October 19, 2011

The nuclear option: central bank sanctions

Last August, a letter pushed by AIPAC from Mark Kirk (R-IL), Chuck Schumer (D-NY), 92 Senators called for the White House to impose sanctions on Iran’s central bank, Bank Markazi.
Though the Wall Street Journal reported that such action could be considered an act of war, Kirk posed an ultimatum to the Obama Administration–either issue sanctions or we’ll pass legislation to force your hand:

“The administration will face a choice of whether it wants to lead this effort or be forced to act,” Mr. Kirk said.

Now, in the aftermath of the alleged assasination plot, the White House is signaling that it may be going forward with the central bank sanctions.
Such sanctions–if heeded by the international community–would destabilize the rial, Iran’s currency, and make it nearly impossible for Iranians to to import and access basic foodstuffs and medical supplies.
It is clear that the Iranian government, as it is now, receives little to no legitimacy from democratic consent. Yet the strategy going forth is to actively punish the population with sanctions on Bank Markazi, Iran Air, Mahan Air et al and not the government with the expectation that punishing the people is holding the government responsible for its failings and violence.
Kirk says that if we can impose enough punishment on ordinary Iranians, it will spark a revolution that would topple Iran’s government.  Such arguments are not supported by the evidence.  Look at the sanctions in place against North Korea, where the population today is starving.  Or the sanctions against Saddam–some of the most stringent, economically devastating sanctions imaginable against Iraq’s oil exports and banking system.  They did nothing to displace Saddam’s regime, which managed to deflect all of the suffering onto the population.  Ultimately those measures killed half a million ordinary Iraqis and ultimately paved a path to a disastrous war.
Such a step is effectively collective punishment of the people of Iran.  But literally starving average Iranians is just fine according to Kirk, who moonlights as a human rights supporter (as long as supporting human rights means ratcheting up hawkish Middle East policies, not actually protecting human rights).

Imposing crippling sanctions on Iran’s central banking would involve placing the central bank on the Specially Designated National and Blocked Persons List (SDN) administered by the Department of Treasury’s Office of Foreign Assets Control (OFAC).  As Erich Ferrari, a well regarded attorney and Iran sanctions expert wrote on his blog:

“If strictly interpreted this designation could be used to block every transaction in which rials are or have been used that passes through U.S. jurisdiction. This is because once an OFAC blocking of a target party occurs then any transaction in which they have interest is required to be blocked. Central Bank of Iran controls the currency of the rial; therefore, if given a very strict interpretation, they have an interest in every transaction in rials. As such, those transactions could all be blocked. Again, this is a very strict interpretation and its unclear whether OFAC or the U.S. government would take that aggressive of a position in enforcing such a measure.”

Let’s take a step back and think what it means to impose sanctions on Bank Markazi from the perspective of the global economy, strategy and human rights.  Sanctioning Iran’s central bank would wreak untold havoc on the Iranian economy and introduce a high degree of uncertainty to oil and gas markets. While the price of oil and gas going up around the whorl would be the most commonly considered effect of sanctioning Iran’s central bank, the less obvious effects might be the more costly in the long term for the region.
Iran, despite crippling sanctions, is an economic hub, sitting between the Arab world, Turkey, and key markets in Central Asia like Afghanistan and Pakistan.   Sanctioning Bank Markazi would cripple Iran’s ability to be an important economic partner in countries where the United States has key interests in specifically first in Iraq and Afghanistan, then in more developed countries like Turkey and Pakistan.  It is very much in the United States’ interests for Iraq and Afghanistan to be reconstructed; Turkey and Pakistan to be economically stable and productive.
There is a better way forth that involves persistent, robust diplomacy and standing with the people of Iran NOT a strategy that would imperil the global economy, alienate the Iranian people, and place the United States on the path to war. Remember the definition of insanity is to repeat the same thing but expect a different result.
Updated October 20, 2011

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