November 21, 2011

New Iran sanctions coming today

Today the US and UK will announce a new round of sanctions against Iran.  With so many existing sanctions in place, it is helpful to unpack exactly what additional measures are now being enacted.
The UK will implement the “nuclear option” of sanctioning Iran’s central bank, Bank Markazi, severing all ties with Iranian banks:

From 1500 GMT on Monday, all UK credit and financial institutions are required to cease all transactions with banks including the Central Bank of Iran.
It is the first time the UK has cut off a country’s banking sector in this way.

The US on the other hand will not issue blanket sanctions against Iran’s central bank just yet, but will instead designate Iran and its central bank as a “primary money laundering concern” which could prepare the ground for central bank sanctions in the future:

US officials said this new action would serve as a warning to governments and businesses in Europe, Asia and Latin America to wind down their ties to Bank Markazi and their purchases of Iranian crude oil, as even tougher actions likely will be coming down the road.

The Obama Administration is hoping to avoid an oil price spike that could result from issuing blanket sanctions on the Central Bank, stopping just short of taking direct  measures to immediately punish any country or company purchasing energy from Iran:

“This allows foreign countries to think about how to protect themselves and wean themselves off Iranian oil in a way that doesn’t disrupt the energy markets,” a senior US official briefed on the new action said. “This says: ‘You should be thinking quite seriously about cutting off your ties to the central bank’.”

The measure would, “require American banks to conduct additional reporting to ensure their corresponding foreign accounts are not indirectly dealing with Iran.  That extra vigilance, officials say, will have a cascade effect where foreign financial institutions are more reluctant to do business with Iran.”
This builds on the U.S. policy regarding financial sanctions on Iran, “deliberate ambiguity,” which is designed to convince companies and countries that all transactions—even legal ones that support U.S. interests, such as providing Internet communication software or sending humanitarian goods to the people of Iran—carry so much potential risk that they are not worth it.  As a result, we have seen numerous tools for Iranians to communicate blocked by U.S. companies and a marked decline in the legal export of food, medicine, and humanitarian goods to Iranians.
But it is unlikely that such action by the President will be enough to stave off Congressional pressure for blanket central bank sanctions.  Two dueling proposals in Congress are set to go to a vote next week—one, introduced by Senator Mark Kirk (R-IL) would implement Central Bank sanctions immediately, giving no discretion to the president; the other, sponsored by Senator Robert Menendez (D-NJ) would require the president to issue a decision within 30 days on whether Iran’s central bank meets the legal requirement for sanctions, giving him some limited flexibility.
The economic argument—that such measures will raise U.S. gas prices and risk triggering a global recession—has been considered secondary by many lawmakers to the need to enact harsher measures on Iran.
Finally, the U.S. will also issue sanctions today to build on sanctions signed into law last year preventing Iran from obtaining goods to enable it to refine petroleum for use as gasoline:

 Two US officials, who spoke on the condition of anonymity given the diplomatic sensitivities involved, say the State Department will sanction Iran’s petrochemical industry, which is normally used to produce products like plastic and styrofoam but is increasingly used to refine petroleum, as international sanctions have constrained the capacity of Iran’s energy sector.  The new measure aims to discourage foreign companies from investing in that industry because it could inadvertently aid Iran’s energy sector and undermine previous sanctions.

The unintended consequences of today’s actions will play themselves out in time.   When UN and U.S. sanctions were enacted last year, the first effect was that Iranian students seeking to study abroad in the U.S. and UK were denied access to necessary tests in order to do so.  Whether these measures will also raise energy costs and begin to punish ordinary citizens outside of Iran is another question.

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