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Tuesday, May 30, 2006

US Considering Financial Sanctions on Iran

Over the past couple of days, I've been thinking a lot: if the US can squeeze the 'Palestinian Authority' by saying that banks who complete transactions for them will be charged under US law for aiding a terrorist group, why can't it do the same thing to Iran? I'm not the only one thinking that way.

According to today's Washington Post, the US is pressing the Europeans and the Japanese to impose financial sanctions on the Iranians if (as appears likely) it cannot get Iran to drop its nuclear program.

According to the Post, the economic measures were developed by a Treasury Department task force that reports directly to Secretary of State Condoleezza Rice, and go far beyond the diplomatic pressure exerted by the Bush administration to date.

The economic measures would curtail the financial freedom of every Iranian official, individual and entity the Bush administration considers connected to nuclear enrichment efforts, terrorism, government corruption, suppression of religious or democratic freedom, and violence in Iraq, Lebanon, Israel and the Palestinian territories. It would restrict the Tehran government's access to foreign currency and global markets, shut its overseas accounts and freeze its assets that are held in Europe and Asia.

The costs of this ambitious program would mostly not fall on the US. The US has imposed financial sanctions on Iran unilaterally for nearly thirty years. The problem is that the sanctions could not hurt Tehran without having a significant economic impact for some of Washington's friends. That calculation has made the plan difficult to sell, especially in capitals such as Rome and Tokyo, which import significant quantities of Iranian oil.

The Post continues:

U.S. intelligence agencies have spent months trolling through the personal accounts of Iranian leaders in foreign banks, analyzing Iranian financial systems and transactions and assessing how the government does its banking. They have calculated the amount of foreign investment at stake and even which charities have connections to the Tehran government.

Decades of stand-alone U.S. sanctions on Iran, North Korea and Cuba have failed to bring down those countries' leaders or modify their behavior. But U.S. officials believe that if other Western allies join in a sanctions pact, it could magnify pressure on Iran in much the same way that some Bush administration officials believe U.N. sanctions helped persuade Libya to give up its nuclear weapons program in 2003.

With Britain, France, Germany, Italy and Japan on board, collective sanctions would "isolate the Iranian regime" and see it "shunned by the international financial community," according to one internal Bush administration memo.

Under the plan, the major allies involved would freeze Iranian government accounts and financial assets in their countries, much as the United States did after Iranian students took over the U.S. Embassy in Tehran in 1979. Iranian officials who appear on lists being drawn up by U.S. officials would be prevented from opening accounts, trading on foreign markets or obtaining credit.

U.S. officials said in interviews that it is their hope the allies will carry out the punitive measures if Iran refuses a package of incentives the Europeans are preparing to offer in coming weeks.

So far, potential partners have not jumped at the plan, raised again last week in London by senior diplomats from Washington and European capitals. European officials who spoke on the condition of anonymity attributed their reluctance to a reliance on Iranian oil, domestic legal constraints and the fear of being dragged toward another conflict in the Middle East.

In an effort to minimize financial risks, the plan does not include oil or trade embargoes. But, according to a Treasury Department assessment, it could jolt world oil prices nonetheless if Iran responds by limiting exports. The internal assessment also predicts additional economic repercussions for Western allies, such as trade loss, and adverse effects for the Iranian people as their government is squeezed out of global markets and foreign banks stop taking their business.


But the impact on U.S. allies could be steep as well. A Treasury Department memo recently predicted that Britain, which does not import Iranian oil, faces a low level of financial risk if it agrees to implement the sanctions plan. Germany, which imports 1 percent of its oil from Iran, and France, which gets 6 percent, are deemed at medium financial risk, whereas Italy and Japan would be taking the largest risks. The assessment is considered internally "an initial -- first blush -- estimate based on each country's overall volume of exports to Iran, dependence on Iranian oil and degree of investment in Iran oil projects," according to the Treasury memo.

Japan exports nearly $1.3 billion worth of goods to Iran, has nearly $2 billion worth of oil projects there and gets about 12 percent of its oil from the country, which is approximately equivalent to what the United States buys from Saudi Arabia. Italy buys 9 percent of its oil from Iran, and has $3.2 billion in oil investments in the country and $2.7 billion worth of exports to Iran.

Read the whole thing.


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