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Effective Sanctions Relief on Iran for Sanctions’ Sake
Effective Sanctions Relief on Iran for Sanctions’ Sake
From Diatribes to Dialogue: Why Iran and Saudi Arabia Are Talking
From Diatribes to Dialogue: Why Iran and Saudi Arabia Are Talking

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

From Diatribes to Dialogue: Why Iran and Saudi Arabia Are Talking

When reports surfaced in April that senior security officials from Saudi Arabia and Iran had met in Baghdad to discuss their two countries' troubled relationship, at least three pertinent observations came to mind about the state of the cold war that has played out in the Gulf region ever since Iran's Islamic revolution in 1979. For one, the arrival of the Biden administration and its distinctly diverging Iran strategy from the Trump administration helped convince the Saudis of the need to recalculate their own approach toward Iran. For another, in pursuing talks, Saudi leaders are suggesting that diplomacy may stand a better chance of achieving their objective of containing Iran than confrontation. And finally, in this scenario, the two sides have given Iraq the chance to stand up as a facilitator for diplomacy and offer itself as a neutral venue.

This all leads to an important conclusion, as well: It is as good a time as any to restart discussions about an inclusive, region-based dialogue aimed at de-escalating tensions in the Gulf.

These tensions go back decades. The year 1979 was pivotal in producing what transpires today. It saw not only a dramatic move in Iran from secular monarchy to Shia theocratic republic, but also, following the siege of Mecca in late 1979, Saudi Arabia's own transformation from passive custodian of Islam's holiest sites to zealous global missionary of Wahhabism, an intolerant strain of Sunni Islam. These two developments in Tehran and Riyadh helped polarize the region's politics and alliances, with very little neutral ground between the two powers. The rift was primarily between two opposing political systems that evolved into struggles over geopolitical influence, but often found expression in ethnic and sectarian terms.

The Saudis view Iran as an aggressive power hell-bent on exporting its brand of Shia political Islam to Shia communities throughout the Arab world, to undermine sitting Arab regimes. They attribute to Iran hegemonic ambitions, extending even to the perception among some Saudis that it has its eyes set on imposing its religious supremacy over Mecca and Medina. They see Iran spreading its tentacles throughout the region via non-state armed proxies, from Lebanon following the 1982 Israeli invasion; to Iraq after the U.S. removed Saddam Hussein's regime and its security forces in 2003 without replacing them with a viable alternative; and to Syria, Yemen, and Bahrain in the wake of the 2011 popular uprisings and their resulting political and security vacuums.

Diminished by four decades of relative isolation and international sanctions, Iran nonetheless parlayed weakness into strength, learning to rely on its own resources and resourcefulness to again become a regional powerhouse

This view is both overstated and misstated. While Iran has tried to convert its non-state allies and their followers to its notion of vilayet-e fakih—roughly translated as rule by a preeminent religious leader—it has been conspicuously ineffective. Tehran has had more success in arming and training them to play paramilitary and political roles, from Hezbollah in Lebanon, to the Popular Mobilization, or al-Hashd al-Shaabi, militias in Iraq, to the Houthis in Yemen. But its reach has been limited by these groups' distinct domestic agendas that do not always converge with Iran's regional one, and by the fact that Iran, while part of the region, is also somewhat of an outsider: large, non-Arab and seemingly menacing, like Turkey, with memories—and perhaps fresh aspirations—of all-encompassing empire. Diminished by four decades of relative isolation and international sanctions, Iran nonetheless parlayed weakness into strength, learning to rely on its own resources and resourcefulness to again become a regional powerhouse, one able to defend itself without major foreign support.

Yet even this success should not be overstated. Iran's economy is a mess and society is deeply dysfunctional. Because of its continued international isolation, Iran still cannot rise to its full potential.

In turn, Iran sees Saudi Arabia as a toothless U.S. protectorate that nonetheless threatens its security by being part of a four-decade-old American strategy of using Washington's regional allies to encircle Iran and snuff out what remains of its revolution. Iran's main preoccupation is with the U.S. military presence in the Middle East, not with Saudi Arabia or any of the other Gulf Arab states as such. But to the extent that it sees these states as marching in lockstep with U.S. diktats—hosting its troops, purchasing its sophisticated weaponry, and jacking up oil production to make oil-related sanctions on Iran bite—it views them as threats, and thus also as potential targets. Iran has made clear that if it is attacked by the U.S., it may retaliate by wreaking havoc on the economies of the Arab states across the Gulf, with their vulnerable, oil-dependent infrastructure and shipping lanes.

All the while, U.S. power projection in the region has waxed and waned, even as its enmity toward Iran has endured. Saudi Arabia and the other Gulf actors have learned not to fully trust their powerful patron. While successive administrations in Washington have continued to extend a protective strategic umbrella over these allies, they have not always done so with great equanimity or enthusiasm. President Barack Obama warned Saudi Arabia not to drag the U.S. into its own regional squabbles, yet his administration gave it a free pass in Yemen. President Donald Trump tried to enlist Saudi Arabia in his "maximum pressure" campaign against Iran—and make it foot the bill through U.S. arms purchases. The Trump administration did not rush to the Saudis' aid following a major attack in 2019 on Aramco's oil facilities—combined drone and missile strikes suspected to have been carried out by Iran—though it did ramp up the U.S. military presence in the kingdom in its aftermath, to reassure their jittery friends in Riyadh. And President Joe Biden is showing himself to be decidedly cool toward a Saudi crown prince, Mohammed bin Salman, found likely responsible for ordering the murder of a prominent Saudi dissident, Jamal Khashoggi, and who has pursued an unwinnable and costly war in Yemen (one long green-lighted and supported by successive administrations in Washington).

Saudi Arabia is now reckoning that its best bet lies in making nice with Iran as long as the nuclear talks progress

The change in the White House and the U.S. turn back to diplomacy under Biden, most notably in the effort to work with Iran in restoring the 2015 international deal that curbed its nuclear program, has been the main factor in persuading Riyadh to recalculate its approach toward Tehran. Having hitched its wagon to Trump's "maximum pressure" but seen it signally fail in constraining Iran, Saudi Arabia is now reckoning that its best bet lies in making nice with Iran as long as the nuclear talks progress. It feels increasingly under attack from the Houthis in Yemen, who rain missiles on Saudi territory while pushing Riyadh's Yemeni allies to the edge of military defeat. It wants to extricate itself from this war, but cannot do so without Iranian help.

What can Saudi Arabia offer Iran in return? We don't know what Saudi and Iranian security officials discussed in Baghdad, but it is conceivable that the Iranian side seeks Saudi acceptance of the nuclear deal's revival and a meaningful political role for the Houthis in a postwar Yemen.

The fact that these talks took place in Iraq is significant. Iraqi Prime Minister Mustafa al-Kadhimi is not alone in wanting to turn his country from a battleground for outside powers into a bridge between them. He is well positioned to bring that about. The result could be promising for peace and stability in a country whose internal fissures have offered the U.S., Iran, Saudi Arabia, Turkey, and others plenty of opportunity to make mischief.

All these factors now point to a chance for Gulf actors, starting with Saudi Arabia, to work toward reducing regional tensions by lowering their inflammatory rhetoric and start talking with Iran—to move from diatribes to dialogue. The greatest risk of outright confrontation comes from the lack of adequate communication between both sides of the Gulf. This can be rectified, but only if they pursue new relationships, launch discussions on matters of pressing common concern, including the damaging effects of climate change, and open new communication channels, like the one just witnessed in Baghdad—which is why it was such a welcome development.