all of them took swipes at the Central Bank of Iran for the first time.
None of them, however, took the much-discussed “nuclear option” of banning all dealings with the Central Bank, which would severely constrict the Iranian economy. But they all took their first actions against the Central Bank and seemed to be tiptoeing up to more drastic action in the future.
The European Union is expected to take action on new Iran sanctions December 1, when its foreign ministers hold their monthly gathering.
The actions taken Monday by the US, Britain and Canada appeared to be more psychological than practical. Although there were practical aspects, the chief goal appeared to be to paint the Islamic Republic as an even greater pariah than before and a country that responsible people should not wish to deal with unless they wanted to be tabbed as aiding terrorism and nuclear proliferation.
The United States named Iran as an area of “primary money laundering concern,” a step designed to dissuade non-US banks from dealing with Iran, blacklisted 11 entities suspected of aiding Iran’s nuclear programs, and expanded sanctions to target non-American companies that aid Iran’s oil and petrochemical industries. It was the first time the United States had specifically targeted Iran’s petrochemical industry, which is growing rapidly and whose exports are now a major money earner.
The United States stopped short, however, of targeting Iran’s Central Bank, a step that could have cut it off from the global financial system, sent oil prices skyrocketing and jeopardized US and European economic recovery.
American financial institutions are already prohibited from doing business with Iranian financial firms, including the Central Bank. The new rules will require US banks to ensure that none of their relationships with foreign banks are used to benefit Iran.
US banks “will be scrambling over the next several weeks to put in additional procedures” to check on foreign correspondent banks, because they don’t want any connection to money laundering, David Caruso, chief executive officer of Dominion Advisory Group LLC, an anti-money laundering firm based in Centreville, Virginia, told Reuters.
In a coordinated action, Britain ordered all British financial institutions to stop doing business with their Iranian counterparts, including the Central Bank. British officials said it was the first time in history that the British government had cut off an entire country’s banking system from the British banking sector. However, officials said the new sanctions would not directly target trade in Iranian oil, allowing that to continue.
Canada said it would ban the export of all goods used in Iran’s petrochemical, oil and gas industry and “block virtually all transactions with Iran,” including with its Central Bank, with an exception for Iranian-Canadians to send money home.
Separately, the Swiss government added to its sanctions on Iran Friday by adding 116 names to its blacklist, including Foreign Minister Ali-Akbar Salehi. Swiss sanctions now cover 250 individuals and institutions.
The key Obama Administration action was the declaration that the entire Iranian financial sector, including its Central Bank, is involved in money laundering.
Any institution or company that engages in transactions with Iran’s banking system is “at risk of supporting Iran’s illicit activities—its pursuit of nuclear weapons, its support for terrorism,” Treasury Secretary Timothy F. Geithner told a press conference. “Financial institutions around the world should think hard about the risks of doing business with Iran.”
This is a continuation of a policy begun in 2005 of trying to embarrass foreign banking institutions into avoiding Iran. This embarrassment policy has worked to some extent—but it has also failed big time as evidenced by the $1.2 billion in fines imposed on Barclay’s, Lloyds and Credit Suisse for clandestinely helping Iran process payments through the US banking system in violation of US law.
The series of announcements were in response to the International Atomic Energy Agency (IAEA) report of November 8 suggesting Iran had worked on designing an atomic bomb.
In Tehran, Ramin Mehman-Parast, the Foreign Ministry spokesman, said, “Countries undertaking these measures themselves have economic problems and their governments have the least support among their people.” The new sanctions are “in vain,” he said, and won’t affect Iran’s economy or its will.
Majlis Speaker Ali Larijani promised that Iran would strike back. “This will not go answered,” he said. “We will review our ties with them.… There will be a tit-for-tat reaction.” He didn’t explain how Iran could sanction Britain, Canada and the United States.
Russia dismissed the new sanctions as “unacceptable,” saying they would damage any chances of renewing negotiations with Tehran over its nuclear program.
A sharply worded Russian statement underscored Moscow’s longstanding opposition to sanctions beyond those endorsed by the United Nations Security Council, where Russia holds veto power as a permanent member. Russia seems especially incensed that the Western states are just ignoring Moscow—which earlier put the kibosh on new sanctions—by going off on their own. The Western states’ actions have the effect of making Russia less relevant politically in the world, something resented in Moscow.
Few expect the new sanctions to force any change in Tehran. “Is this the straw that will break the camel’s back? No,” said George Perkovich, director of the Nuclear Policy Program at the Carnegie Endowment for International Peace, a Washington think tank.
In Tehran, Trade Minister Mehdi Ghazanfari made a rare admission that sanctions were hitting the Iranian economy, but he warned Western countries they were harming their own interests.
“Sanctions are a lose-lose game in which both sides make a loss. If they don’t invest in our oil projects, they will lose an appealing market,” Ghazanfari told a news conference, ignoring the fact that Iran is actually a very small market from the global perspective.
Ghazanfari insisted that Iran had found alternatives to Western imports and investments but did not deny the downside. “Facing hardship in a fight is inevitable. I admit projects will get harder as our trading costs will go up, delays will hit projects and money transfer will get harder,” he said.
US banking restrictions have already made it extremely difficult for many global oil companies and traders to obtain bank financing to trade Iranian crude, of which less than a third now goes to Europe.
Japan, China, India and South Korea are now the top four buyers of Iranian oil, according to the US Energy Department. The latest sanctions may not affect China, but will put pressure on Japan and South Korea, which in 2010 bought 10 percent and 6 percent of Iran’s exports respectively.
