WASHINGTON ““ In the decades since the 1979 Iranian Revolution, U.S. sanctions policy on Iran might be described as one of pistachios and Persian carpets: With few exceptions, little beyond these typical Iranian exports is allowed to breach U.S. shores, and the reverse applies to U.S. exports.
Now, unless Iran makes good on its recent promises to open up its nuclear facilities to international scrutiny, Washington is set to use U.S. leverage in world trade to extend those sanctions worldwide.
The Obama administration has given its congressional allies a green light to move ahead with legislation that would effectively create a choice for any foreign entity dealing with Iran: Stop trade with the Islamic Republic or forget about trade with the United States.
U.S. Sen. Chris Dodd (D-Conn.), the chairman of the Senate Banking Committee, called a hearing Tuesday that would wrap existing and proposed legislation into a single omnibus sanctions bill. In the U.S. House of Representatives, Rep. Howard Berman (D-Calif.), the chairman of the Foreign Affairs Committee, is set to allow similar legislation to advance.
“I am committed, as I think my colleagues are as well, to ensuring that this Congress equips this president with all of the tools he needs to confront the threats posed by Iran,” Dodd said.
The central component of the legislation is found in a bill proposed earlier this year by Sens. Evan Bayh (D-Ind.), Joe Lieberman (I-Conn.), and Jon Kyl (R-Ariz.). It cuts off from U.S. trade any company, nation, or individual that “sold, leased, or provided to Iran any goods, services, technology, information, or support that would allow Iran to maintain or expand its domestic production of refined petroleum resources, including any assistance in refinery construction, modernization, or repair.”
Iran is a major oil producer, but its refineries are in disrepair and it imports 25 percent to 40 percent of its refined petroleum.
If refined petroleum exporters fall into line, the impact could be devastating because gasoline subsidies have been key to sustaining Iran’s faltering economy.
The revelation last month that Iran has maintained a second secret uranium enrichment plan has reduced reluctance in the Obama administration and in Congress to make the leap to the more draconian sanctions.
“The thinking is, this is not the time for half measures, this goes for the jugular,” one congressional insider said.
The preference is for the U.N. Security Council to enact similar sanctions should Iran fail to meet its obligations by the end of the year. But the likelihood of a fourth round of Security Council sanctions is in doubt: Three rounds have been imposed since 2006 (in December 2006, March 2007, and March 2008), and Russia and China, major Iran trading partners, hold vetoes in the council.
If the Security Council falters, Congress will be ready to act, said the congressional insider, who asked not to be identified to protect the privacy of the process.
The United States introduced its own direct sanctions after Iranian students, with government sanction, held U.S. Embassy staffers hostage in 1979. President Ronald Reagan enhanced the sanctions in his first term. Today they are among the most far-reaching in their strictures.
The Treasury’s Office of Foreign Assets Control lists allowable imports as gifts valued at less then $100, food (including the pistachios), carpets, and texts. Exports are generally banned unless specifically licensed by the treasury office.
Treasury officials are exacting about such bans. One December 2003 letter by the office allows a petitioning U.S. company to include Iranian companies in its searchable database but bans the company from enhancing in any way the Iranian companies’ publicity material. (The company’s name is censored from the document.)
Under such conditions, a U.S. carpet broker could direct a client to an Iranian retailer, but he apparently would violate the law if he added photos or even cleaned up the English on materials provided by the Iranian company.
The sanctions being advanced by Dodd and Berman are not the first “secondary” sanctions – targeting third parties doing business with a rogue regime – that the United States has imposed on Iran. Such sanctions have been in place since the 1980s, and they became stricter in 1995. American Israel Public Affairs Committee lobbyists capitalized on the jockeying at the time between the Republican Congress and the Clinton administration over who was more hawkish when it came to dealing with rogue states.
The sanctions ordered by President Clinton, which were enshrined in laws passed by Congress, created a menu of six sanctions-targeting entities, including businessmen, companies, and even nations, that invested more than $20 million in Iran’s energy sector.
These are still in place and the menu includes, according to a 2006 State Department summary, sanctions that deny the entities the right to import into the United States; access to U.S. government markets or the U.S. Export-Import bank, the main facilitator of export dealings with the United States; opportunities to trade with the U.S. military; the ability to make loans exceeding $10 millions with U.S banks; and access to dealings in U.S. government funds.
The graduated severity of the sanctions – cutting off imports altogether is more wounding, for instance, than merely cutting trade with the U.S. military – was meant to allow the president flexibility in dealing with offenders, depending on the severity of the offense.
They were tailored as well to adhere to international laws, administered through the World Trade Organization, that restrict secondary sanctions – legislated, in part, because of how Arab League sanctions have targeted entities that deal with Israel.
The sanctions in the Bayh bill are much more severe. Not only do they essentially ban all refined petroleum exports with Iran – beyond the $20 million investment threshold in the earlier sanctions – but instead of allowing the president a menu, they become law. The president must waive the law in order to bypass the ban.
The breadth of the Bayh sanctions might not pass the World Trade Organization test, according to Keith Weissman, the former Iran analyst for AIPAC who helped shape the 1990s sanctions.
“There may be WTO consequences,” he said.
The sanctions may also create problems for China-U.S. ties, Weissman noted.
“Iran tends to do deals with Third World companies in China, in Indonesia,” he said.
Chinese companies implicated are likely state-owned, which would theoretically subject China’s government to sanctions. The Obama administration’s outreach to China, encompassing issues as diverse as climate change and disarming North Korea, is delicate.
Backers of additional sanctions say that such tests may never come to pass: The effectiveness of sanctions is less in their reality than in their threat, as a Sword of Damocles hanging over Iran traders. They note that none of the sanctions on the Clinton-era menu have ever been enacted – by Clinton or President George W. Bush.
The earlier sanctions legislation “had a huge effect; companies were afraid we’d impose it on them,” said the congressional backer of new sanctions. “The whole point of the legislation is to get people to act.”
Another concern is that the sanctions will affect Iranian people. In Iraq, Clinton-era sanctions had the desired effect of killing off Saddam Hussein’s weapons of mass destruction program, but at the same time they helped perpetuate poverty and hunger.
Some Jewish community groups backing sanctions against Iran, particularly the Reform movement, have sought assurances that proposed sanctions will not have similar effects on Iranians.
The congressional insider suggested that it might not be easy to control who is harmed by sanctions targeting the heart of Iran’s economy.
“If you don’t sanction, what do you do?” the insider asked. “I haven’t seen alternatives” from opponents of sanctions.
Backers of sanctions say that engagement through the diplomatic process, favored by opponents of sanctions, does not work without the threat of sanctions.
There are other measures wrapped into Dodd’s initiative that are less controversial among opponents of sanctions. One would expand existing sanctions on companies dealing with Iran’s banks to include its Central Bank. That would effectively cut off Iran’s economy from the U.S. dollar, the pre-eminent currency in world markets.
Dodd also wants to include legislation championed by Obama when he was a U.S. senator that would protect businesses and other entities – including U.S. states – from lawsuits by shareholders when the businesses divest from companies that deal with Iran.