by Jim Lobe
Exactly three weeks ago, a confident Dennis Ross, President Barack Obama’s top Iran policy-maker for most of his first term, made the following assessments and predictions in an op-ed entitled, ironically, “Don’t Discount the Iranian Election:”
So now Ayatollah Khamenei has decided not to leave anything [...]]]>
by Jim Lobe
Exactly three weeks ago, a confident Dennis Ross, President Barack Obama’s top Iran policy-maker for most of his first term, made the following assessments and predictions in an op-ed entitled, ironically, “Don’t Discount the Iranian Election:”
So now Ayatollah Khamenei has decided not to leave anything to chance. …If there had been any hope that Iran’s presidential election might offer a pathway to different policy approaches on dealing with the United States, he has now made it clear that will not be the case. His action should be seen for what it is: a desire to prevent greater liberalization internally and accommodation externally.”
…Clearly, the Supreme Leader wanted to avoid the kind of excitement that Rafsanjani would have stirred up had he continued making public statements, as he has over the last two years, about Iran’s need to fix the economy and reduce Iran’s isolation internationally (a theme he has emphasized in recent years). But the exclusion of Rafsanjani from the election is also an important signal to anyone concerned about Iran’s nuclear program. If the Supreme Leader had been interested in doing a deal with the West on the Iranian nuclear program, he would have wanted [former President Akbar Hashemi] Rafsanjani to be president.
I say that …because if the Supreme Leader were interested in an agreement, he would probably want to create an image of broad acceptability of it in advance. Rather than having only his fingerprints on it, he would want to widen the circle of decision-making to share the responsibility. And he would set the stage by having someone like Rafsanjani lead a group that would make the case for reaching an understanding. Rafsanjani’s pedigree as Khomeini associate and former president, with ties to the Revolutionary Guard and to the elite more generally, would all argue for him to play this role.
…(T)he fact that the Iranian media is lavishing attention on [Saeed] Jalili certainly suggests that he is Khamenei’s preference, even though he has the thinnest credentials of the lot.
If Jalili does end up becoming the Iranian president, it will be hard to avoid the conclusion that the Supreme Leader has little interest in reaching an understanding with the United States on the Iranian nuclear program.”
Three weeks later, we know not only that Jalili did not win the election, but that the candidate backed with enthusiasm by both Rafsanjani and former reformist president Mohammad Khatami — Hassan Rouhani — did. Moreover, during his campaign, Rouhani did exactly what, in Ross’s assessment, made Rafsanjani’s candidacy unacceptable to Ali Khamenei: he spoke “about Iran’s need to fix the economy and reduce Iran’s isolation internationally…” — themes which he repeated in his 90-minute post-election press conference. In addition, Rouhani — given his 15 years on the Supreme National Security Council — appears to be an excellent vehicle for creating “an image of broad acceptability of [an agreement on Iran's nuclear program] in advance” if Khamenei were interested in such an accord. And, although he isn’t a former president like Rafsanjani, Rouhani’s reputed ability to bridge differences between conservatives, pragmatists and reformists would help Khamenei “widen the circle of decision-making to share the responsibility” of a deal. He would also be well placed to “lead a group that would make the case for reaching an understanding.”
Thus, if we assume, as Ross did three weeks ago, that Khamenei leaves nothing to chance and has the power to do so — a very questionable assumption among actual Iran experts (see here and here for examples) — then we might also see Jalili’s defeat and Rouhani’s surprise victory on what was essentially Rafsanjani’s platform as clear signals that Khamenei is indeed “interested in doing a deal on the Iranian nuclear program.” The only missing element in this scenario was Rafsanjani who, as noted above, strongly backed Rouhani and helped rally the centrists and reformists behind him. In light of Ross’s previous assessments regarding how the supreme leader signals his intentions on nuclear negotiations, would it be unreasonable to expect that Ross would not only be somewhat humbler with respect to his understanding of Iranian politics, but also rather hopeful about prospects for a real deal?
