Read more from Slate’s coverage of the Iranian election and its aftermath.
Before Iran’s June 12 presidential election, President Barack Obama relied on carrots rather than sticks to encourage the Iranian regime to halt its nuclear-enrichment program. But since the violent crackdown against protesters disputing the election results began, the mix of incentives (carrots) and disincentives (sticks) has changed.
What nonmilitary levers of power can the Obama administration use to exert pressure on an increasingly recalcitrant regime?
The central paradox of the Iranian economy is that while the country has the second-largest gas and oil reserves in the world and is ranked as the fourth-largest global oil exporter, Iran’s feeble infrastructure does not allow it to refine enough petroleum, forcing the regime to import up to 40 percent of its gasoline. Iran’s gas sector is enormously vulnerable to external pressure. That helps to explain the Iran Refined Petroleum Sanction Act, which has the support of more than 200 members of the House and 61 senators.
IRPSA would allow the U.S. government to disrupt the operations of foreign businesses that supply refined petroleum to Iran or insure the transportation of gas. Companies such as Norway’s Aker Kvaerner Powergas, which refines Iran’s petroleum, would expose themselves to sanctions, as would German insurance giant Munich Re, which insures ships en route to Iran.
In short, the robust set of sanctions contained in IRPSA would prevent these foreign companies from accessing U.S. markets and capital. IRSPA is, without question, the most paralyzing form of sanctions-based pressure.
A second pressure point is the Iran Sanctions Act of 1996, which prohibits foreign companies from investing more than $20 million per year in Iran’s energy sector. The problem is that the ISA has never been fully applied to foreign entities. It has served as a chilling effect to discourage energy giants like Royal Dutch Shell, France’s Total, Austria’s OMV, and Italy’s Eni from establishing major oil-production operations in Iran. While the Iran Sanctions Act has cowed Total and Eni, in 2008 Royal Dutch Shell exceeded the $20 million cap for the first time in several years.
Royal Dutch Shell’s increased activity in Iran prompted the Dutch Iran Committee, a recently formed nonpartisan NGO that works to stop Tehran’s nuclear-weapons program, to pepper Royal Dutch Shell CEO Jeroen van der Veer with uncomfortable questions about the company’s human rights record in Iran and its possible violations of U.S. sanctions law at May’s annual stockholder meeting. “The Iran Committee finds it incomprehensible that Shell refuses to account for its role in perpetuating Iran’s criminal regime. Furthermore, Shell is disregarding the interests of its shareholders by its short-sighted refusal to acknowledge the risks of investing in Iran, in view of America’s existing sanction policy and further sanctions to come,” declared Frank van Dalen, deputy chairman of the DIC and a former chairman of the Dutch Federation of Homosexuals.
The next round of hard-hitting legislation is the Iran Sanctions Enabling Act, which enjoys bipartisan support in the House and Senate. The legislation, which President Obama sponsored as a senator, permits state and local governments to divest from international companies who invest in Iran’s energy sector. According to the legislation, pension and other fund managers would be insulated from potential legal action.
Independent of the proposed legislation, 14 states have enacted divestment legislation, and six states have adopted a policy of divesting from Iran.
The indirect target of U.S.-based sanctions legislation is European companies who are feeding Iran’s energy and technological infrastructure. President Obama is caught between the Iranian regime and an energy-starved Europe that wants to access Iran’s oil fields and to sell sophisticated technology to the regime. Germany is Iran’s largest EU trading partner, with about 4 billion euros worth of trade in 2008.
The disclosure that German energy and engineering giant Siemens, along with Finnish partner Nokia, delivered surveillance equipment to the Iranian regime—which it appears to have used to limit Internet, mobile phone, and Twitter use in Iran since June 12—is an unfolding scandal in Europe.
But the German Bundestag refuses to turn the economic screws on the more than 5,000 German firms active in Iran or to pass legislation to curtail its flourishing economic relationship with Tehran. That helps to explain why President Obama retained Stuart A. Levey—who as former President Bush’s undersecretary for terrorism and financial intelligence was instrumental in twisting the arms of three German banks (Dresdner Bank, Commerz Bank, and Deutsche Bank) in 2007—to pull the plug on their operations in Iran.
President Obama could also increase the pressure on the Iranian regime by applying sanctions on the Central Bank of Iran. The United States has previously sanctioned the Melli, Mellat, Sepah, and Saderat banks, as well as the Export Development Bank of Iran, because of their support for nuclear proliferation and terrorism. Transactions from the affected banks have been absorbed by the Central Bank of Iran. If President Obama clamps down on the central bank’s operations, it could bring Iran’s financial system to a standstill. Foreign entities and businesses, which rely on the Central Bank, would be denied access to the U.S. financial system. When faced with a choice between doing business with Iran or with the United States, companies would sever ties with the Iranian regime.
Manhattan District Attorney Robert Morgenthau’s office set the creative standard for local entities pursuing rogue banks that are channeling money to Iran. Morgenthau’s office prosecuted Lloyds TSB Bank of London for unlawfully enabling Iran to wire several billion dollars to the United States. Lloyds paid a $350 million fine for its financial misconduct in allowing Iranian customers to pay vendors for oil production equipment and missile-based technology with U.S. dollars. The office is apparently investigating 10 other banks, located in “Western Europe, Eastern Europe, and the Far East,” for alleged illegal ties to Iran.
The involvement of Revolutionary Guards in the brutal suppression of Iranian protesters allows President Obama to enforce Executive Order 13224 of 2007, which designated the Revolutionary Guards as “global terrorists.” German political scientist Matthias Küntzel, a leading expert on German-Iranian economic relations, estimates that 80 percent of Iran’s foreign commerce is controlled by the Revolutionary Guards. The full implementation and enforcement of Executive Order 13224 would allow Washington to impose harsh penalties on foreign companies engaged in trade with the Revolutionary Guards.
In other words, President Obama has enough latitude to modify Iran’s behavior without resorting to military action. However, the Iranian nuclear clock is ticking, and a pressure-point sanctions strategy requires time. And time is President Obama’s enemy.