U.S. Ratchets Up Economic Pressure on Iran

WASHINGTON - Under intense pressure from the U.S. Congress and U.S. presidential election politics, the Barack Obama administration Monday declared the Islamic Republic of Iran a "primary money laundering concern" - a designation that stops short of blacklisting Iran's Central Bank but is intended to persuade more foreign governments, banks and companies to curtail business with Iranian financial entities.

Administration officials portrayed the move - coupled with new restrictions on Iran's petrochemical sector and a ban on financial dealings with Iran by Britain and Canada - as a response to an alarming recent report by the International Atomic Energy Agency.

The report provides substantial evidence that Iran carried out extensive research into how to make a nuclear weapon prior to 2003 but is less conclusive about a continuing weapons effort.

However, one impetus for the new sanctions is domestic U.S. politics.

Republican candidates for president have singled out the administration's Iran policy as weak even though the Islamic Republic has never faced such stringent and widespread economic sanctions.

Last week, Sen. Mark Kirk, a leading Iran hawk in the U.S. Congress, introduced an amendment to the 2012 Defense Authorization bill that would effectively bar foreign financial institutions that carry out transactions with the Central Bank of Iran (CBI) from dealings with any U.S. bank. Dubbed the "nuclear option", Kirk has said the measure is designed to "collapse the Iranian economy" by preventing Iran from selling its oil and natural gas for hard currency.

Similar measures are under consideration in the House.

The new U.S. sanctions stop short of blocking all transactions with the CBI, a step that U.S. officials feared would lead to a sharp increase in oil prices and fracture a multilateral consensus against Iran's nuclear activities. Previous U.S. sanctions already blacklist 22 Iranian banks, bar Iran from almost all transactions in dollars, and forbid foreign companies that invest in Iran's energy sector from business in the U.S.

"The administration is trying to buy off Congress, buy off pressure from Israel and make sure nothing will further erode the president's chances for re-election," Suzanne Maloney, an Iran expert at the Brookings Institution in Washington, told IPS.

A statement from President Barack Obama called the new measures "another step to further isolate and penalize Iran for its refusal to live up to its international obligations regarding its nuclear program."

Erich Ferrari, a Washington attorney who specializes in U.S. economic sanctions, said the new sanctions would make it even harder for Iranian Americans to send money to relatives but was not as drastic as sanctioning the CBI.

"We call sanctions like this under the Patriot Act 'baby sanctions'," Ferrari told IPS.

Sanctioning the CBI would have obligated U.S. banks to block any transaction that went through that bank, he said. Monday's measure will mean "additional reporting requirements and increase the cost to U.S. financial institutions" of facilitating transactions for which U.S. citizens must already obtain a license from the Treasury's Office of Foreign Assets Control, Ferrari said.

Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy Geithner announced the new sanctions jointly. In addition to designating Iran as a "a jurisdiction of primary money laundering concern", the administration bars the sale or lease of goods and technology to Iran's petrochemical sector worth more than one million dollars for a single transaction or five million dollars for deals over a 12-month period.

Iran experts said the new U.S. measures would increase hardship for the Iranian government and people but would be unlikely to convince Iran to curb its nuclear program.

Countries such as China, which has become Iran's chief trading partner in recent years, will not go along with the new sanctions. Much of China's 30-billion-dollar annual trade with Iran is conducted through barter deals that provide goods and services in return for Iranian crude.

India, Spain, Italy, Greece, Japan and South Korea are also major buyers of Iranian oil, while Turkey purchases much of its natural gas from Iran.

Both Clinton and Obama said Iran had a choice - to curtail its nuclear program or face increasing isolation and economic pressure.

Maloney said, however, that the latest punitive measures would not be sufficient to change Iran's posture, particularly at a time of fractious internal politics.

"If anything, this will reinforce paranoia in Tehran that this is all about regime change," she said. She expressed concern that there is "no adult supervision" of Iran policy in the Obama administration and that "no one is thinking ahead" about the consequences of further weakening the Iranian economy.

The measures may also not be sufficient to placate Congress.

Kirk, while welcoming the administration's decision "to put the world on notice" about the CBI, gave no indication that he would withdraw his amendment.

"Now we need to move forward with bipartisan legislation to collapse this terrorist bank and stop Iran's pursuit of nuclear weapons before it's too late," a statement from the senator said.

A spokesman for Kirk's office who asked not to be named told IPS that "our plan is to continue the amendment" when Congress returns from a Thanksgiving recess.