On the question of humility, the answer is not really, at least judging by his latest analysis, entitled “Talk to Iran’s New President. Warily.” Ross doesn’t even mention Jalili, Khamenei’s previously presumed chosen one. And while Ross seems genuinely puzzled by why Khamenei “allowed Mr. Rowhani to win the election,” particularly in light of the fact that the president-elect had “run against current [Khamenei-approved] Iranian policies,” he still sees the supreme leader as all-powerful, implying that Rouhani would not have won had Khamenei not approved of his victory.
As to the meaning of Khamenei’s permitting Rouhani to win, Ross floats four possible options, none of which, however, admits the possibility that Khamenei is prepared “to do a deal” acceptable to the West (a possibility for which Ross, just three weeks before, believed could have been signaled by the Guardian Council’s approval of Rafsanjani’s candidacy). He does entertain the possibility that Rouhani gained Khamenei’s approval for reasons related to the nuclear issue, but strictly for tactical purposes — not to reach a final accord that would preclude Iran’s attaining “breakout capability” (as would presumably have been possible if Rafsanjani had won the presidency):
He [Khamenei] believes that Mr. Rowhani, a president with a moderate face, might be able to seek an open-ended agreement on Iran’s nuclear program that would reduce tensions and ease sanctions now, while leaving Iran room for development of nuclear weapons at some point in the future.
He believes that Mr. Rowhani might be able to start talks that would simply serve as a cover while Iran continued its nuclear program.
Ross, who has been arguing for several months now that Washington needs to drop its approach of seeking incremental confidence-building accords with Iran in favor of making a final ultimatum-like offer (backed up by ever-tougher sanctions and ever-more credible threats of military action) that would permit Tehran to enrich uranium up to five percent (subject to the strictest possible international oversight in exchange for a gradual easing of sanctions), goes on to reject any let-up in pressure on Tehran.
Even if he were given the power to negotiate, Mr. Rowhani would have to produce a deal the supreme leader would accept. So it is far too early to consider backing off sanctions as a gesture to Mr. Rowhani.
We should, instead, keep in mind that the outside world’s pressure on Iran to change course on its nuclear program may well have produced his election. So it would be foolish to think that lifting the pressure now would improve the chances that he would be allowed to offer us what we need: an agreement, or credible Iranian steps toward one, under which Iran would comply with its international obligations on the nuclear issue.”[Emphasis added.]
Now, I, for one, find this reasoning difficult to understand. Ross may be right that external pressure was responsible for Rouhani’s election, but I suspect that it was a good deal more complicated than that, and, in any event, one of the last people I would seek out for an explanation as to why Rouhani won would be Ross, given his assessments of Iranian politics just three weeks ago. But to assert that easing pressure on Iran once Rouhani takes office (as a goodwill gesture) would somehow reduce the chances that Rouhani would be allowed to make concessions on the nuclear issue just doesn’t make much sense, if, for no other reason, virtually all Iran experts agree that Khamenei (and presumably hard-liners in and around his office) don’t believe Washington really wants an agreement because its ultimate goal is regime change. (Just today, Khamenei, while insisting that “resolving the nuclear issue would be simple” if hostile powers put aside their stubbornness, noted, “Of course, the enemies say in their words and letters that they do not want to change the regime, but their approaches are contrary to these words.”) If Khamenei is to be persuaded otherwise, Washington should work to bolster Rouhani and the forces that supported him in the election.
Indeed, most Iran specialists whose work I read argue that Rouhani’s election has really put the “ball in President Obama’s court”, as the International Crisis Group’s Ali Vaez wrote this week. They say that the response should not only be goodwill gestures, such as a congratulatory letter on his inauguration, but far more generous offers than what has been put on the table to date. Vali Nasr, for example, made the point last week when he argued that Rouhani “will likely wait for a signal of American willingness to make serious concessions before he risks compromise.”
For the past eight years, U.S. policy has relied on pressure — threats of war and international economic sanctions — rather than incentives to change Iran’s calculus. Continuing with that approach will be counterproductive. It will not provide Rowhani with the cover for a fresh approach to nuclear talks, and it could undermine the reformists generally by showing they cannot do better than conservatives on the nuclear issue.
