Update 11/18 #02

 

This Update discusses the details and possible effects of the new round of US sanctions – focussed upon Iran’s financial and energy sectors – which came into effect this week, following an earlier round of sanctions imposed in August. (The White House announcement of the new sanctions, explaining the details and intention, is here).

We lead with a good general summary of the sanctions and the issues surrounding them from Frud Bezhan of Radio Free Europe. Consulting numerous economic and academic experts, Bezhan looks at both the evidence suggesting that these sanctions are the strongest so far imposed on Iran, and also on their potential weakness in terms of the lack of support for them by Europe and some other key players. The story also discusses the possibility of further measures in the near future, including the US possibly designating the Iranian Revolutionary Guard Corps as a terrorist organisation. For this good introduction to the issues surrounding the sanctions, CLICK HERE.

Next up are Jacob Nagel and Jonathan Schanzer – two Washington-based policy experts – discussing the exemptions and waivers which were announced with the renewed US sanctions, including some they view as problematic. They note that, contrary to some reports over recent weeks, the sanctions will see most Iranian banks excluded from the SWIFT system for international interbank transaction, though they do warn that exemptions for some banks for humanitarian purposes could be exploited by Iran and should be monitored. However, they express particular concern over waivers which could allow civilian nuclear cooperation on three separate Iranian projects, arguing that these waivers are unhelpful, and do not make sense if the goal is to prevent nuclear proliferation to Iran. For their complete analysis of the waiver issue,  CLICK HERE.

Finally, Morgan Ortagus, a former Obama Administration US Treasury Department official who helped implement similar sanctions on Iran in 2010-2011, discusses the European reaction to the new round of sanctions. While she details the efforts by EU governments to preserve their economic arrangements with Iran despite the sanctions, she makes a strong case that these efforts are failing badly. She notes that European companies appear completely unwilling to risk running afoul of US sanctions, regardless of the efforts of their governments, and urges EU governments to rethink their apparently futile stance on the new sanctions. For her argument in full, CLICK HERE.

Readers may also be interested in…

• Some details on how the new sanctions also target human rights abuses in Iran.
• Washington Institute economics expert Patrick Clawson assesses the Iranian economy’s vulnerability as the sanctions come into effect.
• Washington Institute Persian Gulf expert Simon Henderson explores the relationship between the current petroleum market and the new sanctions arrangements.
• Some examples from the many stories and comments now appearing at AIJAC’s daily “Fresh AIR” blog:
  • AIJAC’s Naomi Levin on the wash-up of the Australian debate over PM Scott Morrison’s announcements about possible changes to Jerusalem and Iran policy on Oct. 11.
  • Video of terrorism expert and AIJAC guest Dr. Boaz Ganor speaking about “lone-wolf” terrorism –  perhaps presciently given events in Melbourne today –  at the Sydney Institute. Ganor also discussed terrorism and its sponsors on Sky News’ “Outsiders”. 

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What’s So Tough About The ‘Toughest Ever’ U.S. Sanctions On Iran?

By Frud Bezhan

Radio Free Europe, November 06, 2018 15:48 GMT

Some analysts say that even unilateral U.S. sanctions will be very powerful and severely affect Iran’s economy. 

President Donald Trump labelled new U.S. sanctions on Iran as the “toughest ever,” saying the punitive measures would force Tehran to end its “malign” behaviour.

Analysts say the new measures that came into effect on November 5 are indeed the strongest sanctions regime imposed by Washington against Iran. But they also note that the sanctions lack the broad international backing that gave previous measures strength.

The new sanctions come months after Trump pulled the United States out of the 2015 nuclear deal between Iran and six world powers that was intended to curb Tehran’s nuclear ambitions in exchange for relief from nuclear-related sanctions imposed by the United States and the European Union, as well as the termination of UN nuclear-related resolutions against Iran.

Trump said at the time that he would reinstate the sanctions that had been lifted as part of the deal, which he described as the “worst ever.”

So what makes the new measures, which heavily target oil exports and which Iranian President Hassan Rohani has called “a new injustice,” tougher than before?

Sanctions Strengthened
“The United States has not only reinstated all sanctions that were lifted as part of the 2015 nuclear deal, but it has also blacklisted about 300 new Iranian individuals and entities,” says Ahmad Majidyar, the director of the Iran Observed Project at the Washington-based Middle East Institute.

