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Effective Sanctions Relief on Iran for Sanctions’ Sake
Effective Sanctions Relief on Iran for Sanctions’ Sake
Iran Navigates the World
Iran Navigates the World

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

Senior Adviser to the President & Project Director, Iran
AliVaez
Thomas R. Pickering
Crisis Group Board Member

Iran Navigates the World

In his prologue to The Geopolitics of Iran, edited by Francisco José B. S. Leandro, Carlos Branco, and Flavius Caba-Maria, our Middle East expert Joost Hiltermann says policymakers should come to grips with the country's lived experience to understand why dialogue and diplomacy are the best way to deal with the Islamic Republic.

Foreword

Imagine the view from Tehran. It is early 2021. You are an Iranian, with inherited memories of empire and conquest, yet also of foreign invasions and defeat; a citizen of a country isolated in the world, yet also a rising power accused of hegemonic ambitions, one that may be poorly managed but also has accumulated and deployed remarkable technical brainpower; you’re part of a population kept down by harsh economic sanctions but that has proved doggedly resilient; you’re saddled with a leadership that champions a revolutionary ideology, now fading, even as it projects its power across the region; and you belong to a society that veers between forbearance and protest, but is kept in check by a security apparatus that uses an effective blend of co-optation and naked repression to stay in power. 

This is Iran today – located on a geopolitical junction between the Asian and European continents, hemmed in between former Soviet republics, Turkey, Afghanistan and the Arab world, and commanding a strategic chokepoint – the Strait of Hormuz – through which flow one fifth of the world’s global oil consumption and a quarter of its LNG trade. The country is a magnet for foreign interests as it strives to escape its containment and attain its full potential, which it deems an entitlement after four decades of isolation.

For centuries, Iran has fought for its security and survival by warding off outside threats. For the same length of time it also has forged critical alliances with external powers to better insulate itself against such threats. It has had experience of foreign powers vying to partition the country into spheres of influence. Yet in the process it has perfected the art of divide and rule in confronting both internal and external challenges. Ever since its Islamic revolution, it has attempted to project its power into its neighbourhood, initially in Lebanon but also, in the more recent past, in Iraq, Syria and Yemen, where it succeeded by capitalising on the weakness and mistakes of its adversaries. The 2011 Arab uprisings, and their destructive aftermath, proved a turning point as Arab states collapsed, creating a vacuum into which Iran, among others, was keen to step before one of its rivals would. It thus spread or deepened its influence partly by design but mainly by default, either way terrifying its enemies.

Its main strategy in the region, from the days it established Hezbollah in the wake of Israel’s 1982 invasion of Lebanon, has been to court local non-state allies, and to arm and train them. For this it used the Qods Force, an expeditionary arm of the Islamic Revolutionary Guard Corps, the Pasdaran, commanded by Qasem Soleimani until his killing in an American drone strike in January 2020. 

That attack was part of an unremitting U.S. effort to keep Iran leashed, which started with the Islamic revolution and hostage crisis more than 40 years ago. Even the Obama administration, which sought to overcome the bitter legacy of the 1953 CIA-orchestrated coup that overthrew the elected government of Mohammad Mosaddegh, the embassy hostage-taking, and ongoing sparring in the Middle East and beyond, remained intent on keeping Iran contained. 

The next administration, led by Donald Trump, went back to the old way, throwing the nuclear accord President Obama had negotiated out of the window, re-imposing sanctions, and endeavouring to clip Iran’s regional power projection through economic coercion and military deterrence. This campaign, dubbed “maximum pressure”, further impoverished a population already stressed by a badly run economy while failing to achieve any of its stated objectives: further limiting Iran’s nuclear program, reducing its footprint in the region, destabilising the country, and forcing its leadership back to the negotiating table on far less favourable terms.

To the contrary, Iran appeared undeterred, if perturbed, by sanctions and setbacks, which merely re-empowered the hard-line elements of its political class. It lashed out at the U.S. and its allies in the region, displaying an astute sense of how close to the limit it could take an escalation short of precipitating a full-throated U.S. military response. On the nuclear front, it countered new U.S. sanctions by incrementally violating the nuclear deal, but it made clear its steps were reversible and that indeed it would reverse them should the Trump administration or its successor come around or the Europeans decide to compensate Iran. The arrival of the Biden administration seemed to offer a new opening. 

The experience of both the Obama and Trump years shows that the Islamic Republic is here to stay unless one of two things happens: a violent overthrow by the United States and its allies, or its collapse in a popular uprising. Neither scenario appears likely. The 2003 Iraq invasion showed the limits of U.S. power in the region, and even laid bare its vulnerabilities through the consequences it unintentionally unleashed: the empowerment of jihadist groups. The U.S. learned an important lesson, which it heeded in subsequent discussions about the wisdom of using American power in the pursuit of regime change and state rebuilding in Libya and Syria. And while a significant segment of the Iranian population may be thoroughly fed up with the clerical leadership – there is every indication many people are – they appear to have neither the means to effectively counter a deeply entrenched repressive security apparatus nor a viable alternative.

It is an axiom of international relations that one negotiates with one’s enemy. As long as the notion that the Islamic Republic will somehow disappear remains as fanciful as it is today, Iran and its adversaries will have to find ways to accommodate one another. This requires dialogue and diplomacy. From their side, the Iranians have proved to be as capable as diplomats as they have been in military affairs, and have shown they can effectively combine the two. The United States, by contrast, has shown inconsistency and, at least in the last four years, an unhealthy resort to coercion as the only way of dealing with Iran. A return to such an approach, during the Biden administration or the one succeeding it, might well deliver a self-fulfilling prophecy: the further rise of a vengeful power, nurtured by the resourcefulness that its long isolation forced it to develop, now with explicitly hegemonic ambitions and an ability to disrupt an oil-dependent global economy.

There is much to recommend the volume in front of you. Its main objective is to show why and how Iran has been and remains a relevant actor in the international order, and particularly in the context of the Middle East – a regional power we ignore at our peril. To accomplish this, this volume: addresses Iran’s intertwined interests and perceptions, basing the country’s foreign policy-making on its religion-inspired ideology and four-decade enmity with the United States; examines Iran’s relations with states in its wider neighbourhood, as well as with world powers – China, the European Union and Russia, in addition to the United States; and offers an array of scholarly views on the many and various aspects of Iran’s durability in an unsparing world. 

In doing so, this volume offers a window on Iran looking in, providing a glimpse of a nation’s lived experience. It is as close as we can come to a firm grasp of how such an experience can be lived in the first place. May it serve a global audience that values the importance of reciprocal understanding as the foundation for sound decision-making in the management of inter-state relations.