…There is now both the opportunity and the expectation that Washington will adopt a new approach to strengthen reformists and give Rowhani the opening that he needs if he is to successfully argue the case for a deal with the P5+1.”
Paul Pillar made a similar point in the National Interest last week:
Rouhani’s election presents the United States and its partners with a test — of our intentions and seriousness about reaching an agreement. Failure of the test will confirm suspicions in Tehran that we do not want a deal and instead are stringing along negotiations while waiting for the sanctions to wreak more damage. …Passage of the test …means not making any proposal an ultimatum that is coupled with threats of military force, which only feed Iranian suspicions that for the West the negotiations are a box-checking prelude to war and regime change.”
“The Iranian electorate has in effect said to the United States and its Western partners, “We’ve done all we can. Among the options that the Guardian Council gave us, we have chosen the one that offers to get us closest to accommodation, agreement and understanding with the West. Your move, America.”
And, in contrast to Ross, who believes that time is fast running out and the “multilateral step-by-step approach …has outlived its usefulness,” the Brookings Institution’s Suzanne Maloney argued in Foreign Affairs that
To overcome the deep-seated (and not entirely unjustified) paranoia of its ultimate decision-maker, the United States will need to be patient. It will need to understand, for example, that Rouhani will need to demonstrate to Iranians that he can produce tangible rewards for diplomatic overtures. That means that Washington should be prepared to offer significant sanctions relief in exchange for any concessions on the nuclear issue. Washington will also have to understand that Rouhani may face real constraints in seeking to solve the nuclear dispute without exacerbating the mistrust of hard-liners.
In spite of this advice, things are moving in the opposite direction. On July 1, tough new sanctions to which Obama has already committed himself will take effect. Among other provisions, they will penalise companies that deal in rials or with Iran’s automotive sector. The Republican-led House is expected to pass legislation by the end of next month (that is, on the eve of Rouhani’s inauguration) that would sharply curb or eliminate the president’s authority to waive sanctions on countries and companies doing any business with Iran, thus imposing a virtual trade embargo on Iran. Other sanctions measures, including an anticipated effort by Republican Sen. Lindsay Graham to get an Authorization for the Use of Military Force (AUMF) resolution passed by the Senate after the August recess, are lined up.
It would be good to learn what Ross, who is co-chairing the new Iran task force of the ultra-hawkish Jewish Institute for National Security Affairs, thinks of these new and pending forms of pressure and whether they are likely to improve the chances that Rouhani will be able to deliver a deal.
]]>by Siamak Namazi
The United States Treasury has issued a new explanation for the shortage of medical drugs and equipment in Iran. They claim the Iranian government is intentionally trying to exploit the problem for political purposes. A senior US Treasury official recently pointed to just-released US International Trade Statistics (USITS) [...]]]>
by Siamak Namazi
The United States Treasury has issued a new explanation for the shortage of medical drugs and equipment in Iran. They claim the Iranian government is intentionally trying to exploit the problem for political purposes. A senior US Treasury official recently pointed to just-released US International Trade Statistics (USITS) to support this claim, arguing that while these figures show falling medicine exports to Iran, the export of wheat has gone up, therefore, Iran could use whatever banking it used for the wheat to procure medicine.
Not really. At least the data that’s being referred to proves no such thing.
The USITS data showed a drop from $31.2 million to $14.8 million in US pharma exports from the US to Iran between 2011 and 2012. These figures are highly misleading and seriously discount the scale of the problem. I checked the sales figures of a single large US pharmaceutical company (on the conditional of anonymity) with the person in charge of them out of Dubai. Well, this American company alone experienced a drop of sales to Iran from around $50 million to $20 million during the same time period.
The USITS data simply shows what goods left the US directly for Iran. This is while the US pharma company is likely to have supplied Iran with drugs from a manufacturing or storage facility in Europe, Dubai or Singapore.