The U.S. Treasury Department on November 5 imposed sanctions on Iran’s crucial oil, banking, and transportation sectors. The sanctions cover 50 Iranian banks and subsidiaries, more than 200 persons and vessels in its shipping sector, and targets Tehran’s national airline, Iran Air, and more than 65 of its aircraft.

These measures are on top of existing U.S. sanctions linked to Iran’s human rights record, alleged support for terrorism, and its ballistic-missile program that were maintained even under the nuclear deal.

Scott Lucas, an Iran specialist at Birmingham University in Britain and editor of the EA World View website, says the new U.S. penalties mark a shift from “targeted sanctions to sweeping general sanctions.”

Lucas says, for example, that the declared aim of sanctions on Iran’s crucial oil exports is to completely cut off this revenue source, not just limit it. Washington has given waivers to eight countries to purchase Iranian oil but they expire in March 2019.

“Instead of targeting Iranian companies or individuals, these new U.S. sanctions are aiming to choke off the regime entirely,” says Lucas.

‘Lack Of International Support’
The U.S. sanctions regime prior to the nuclear deal in 2015 was backed by measures by the UN Security Council and the European Union. But the latest U.S. measures are unilateral.

“The Trump administration may still find it difficult to enforce the stringent sanctions to its fullest potential because of a lack of international support to economically isolate Iran,” says Majidyar.

While major international companies and banks will no longer risk doing business with Iran, says Majidyar, smaller and mid-size companies in Europe and Asia are expected to maintain some level of trade with Tehran, with some support from their respective governments.

Other analysts say that even unilateral U.S. sanctions will be extremely powerful and severely affect Iran’s access to trading relationships, finance, and foreign investment.

“Many international companies have already voted with their chequebooks, and there’s little question that Iran’s economy will come under growing duress in the months ahead,” says Naysan Rafati, an Iran analyst at the International Crisis Group.

Dozens of Western companies have pulled out of Iran in recent months out of a fear of huge U.S. fines.

‘Destroying The Regime’
U.S. Treasury Secretary Steven Mnuchin said on November 5 that the intention of U.S. sanctions was not only to deter Iran’s nuclear ambitions but to “fundamentally change” Tehran’s “destabilizing behaviour.”

Washington says the terms of the 2015 nuclear accord were not strict enough to prevent Iran from developing nuclear weapons. It also accuses Tehran of proliferating ballistic missiles and supporting armed groups in the region that the United States considers terrorist organizations.

But analysts suggest that the new U.S. sanctions are not intended to limit Tehran’s nuclear program, but to destroy the clerical establishment.

“The reinstatement of U.S. sanctions isn’t so much about the details of the sanctions with the intent of changing the regime’s behaviour,” says Steve Hanke, an economist at Johns Hopkins University in Baltimore. “It’s all about taking out and destroying the regime. The U.S. sanctions are now all about total war.”

‘Greater Shock Than Before’
Analysts say Iran stands to be hurt more by the latest U.S. sanctions than by previous measures, in large part because of the effectiveness of the latter.

Lucas says Iran’s economy was “already battered” by previous rounds of sanctions. “It’s a weakened economy that going to have to take a greater shock than before.”

And Majidyar notes that the latest U.S. penalties — which completely return the sanctions dropped in the 2015 deal, after a first round targeting financial transactions, aircraft, and heavy metals was reimposed in August — may not be the last.

He says the U.S. Department of State may next designate Iran’s powerful Islamic Revolutionary Guards Corps (IRGC) a foreign terrorist organization (FTO). The U.S. Congress is expected to introduce additional sanctions on Iran and its regional allies, and the Trump administration could try to work with its allies to impose human rights-related sanctions on Tehran as well, he says.

Frud Bezhan is a correspondent for RFE/RL who covers Afghanistan, Iran, and Pakistan.

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No Room for US Concessions on Iran’s Civilian Nuclear Aims

Washington should return to its previous policy of preventing civilian advances.

by Jacob Nagel and Jonathan Schanzer

The National Interest, November 7, 2018

The Trump administration, after reinstating sanctions on the Iranian regime Monday, now seeks to convey that more pressure is on the way. But the messaging by U.S. officials has been mixed, leaving some doubt as to where Washington’s Iran policy goes from here.

For example, it was unclear until only a few days ago whether Iran would be booted from SWIFT, the Belgium-based financial messaging service that is crucial to keeping Iran’s central bank connected to the international banking system. A majority of Iranian banks are now slated to be disconnected from the ubiquitous messaging system, leaving only a few to remain connected for humanitarian transactions.

