What happens when Senator Mark Kirk and Rep. Brad Sherman — the two leading advocates in Congress for sanctions that deliberately hurt the Iranian people — get together to design a new Iran sanctions package with the neoconservative “Foundation for Defense of Democracies”?
The result is legislation that would impose extraterritorial sanctions on all Iranian banks and make foreign central banks subject to a U.S. sanctions if they engage in any significant transaction with Iran.  These sanctions would build on the already draconian sanctions on Iran’s central bank that Congress passed last year, and would further compound problems that those sanctions are already causing.
Despite having an exemption for humanitarian items, the sanctions on the Iranian Central Bank are choking off sales of food, medicine, and medical devices — including even those explicitly licensed by the U.S. Treasury.  The chilling effect has been so strong that foreign banks simply won’t facilitate the transactions even though they’re perfectly legal and have the U.S. government’s stamp of approval.  Extending the extraterritorial sanctions to all Iranian banks would be the nail in the coffin for trade in these humanitarian items because there simply wouldn’t be any Iranian banks that could transfer the money needed to actually pay for these goods.
Of course, Iran and foreign countries will set up elaborate workarounds for lucrative oil sales and other major transactions, but it is much less certain whether ordinary Iranians will be able to continue purchasing imported medicine and medical devices.  After all, why would an American company even bother to apply to get a license to sell a medical device in Iran if there is no way to actually sell the device in Iran?
It is unclear if this will concern the bill’s sponsors.  After all, Israeli officials recently went on the record advocating for sanctions to literally starve ordinary Iranians in order to try to get the regime to capitulate on the nuclear issue.
As for sanctioning other countries’ central banks, the downsides are obvious enough.  Imagine how the following conversation might end:

“Hey China, stop trading with Iran or we’ll sanction your central bank. Yes, your central bank…  Umm yeah, I know you have a trillion U.S. Treasury bills…”

Soon enough we’ll hear that these sanctions are necessary to make diplomacy work and won’t spike the price of gas.  When that happens, just remember the words of the Foundation for Defense of Democracies’ Executive Director, Mark Dubowitz, who has said that the sanctions he is advocating for “would quash any hopes for progress through engagement” and “could also shock the oil markets, possibly causing considerable political trouble for Obama in an election year.”

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