The food figures are just as inconclusive. Sure, they went up because of an $89 million sale of wheat in 2012. Keep in mind that $89 million is nothing; it’s peanuts for a country that often imports over $1 billion of wheat. Such a figure probably amounts to one or two single orders at best. When did that take place? Early 2012, before the tightening of sanctions? Was it part of the $1.4 billion Shell-Cargill deal allowing Shell to pay its debts to Iran by crediting Iran’s account with Cargill (if that actually went through?).
All in all, the trade figures of the USITS are irrelevant to the debate at hand.
There are many arguments among pundits when it comes to the overall effectiveness of sanctions against Iran and whether or not they will ultimately persuade decision-makers in Tehran to change their nuclear policies.
But the effect of sanctions on the shortages of medical equipment and drugs in Iran is much easier to assess. Talk to the people in charge of the Iran account among the American and European pharma companies and ask them where the problem is. It’s not that hard to understand: these companies need to get paid and banking channels are very limited while Iran has a shortage of hard currency (I mean Euros and Dollars, not Rupees and Yuan); therefore, the amount of trade is curtailed. Perhaps the fact that only one international bank remains willing to brave the wrath of US sanctions — even though we are talking about fully legal trade under humanitarian exemptions — lends further testimony to where the main problem exists.
Let me be perfectly clear: sanctions are not the sole problem here. The Iranian government deserves stern criticism for its maladroit handling of the shortages of medicine and medical products. It must dramatically improve its foreign currency allocation competence and transparency, as well as governance of the sector, and it must crackdown on corrupt practices.
However, the Iranian government alone cannot solve the issue of Western medicinal shortages. Sanctions are a major impediment and unless Washington and Brussels rethink the humanitarian waivers — specifically by removing the banking bottleneck and allowing Iran to convert some of the money it earns from oil sales to Euros and Dollars for the narrow purpose of clearing trade debt related to medical drugs and equipment — this problem is going to get worse, not better.
A recent study that a group of independent consultants conducted for the Wilson Center explains this issue’s various complications and their solutions in more detail.
– Siamak Namazi is a Dubai-based consultant and a former Public Policy Fellow at the Woodrow Wilson Center for International Scholars.
]]>By Erich C. Ferrari and Samuel Cutler
Contained in the Defense Authorization Act (NDAA) of 2013, and signed into law by President Obama on January 2, are sweeping new sanctions targeting Iran over its disputed nuclear program. The new measures target foreign entities engaging in a wide array of transactions with [...]]]>
By Erich C. Ferrari and Samuel Cutler
Contained in the Defense Authorization Act (NDAA) of 2013, and signed into law by President Obama on January 2, are sweeping new sanctions targeting Iran over its disputed nuclear program. The new measures target foreign entities engaging in a wide array of transactions with Iran, including the sale of any goods supporting Iran’s energy, shipping and shipbuilding sectors, the sale of raw materials such as aluminum, steel, and coal, the provision of insurance, or underwriting services in support of any activity for which Iran has been subjected to US sanctions.
Lawmakers quoted by the Wall Street Journal said that the new sanctions move closer to a complete trade embargo on Iran. Importantly, the US currently maintains a complete trade embargo, with exceptions for humanitarian exports and a positive licensing program for divestment activities and certain academic and cultural exchanges with Iran. The new sanctions will therefore have little impact on the legality of US companies still engaging in licensed trade with Iran. Any new steps that restrict Iran’s ability to buy or sell goods and services would need to be enforced through the threat of US secondary sanctions.
Secondary sanctions, known pejoratively as extraterritorial sanctions, are designed to prevent foreign individuals and entities from conducting activities that US primary sanctions seek to prohibit by imposing various penalties, including revoking access to the US market. They have been increasingly used over the past 3 years by the United States to pressure foreign countries and entities into curtailing their business dealings with Iran. Beginning with the Iran Sanctions Act of 1996 and gaining wide spread notoriety with the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA), the US government maintains the authority to impose secondary sanctions on a wide variety of activity involving Iran, including but not limited to the importation of Iranian crude oil, dealings with entities sanctioned under Weapons of Mass Destruction (WMD) or Terrorism-related programs and the export to Iran of refined petroleum products.