Despite some doubts and uncertainty over recent weeks, the new sanctions will see a majority of Iranian banks cut off from the vital SWIFT inter-bank financial messaging service.

However, the connected banks can be easily exploited, necessitating strict oversight. And it’s still unclear how Washington plans to monitor their activity.

The administration sought to convey a much tougher line on Monday when the U.S. Department of the Treasury unleashed a massive sanctions tranche of seven hundred re-designated entities, plus another three hundred new ones. But even then, there appeared to be some leniency for the Iranian regime. Specifically, the administration granted waivers for civilian nuclear cooperation on three separate Iranian projects—in the now infamous facilities of Arak, Fordow and Bushehr.

The desire to help Iran maintain access to advanced western nuclear technology and knowhow is curious. For one, if the goal is to apply maximum pressure on Iran, it should not be limited to oil and financial sanctions, even if they are the most important components of a financial pressure campaign. If the goal is to isolate Iran, nuclear knowhow should also be forbidden.

Trump Administration waivers for civilian nuclear cooperation on Iranian projects – like the Bushehr nuclear reaction above – are unwise, Nagel and Schanzer argue. 

The decision is also odd because we now know what Iran seeks to do with its civilian nuclear program, thanks to vast amounts of documents that the Mossad lifted from a secret nuclear warehouse in Tehran earlier this year. Those files made clear that Iran seeks to apply its civilian nuclear knowledge to its illicit pursuit of nuclear weapons.

Finally, there is a straightforward legalistic argument against American civilian nuclear cooperation with Iran, namely that once America walked away from the nuclear deal, it was no longer feasible to maintain. With the re-imposition of sanctions, dozens of nuclear personnel from Iran’s Atomic Energy Agency, Ministry of Defense and Islamic Revolutionary Guard Corps have already been added back to the U.S. Treasury Department’s blacklist .

The Europeans, in their tenacious bid to save what is left of the nuclear deal, argue that providing Iran overt access to nuclear technology under Western supervision is better than Iran secretly making advances without oversight. This is a line also repeated by think tanks in Washington. But this is not a binary equation. Iran would almost certainly pursue both. And if the goal is to prevent Iran from accruing nuclear knowledge, for fear that it may make a dash for the bomb at a later date, providing assistance seems unwise, to put it mildly.

For now, it appears the Trump administration has adopted the European view—perhaps as a concession for effectively forcing the Europeans to rejoin the American sanctions regime. But instead of cementing this policy, Washington should take the opportunity to impose a more restrictive policy. This should include more rigorous oversight and real accountability for seller countries of dual-use goods to ensure end user verification. And even if some compromise is reached, there should be no procurement whatsoever for Arak, Fordow or Bushehr.

To stymie Iran’s continued quest for nuclear weapons, the red lines must be clear: no natural and enriched uranium, no conversion and enrichment facilities, no nuclear reactors with weapons-grade plutonium production potential, no reprocessing capabilities, no weaponization system work and no missiles capable of carrying nuclear warheads.

But we must be equally clear about Iran’s quest for nuclear expertise. Washington should return to its previous policy of preventing civilian advances. This should include preventing universities and research institutions, both in the United States and around the world, from teaching, training or employing Iranian students and researchers in the fields of nuclear physics or related fields. The United States should further request that the International Atomic Energy Agency (IAEA) terminate investments and technical assistance for Iranian nuclear projects and end IAEA-hosted seminars and conferences in Iran, as well. Indeed, until Iranian behavior changes, the goal should be to prevent Iran from growing a new generation of nuclear scientists and missile engineers.

Until Iran can comply with Secretary of State Mike Pompeo’s twelve points —eschewing terrorism, political violence, human rights violations and other malign activity—maximum pressure is required across the board. There is no room for concessions—especially not nuclear ones.

Professor Jacob Nagel, a former head of Israel’s National Security Council and national security advisor to Israeli Prime Minister Benjamin Netanyahu, is a visiting fellow at the Foundation for Defense of Democracies where Jonathan Schanzer , a former terrorism finance analyst at the United States Department of the Treasury, is senior vice president.

