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More Than Just Sanctions By: Kenneth R. Timmerman
FrontPageMagazine.com | Friday, January 05, 2007

Nobody believes that United Nations sanctions will make Iran’s leaders do anything they don’t want to do. And yet, the step taken by the United States and our allies on Dec. 23 to impose sanctions on Iran was tremendously significant for its economic, political and psychological impact.

On the economic front, Iran is extremely vulnerable. While its GDP has grown to around $180 billion thanks to the spike in oil prices, this is spread across a growing population of close to 70 million and comes to just
$2,770 per capita. That puts the Islamic Republic on a par with Pakistan, Belarus and Albania – a pitiful performance, especially when compared to Iran’s ranking in the late 1970s during the final years of the Shah.[1]

Today Iran imports an estimated 43% of all refined oil products its citizens use, thanks to investment disincentives and high government subsidies. Forecasts from the Energy Information Agency, a U.S. government body, suggest that Iran’s oil exports could decline by half within five years, and cease altogether by 2015, if the regime doesn’t pump huge amounts of capital and foreign technology into its ageing oil fields.

That vulnerability creates tremendous potential leverage, and at least one man in the U.S. government has shown he knows how to use it.

Since taking office in July, Treasury Secretary Henry Paulson has been meeting face to face with the chairmen of major international banks, arguing that they have an interest in making sure the banking system can’t be used by Iran to fund international terror groups and WMD programs.

In London, Paris, Rome and at the
September Asian financial conference in Hanoi, Paulson has been briefing his counterparts on the “deceptive tactics” Iran has employed to exploit the international financial system for their terrorist ends.

Undersecretary Stuart Levey has been leading Treasury’s financial intelligence efforts for some time. Since taking office, Paulson has beefed up Levey’s shop and given him new powers, which Levey has put to good use.

On September 8, for example, Levey
announced that Treasury was placing new restrictions on so-called “U-Turn transactions,” that allowed the Iranian government’s Bank Saderat to use other international banks as covers to fund terrorist groups worldwide.

Iran has been using Bank Saderat to funnel money to Hezbollah, Hamas, the PFLP-GC and the Palestinian Islamic Jihad. “For example, since 2001, a Hizballah-controlled organization received $50 million directly from Iran through Saderat,” Levey said. “Hizballah uses Saderat to send money to other terrorist organizations as well.”

Through quiet, back-door cajoling, Paulson, Levey and other Treasury Department officials have convinced major international banks over the past year to cut-off new lending to Iran and in some cases scale back outstanding loans. Credit Suisse First Boston and Switzerland’s UBS bank announced they would not do any new business with Iran. Holland’s Holland’s ABN Amro bank and Britain’s HSBC bank have also said they would scale back their business in Iran.

While not as dramatic as seizing a ship full of Iranian-made weapons heading for Palestinian terrorists in Gaza (as Israel did in 2002), these financial steps represent tangible successes in the war on terror.

By choking off access to international financial markets, Levey says that Treasury’s newly-created Office of Terrorism and Financial Intelligence has actually caused terrorist cells to complain they are “having difficulty raising money or paying salaries or benefits.”

In one recent case, Levey said the U.S. has seen “at least one instance of what we look for most - a terrorist organization indicating that it cannot pursue sophisticated attacks because it lacks adequate funding.”

While the impact on Iran’s missile and nuclear programs has yet to be seen, the quiet pressure from the U.S. Treasury could prove to be a more effective tool than other, more visible efforts.

On the political front, the UN sanctions – if they are enforced – will require that Russia and China make a choice between continued support for Iran and their relationship to the United States and the West.

China has inked a number of mega oil and natural gas deals with Iran in recent months that clearly run counter to the Iran Sanctions Act.

In November, Sinopec signed a $100 billion oil development contract with Iran (with Shell taking a 20% stake) that the United States has so far refused to sanction. In early December, Iran announced that CNOOC had signed a preliminary $16 billion deal to develop natural gas exports from Iran’s South Pars field. On December 21, PetroChina announced that it intended to buy large quantities of liquefied natural gas from in the coming years.

So far, no foreign company has faced U.S. sanctions for investing in Iran’s oil and gas sector, despite a clear call for such sanctions in the Iran Sanctions Act. After the Chinese deals were announced, Tom Lantos (D, CA), the incoming chairman of the House International Relations committee, said he would hold hearings on the deals to “examine whether this agreement activates United States law requiring sanctions against companies involved in Iranian energy development.” Such hearings are long overdue.

Iran’s leaders are taking the UN sanctions seriously, and are behaving as if they were under siege.

''From Sunday morning, we will begin activities at Natanz -- the site of 3,000-centrifuge machines -- and we will drive it with full speed,” said Ahmadinejad’s top nuclear advisor, Ali Larijani, just one day after the UN Security council vote. Accelerating the nuclear program “will be our immediate response to the resolution,'' he said.

Ahmadinejad also warned that the UN action was compelling Iran to accelerate its nuclear development program, and hinted that his regime “will celebrate our atomic achievements in February,” well ahead of earlier boasts of unveiling a nuclear surprise in late March 2007.

The United States must press its economic, political, and psychological advantages on the Iranian regime, and couple them with concrete measures to undercut the legitimacy of Tehran’s rulers, if we to have any hope of avoiding a full-scale confrontation with Iran at a moment of Iran’s choosing.

But we mustn’t have any illusions that sanctions and economic pressure will motivate the Iranian regime to change its behavior in the ways that we seek. What these steps will do, however, is increase the likelihood that Ahmadinejad and his Revolutionary Guards supporters will make a dramatic miscalculation, and strike out against us before they are fully prepared, just as Saddam Hussein did when he invaded Kuwait before his nuclear bomb-makers had completed their work.

Now is the time for the Bush White House to build the international coalition it will need to confront Iran when that day arrives.


[1] It baffles me why the CIA World Factbook can take these same figures, and arrive at an estimated per capita income for Iran of $8,400. But then, this is the same CIA that still believes Iran is 5-10 years away from the bomb.

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Kenneth R. Timmerman was nominated for the 2006 Nobel Peace Prize along with John Bolton for his work on Iran. He is Executive Director of the Foundation for Democracy in Iran, and author of Countdown to Crisis: the Coming Nuclear Showdown with Iran (Crown Forum: 2005).

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