By and large, these measures have been extremely effective at cutting Iran off from large swaths of the global economy. Sanctions on Iranian financial institutions have been particularly effective as most foreign banks are loathe to risk their access to the all-important American financial system and have responded by cutting off all ties with Iran.
The effectiveness of secondary sanctions is largely dependent on buy-in from the rest of the world. Following the passage of new sanctions included in the 2012 NDAA, Iranian oil exports have dropped to under 1 million barrels per day. A number of factors contributed to the sanctions’ success. For example, international concern over the continued development of Iranian enrichment capabilities convinced some states that additional economic leverage was needed to pressure Iran to resume negotiations. While the NDAA directed countries to “significantly reduce” their purchases of Iranian oil, the European Union announced its intention to institute a full oil embargo just 3 weeks after the act’s passage.
This does not mean that all of Iran’s trading partners would have acted in the same manner without the existence of sanctions. An increase in the global supply of crude oil due to greater production levels in Saudi Arabia, Iraq, and Libya coupled with lower demand as result of the global economic slowdown has allowed Iran’s customers to reduce their purchases without dramatically increasing the price of crude. Waivers included in the law have also allowed importers of Iranian oil to gradually reduce their purchases so as not decrease the associated economic costs. So, despite repeated denunciations of US unilateral sanctions in public, China has quietly reduced its purchases of Iranian oil, as have Iran’s other East Asian customers. By complementing new sanctions with robust diplomatic engagement and managing the economic costs of compliance, the United States has been able to ensure fairly broad acceptance of its efforts to economically isolate Iran.
Indeed, secondary sanctions targeting Iran have faced roadblocks in the past when a consensus regarding their utility was lacking. In 1996, Congress passed the Iran and Libya Sanctions Act, which was renamed the Iran Sanctions Act (ISA) in 2006 following Libya’s decision to give up its WMDs. The bill directed the President to sanction foreign companies that provided investments of over $40 million towards the development of petroleum resources in Iran. The EU responded by threatening to file a World Trade Organization complaint against the US due to French petroleum giant Total SA’s involvement in a $2 billion deal to develop Iran’s South Pars gas field. President Bill Clinton was forced to issue a waiver for the project in 1998 and Secretary of State Madeline Albright later promised that similar projects would not be sanctioned. It would be another 12 years before any entity was subjected to ISA sanctions.
The reality is that the Executive’s use of secondary boycotting measures has been fairly limited. For example, only two banks have lost their ability to maintain correspondent banking relationships with the US because of the Iranian Financial Sanctions Regulations mandated by CISADA: Elaf Islamic Bank and Kunlun Bank. Moreover, the Executive branch, not Congress, is tasked with the implementation of the secondary boycotting measures. In other words, while Congress can continue to provide tools for the Executive to impose additional sanctions, the actual implementation is left to the President.
Yet the impact of numerous rounds of congressionally mandated secondary sanctions is greater than the sum of its prohibitions. Due to the confusing and oftentimes overlapping nature of different US sanctions programs, the international business community has in large part withdrawn from the Iranian market in fear of running afoul of US law. Sanctions on Iranian financial institutions have been particularly effective, as the mere existence of CISADA-authorities have convinced most foreign financial institutions to cut off all ties with Iran.
In practice, secondary sanctions are the equivalent of speaking softly, but carrying a big stick. However, the US has departed from the diplomatic strategy of Theodore Roosevelt. Indeed, the latest round of secondary sanctions are a form of neo-big stick diplomacy; the US is now speaking loudly and carrying a big stick.
- Samuel Cutler is a policy adviser at Ferrari & Associates, P.C. and Erich Ferrari is the principal of Ferrari & Associates, P.C., a Washington, DC boutique law firm specializing in US economic sanctions matters.
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