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European business holds the trump card on Iranian sanctions

by Morgan D. Ortagus

Washington Examiner,  November 01, 2018

Former Obama Administration Treasury official Morgan Ortagus

In just a few days, the United States government will re-impose blistering sanctions on Iran targeting the financial and energy sectors. The administration’s stated goal is to bring Iran back to the negotiating table for a comprehensive deal that not only deals with their nuclear activity, but one that would also attempt to limit their malign influence and their production of ballistic missiles.

If it feels like deja vu, it is. In 2010-2011, I was the deputy U.S. Treasury attache in Saudi Arabia, where one of our main goals was to promote CISADA, the comprehensive sanctions designed by the Obama administration to inflict as much pain as possible to bring Iran to the negotiating table. The pain worked — while the competence of the American team and the effectiveness of the deal is debated, the pressure campaign did indeed help force negotiations.

The Trump administration faces an even tougher battle than did Team Obama as it relates to Iran. Since the president pulled out of the JCPOA, the EU has been working feverishly behind the scenes to protect the relationship between Europe and Iran, including publicly calling for a special purpose vehicle to help businesses avoid American sanctions, and the implementation of a blocking statute also intended to protect European businesses. The EU goal is to continue with the Iran deal alone, without the U.S., by creating a financial channel between their central banks with the Central Bank of Iran. The Trump administration has made it clear, however, that they will compel the Europeans to comply with the new sanctions— either by carrot or by stick.

This means one more rift in the transatlantic alliance. But for the Trump administration, a new and unexpected ally has emerged: European business. The American ambassador to Germany, Richard Grenell, has made pressuring Germany on Iranian sanctions his signature issue. While European governments were making heated announcements about their opposition to the American sanctions, major German companies began announcements of their own: They are leaving Iran, ceasing projects, ceasing to sell auto parts, etc. From the perspective of a corporate CEO, the decision is clear. On the question of doing business in the U.S. or Iran, they choose the American market. In fact, these same CEOs have reportedly made it clear to Ambassador Grenell that not only will they comply with sanctions, but in fact they are not supportive of the EU government’s talk of evading said sanctions.

As this Iranian newspaper notes, the EU has been encouraging European business to defy the US sanctions. However, in practice, business is largely not listening.

What is lost on European governments, but not to business leaders, is that Iran has proven to be a difficult place to do business. After its 30 years of effectively being out of the mainstream of world economics, many emerging market entrepreneurs were salivating to reach a new and potentially explosive untapped market. What European businesses have found instead is a lack of trust with their Iranian business counterparts, inability to get payments on time, and endless arguments over terms. Moreover, after the huge fines paid by European banks to American regulators during the Obama administration, many financial institutions and corporations were loath to enter the Iranian market in the first place.

Former Obama administration officials will mock the effort by Ambassador Grenell and the Trump administration. They do not believe that President Trump will get the Iranians to the table again. And by all accounts, the Iranians have dug in. Iranian President Hassan Rouhani has bragged to his parliament in recent days that Europe has “abandoned” the U.S. on this issue, and even went as far to say, “A year ago no one would have believed that Europe would stand with Iran and against America.” In public, Foreign Minister Zarif expresses an air of confidence with the European wind to his sails. Even former American officials, like John Kerry and Wendy Sherman, have advised the Iranian leadership to wait out the Trump administration — actions which are, at a minimum, highly unethical. But in this fight, Trump is a poker player, and he knows that he holds a full house.

Unless the Iranian regime has a massive change of heart, the new tariffs arrive at the end of this week. And although the president faced tough critics at the U.N., the Iranians have yet to meet a president with this force of will.

On the merits, Trump is right: The JCPOA was a deeply flawed deal that not only failed to prevent Iran from building a nuclear weapon, but also failed to address Iran’s support for terrorism, their malign activities not only in the region but now in Europe, their constant threats of attacks against Israel, and their provocative building and testing of ballistic missiles, a clear violation of U.N. resolutions.

As lines are drawn in the sand, European governments must ask themselves: Is anger at Trump for his tactics worth standing by a brutal regime who has been caught multiple times in the past 6 months planning attacks on European soil? Who just this week tried to assassinate an Iranian dissident in Denmark? Is it worth deepening the wounds of the transatlantic alliance, in order to stand by an enemy of America?

While European governments continue to devise their strategy, it’s clear that the private sector has made its choice.

Morgan D. Ortagus is national security and global affairs analyst, the co-founder of GO Advisors, and the former deputy U.S. Treasury attache to Saudi Arabia.