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Effective Sanctions Relief on Iran for Sanctions’ Sake
Effective Sanctions Relief on Iran for Sanctions’ Sake
A Perilous Turning Point in the U.S.-Iran Confrontation
A Perilous Turning Point in the U.S.-Iran Confrontation

Effective Sanctions Relief on Iran for Sanctions’ Sake

Originally published in The Hill

The one year anniversary of Iran nuclear agreement’s entering into force on Oct. 18, 2015 was buried in the noise and news of U.S. electoral campaign, operation to liberate Mosul and tragic agonies of Aleppo. This in itself is a testament to the accord’s remarkable success in addressing a major threat to global security. But in this success lies a peril: a “done deal” mentality that diverts attention to other priorities, treats implementation as a mere technical or bureaucratic exercise, and fails to remedy its inevitable hitches. Ensuring that Iran’s nuclear program remains peaceful and opening the door a crack or two for new opportunities to build balance, stability and security in the Middle East are worth fighting for.

Over the past year, the International Atomic Energy Agency (IAEA) has confirmed again and again that Iran has fully complied with its commitments. The U.S. and its allies too have implemented their end of the bargain, untangling the intricately woven web of sanctions around Iran, transforming it from the world’s most sanctioned state to the one with the most rigorously monitored nuclear program.

While an increasing number of small to medium-sized banks have re-engaged Iran, the persistence of the sanctions’ chilling effect still deters major financial institutions, thus hampering Iran’s reintegration into the global economy. To resolve the problem, U.S. Secretary of State John Kerry has gone the extra mile, encouraging European firms to do business with Iran – an initiative unthinkable until a few years ago. But the reasons behind these financial obstacles are manifold, and there is plenty of blame to go around.

If the deal’s dividends remain slim, they could discredit the advocates of diplomacy in Tehran and even jeopardize the accord.

Risk-averse banks are concerned that sanctions could snap back into place as a result of Iran’s noncompliance, the next U.S. president’s reneging or Congressional sabotage. Red tape -- U.S. primary trade embargo and secondary sanctions related to Iran’s missile program, regional policies and human rights record and state-level divestment legislations – continue to hamper commercial ties. But this was the inevitable result of a nuclear accord that was a narrow transaction, not part of a sweeping detente.

The Iranian government too has failed, including by not paving the way for the great economic “unshackling” it had promised its people. The country’s abject rank on the World Bank’s “ease of doing business” listing improved only by one level in the run-up to the agreement’s conclusion. Corruption remains rampant; banks are plagued by non-performing loans and low standards; and provocations – from missile tests to harassing the U.S. Navy in the Persian Gulf and sentencing dual national entrepreneurs like Siamak Namazi on phony accusations -- have heightened the political and reputational costs of dealing with Iran.

But the fact remains that nine months after easing the sanctions, not a single bank in London is willing to open an account for the Iranian embassy to conduct its daily business. Similar examples abound.

The sluggish pace of sanctions relief constitutes a serious threat to the accord. It has already dashed popular expectations in Iran, turning its generally pro-Western public opinion against the U.S. and playing into the hands of politicians in Tehran opposed to thawing ties with Washington. If the deal’s dividends remain slim, they could discredit the advocates of diplomacy in Tehran and even jeopardize the accord.

Some adjustments in the Iran deal’s implementation could help avert such perilous consequences.

First, the U.S. administration should provide the Office of Foreign Assets Control (OFAC) at the Treasury Department, which is in charge of enforcing the sanctions, with more resources. OFAC’s staff have been stretched thin by a greatly increased workload: publishing hundreds of pages of guidelines on Iran’s sanctions relief (including the most recent that clarifies how foreign companies and banks can operate with Iran using the U.S. dollar), answering incessant inquiries by foreign firms, granting numerous licenses, and traversing the world to clarify ambiguities.

According to a recent report by the U.S. Treasury the average time for processing licenses last year increased from 71 to 88 business days – a statistics that significantly understates the problems since half of the submissions remained unprocessed. The problem is not just the resources but institutional inertia: traditionally a source of pressure on the private sector to curb business with target countries, today the office is charged with opening the taps.

It is thus no surprise that it took nearly eight months to approve the sale of Boeing and Airbus civilian planes to Iran, which was a cornerstone of the agreement. A commitment by OFAC to publish monthly status reports on progress and create a target of reducing processing times as it enlarges staff could enhance efficiency.

Second, there is a need for more and direct communication between OFAC and the Iranian Central Bank. Contact between the two sides through the Joint Commission created under the deal to monitor its implementation is infrequent and at the diplomatic level, not at the level of experts who grapple daily with the technical and legal problems of normalizing Iran’s banking relations.

Failure here could doom future negotiations with countries, like North Korea, that are watching the Iranian experience carefully.

