioning of entities that help Iran evade sanctions by reflagging its tankers.

Overall, however, the best thing that can be said about this bill is that it was nearly worse. Fortunately, common sense prevailed earlier in the week when Senator Tim Johnson (D-SD) and Representative Ileana Ros-Lehtinen (R-Fla.) worked to find common ground between Senate and House versions of the bill, both of which had been passed months ago. Johnson and Ros-Lehtinen relegated some of the more prohibitive passages to a non-binding “sense of the Congress” language in the final text.

The original language, proposed by Mark Kirk (R-Ill.) in the Senate, and Ted Deutch (D-Fla.), Brad Sherman (D-Cal.) and Robert Dold (R-Fla.) in the House, would have declared Iran a “zone of proliferation concern.” This declaration would have barred all business with Iran’s oil and petrochemical industry, blacklisting the entire energy sector and international companies involved with it from access to the US financial system and markets. Such a move would have been likely to ramp up inflation in Tehran even further and potentially cause widespread humanitarian suffering – similar to that caused by the comprehensive sanctions levied against Iraq after the first Gulf War – which are not the intentions of U.S. sanctions against Iran. With inflation already estimated between 20-40 percent and prices of staple foods such as chicken and bread soaring in Iran, the US needs to ensure that the sanctions remain focused on stemming the nuclear program and pressuring the regime to continue negotiations, while minimizing suffering in the general population.

The legislation, if signed, ramps up restrictive measures on Tehran. Provisions in the bill would strengthen existing legislation, adding more penalties against entities that work in Iran’s oil and natural gas industry, transport these products, insure investments in these sectors, sell or lease oil tankers to Iran or trades with Tehran for oil – another provision that might not go over well with the Beijing, as two Chinese shipyards are currently building supertankers for Iran, with further commissions expected in 2013.

The legislation also is troubling because it limits the administration’s ability to grant sanctions waivers, which could impede the President’s maneuverability during negotiations. For example, under the current provisions from the fiscal year 2012 National Defense Authorization Act, the president can grant waivers to countries that “significantly” reduce their oil imports from Iran. Twenty of these waivers have been issued. But if Congress’s latest legislation is signed into law, the waivers could not be renewed unless the country demonstrated that it was moving toward a complete cessation of Iranian imports, not just a reduction.  This would constrain the President’s flexibility during negotiations with Iran and could significantly drive up the costs of oil across the board if there is a sudden embargo on Iranian oil five months from now when the waivers expire.

The United States and its allies need to maintain pressure on Iran. Sanctions are a vital part of a diplomatic strategy to slow down Iran’s nuclear and ballistic missile programs, keep Tehran at the negotiating table, and give it a reason to compromise. Sanctions, however, should push the regime to resolve international concerns over its nuclear program and prevent the purchase of dual use materials like carbon fiber, not provide opportunities for division amongst the six powers negotiating with Tehran or drive the price of chicken out of reach for the Iranian people.

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