Third, the U.S. Treasury should rescind the designation of Iran under the USA Patriot Act as a zone of primary money-laundering concern, to facilitate Iran’s rehabilitation in the global financial system. This would be a reasonable follow-on to last June’s decision by the Financial Action Task Force (an international group that monitors money laundering worldwide) to suspend its measures against Tehran in response to the latter’s adoption of an action plan to address its anti-money laundering and anti-terror financing deficiencies. Additional measures to allow Iran to clear foreign currency transactions that require tangential reference to U.S. dollar could also smooth legitimate business with Iran.

Taking these steps is no mean feat for the Obama administration, soon to enter its twilight. Yet ensuring that Iran benefits from the dividends of the nuclear deal is neither a new concession to Tehran nor an endorsement of its regional policies. It is rather a necessity. At stake is not only preserving an accord that has removed the shadow of nuclear weapons from a region engulfed in turmoil, but also the reliability of the U.S. government’s word and even the credibility of sanctions as an instrument of coercive diplomacy.

Failure here could doom future negotiations with countries, like North Korea, that are watching the Iranian experience carefully.

Contributors

Project Director, Iran
AliVaez
Thomas R. Pickering
Crisis Group Board Member
Iranians in Tehran protest against the killing of Iranian Revolutionary Guards' Quds Force commander Qassem Soleimani in a U.S. air strike in Iraq. 3 January 2020. AFP/Fatemeh Bahrami

A Perilous Turning Point in the U.S.-Iran Confrontation

With the assassination of Iranian General Qassem Soleimani, the U.S.-Iran standoff has shifted from attrition toward open conflict. Tehran will retaliate – the only question is how – prompting another response from Washington. Allies of both should intercede to stop the exchange from spinning out of control.

The killing by the U.S. of Qassem Soleimani, the head of Iran’s Islamic Revolutionary Guards Corps Quds Force, marks a dramatic turning point. Soleimani had been in Washington’s crosshairs for many years, and successive U.S. presidents could likely have ordered his assassination in the past. That they chose not to do so suggests that they worried the costs would outweigh the benefits. With his decision, President Donald Trump is making clear that he abides by a different calculus: that, given the vast power imbalance, Iran has far more to fear from war than does the U.S. The strike that killed the Iranian general along with others – notably Abu Mahdi al-Muhandis, a senior commander of the pro-Iranian Iraqi Shiite militia – was, in accordance with this view, meant as a deterrent to further Iranian attacks.

It is almost certain to be anything but. Iran may fear U.S. retaliation, but it fears projecting that fear even more. From its perspective, it cannot allow what it views as a declaration of war to remain unanswered. It will respond and now must decide whether its reaction will be direct or through the array of proxies and allied forces Soleimani helped build; immediate or deferred; in Iraq or elsewhere – in the Gulf, Syria or beyond. The U.S. presence in Iraq, already shaky after the 29 December strike that killed two dozen members of a pro-Iranian Iraqi militia, is now hanging by a thread; the Trump administration may decide to depart preemptively rather than be forced to leave on Baghdad’s orders. The truce in Yemen between Saudi Arabia and Iran-backed Huthi fighters also is in greater jeopardy. Watch in particular for Iran’s announcement of its next steps on the nuclear front, taken in response to Washington’s violation of the 2015 deal. A serious step on 6 January had been predicted; in all likelihood, it just got far more serious.

A U.S. president ... has just brought war one step closer ... many across the region will pay the price.

The U.S.-Iranian game has changed. Their rivalry for the most part played out as an attritional standoff: Washington laying siege to Iran’s economy in hopes that financial duress would lead either to its government’s capitulation to U.S. demands or to its ouster; and Tehran responding with actions that maintained a veneer of plausible deniability. Targeting Soleimani is liable to mark a shift from attrition toward open confrontation.

In short, a U.S. president who repeatedly claimed that he does not wish to drag the country into another Middle East war has just brought that war one step closer. And a U.S. administration that argues it killed the Iranian general in order to avert further attacks just made those attacks more likely. Iran will retaliate; the U.S. will avenge the retaliation; and many across the region will pay the price.

Crisis Group is in the business of policy recommendations aimed at averting conflict. It is also in the business of realism. Some kind of conflict is now all but guaranteed, facilitated no doubt by a series of Iranian actions of which Soleimani was a mastermind, but rooted in President Trump’s ill-advised and reckless decision to exit the nuclear deal and embark on a policy of “maximum pressure” that led, almost inexorably and certainly predictably, to today’s crisis. The outcome is all the more tragic because the contours of a solution have been apparent for months: a tactical détente whereby Iran fully restores its compliance with the nuclear deal, and ends its regional provocations, in return for a reprieve from the crushing impact of U.S. sanctions.

One can only hope that, with encouragement and pressure from the two sides’ respective allies, this perilous tit-for-tat will be relatively contained and of relatively short duration. That, after a few rounds of attack and counter-attack, Washington’s desire to avoid getting sucked into another Middle East war and Tehran’s interest in averting devastating U.S. strikes, will drive both toward de-escalation. One can only hope. The alternative is too horrific to contemplate.