Full Monty Of Iran Sanctions Biting But May Take Months To Force Change

Jul 02, 2012
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A full monty of sanctions has gone into effect against Iran, the toughest regime of punitive measures since the Iranian nuclear crisis began a decade ago.

The goal is to pressure the Islamic Republic to give the international community guarantees it will not make atomic weapons. A European Union embargo on buying Iranian oil became active on Sunday. This followed the activation last Friday of US sanctions against companies which deal with the central bank of Iran to buy oil. The United States had already convinced such major Iranian oil customers such as China, India, Japan and Turkey to reduce their purchases.

In the Mexican stand-off that is the Iranian nuclear crisis this might look like the big showdown. Well, sort of. The crunch is still months away -- probably next spring -- as the United States wants to allow time for Iran to feel the pain. For its part, Iran is hanging tough for now.

A European diplomat told me: "We will see in the coming months the effect of sanctions," while stressing that the sanctions had already had "an enormous impact." He and US officials said the message has clearly gone out to companies not to do business with Iran. There are anecdotal reports of how hard the sanctions are hitting Iran. Residents of Tehran are reining in even their food shopping as the sanctions force a slowdown in economic activity. Then there are the statistics. The International Energy Agency says that Iran's oil exports, the lifeblood of the country's economy, are down by about 40 percent. The Iranian currency, the rial, has plunged and inflation has increased to 20 percent. Iran is stockpiling unsold oil wherever it can, including on its own tankers, and may even have to shut off some oil wells, a costly move in fields where the productive capacity has been dropping for years.

Iranians officials are clearly squirming. The Financial Times reported last week that all Iranian oil tankers had been reflagged, renamed and repainted in an effort to avoid sanctions.

And yet the words coming out of Iran are ones of defiance, rather than of compromise. Iran announced missile tests on Sunday and warned that US bases were within its missile range. It said it would wipe Israel "off the face of the earth," if the Jewish state attacked, Reuters reported. Revolutionary Guards General Amir Ali Hajizadeh was quoted saying Iran was "resolute in standing up to ... bullying, and will respond to any possible evil decisively and strongly."

Meanwhile, Iranian central bank governor Mahmoud Bahmani was quoted saying in another report that Iran has built up $150 billion dollars in foreign reserves and was "implementing programs to ... confront these malicious policies." While Iran's foreign reserves may be less than this, experts think Iran has enough to run its economy for some 14 months, even without any oil income at all. And while oil income will be down this year from past highs, the Islamic Republic will still be making from $44 billion to $50 billion in 2012 from selling its crude. This gives Iran resources to remain unbending in the short term. The question is how tough they will be able to be as the months go on.

This question is also a key one for talks between Iran and a US-led group of six major nations negotiating with the Islamic Republic. A recent push for diplomacy stalled after Iran refused to make a key concession on its nuclear work, namely stopping enrichment of uranium at levels closer to weapon-grade. Iran made clear in the last round of talks -- in Moscow in June – that it wanted something in return immediately, such as having its right to enrich uranium unequivocally acknowledged or getting sanctions relief. But the six nations – the United States, Russia, China, Germany, Britain and France – insist that Iran must make a confidence-building move and then do even more, such as suspending enrichment entirely if sanctions are to be lifted. Said the European diplomat about this first phase of negotiations: "It was never considered that sanctions would be postponed."

The United States, with Israel looking over its shoulder, does not want to appear weak in the talks with Iran. Some analysts have put this down to electoral politicking, namely that President Barack Obama cannot seem to be an appeaser as campaigning gears up for US presidential elections in November. While this might be a factor, US officials close to the talks insist that negotiating tactics are not driven by political campaigning. The US negotiators simply do not trust Iran, which has managed to develop its nuclear program while negotiating in various international forums since 2003.

In 2003, Iran had no production lines of centrifuges enriching the fissile material which can be power reactor fuel, but also bomb material. Now Iran has almost 10,000 centrifuges turning. It has forged ahead with its program despite apparent assassinations of Iranian nuclear scientists, which Iran says were done by the United States and Israel, and cyber attacks against the centrifuges themselves. The six nations' goal in any negotiations at this point is to insist on real progress in reining in Iran's nuclear work. Said the European diplomat: "In true negotiations, one makes concessions." But so far in senior-level talks -- in Istanbul in April, Baghdad in May and Moscow in June -- there was "engagement but no bargaining," according to another diplomat.

Iran, which claims its nuclear work is a peaceful effort to generate electricity and does not include a bomb program, puts the failure in talks down to the six nations unwillingness to make concessions. But it has not walked out on negotiations, leading some analysts to think Iran wants a deal but is not willing to make the first move. In any case, the process has stalled. Experts from the two sides are to meet in Istanbul on Tuesday but no more high-level political meetings are scheduled at this point.

What happens if there is no progress in talks? Sanctions will continue and be tightened through better enforcement. There will be a continued effort to get as many nations as possible to carry out sanctions. In addition, waivers which Obama granted countries like China for reducing their purchases of Iranian oil by up to 22 percent come up for review in six months. The next rounds of waivers will almost surely require larger cuts in purchases. Mark Dubowitz, of the Foundation for Defense of Democracies, says the United States and Europe should "blacklist the entire Iranian energy sector as a 'zone of primary proliferation concern,' preventing international companies that do business in the United States or the European Union from doing business with it." But others say the sanctions are getting close to a level that would be considered an act of war.

In any case, there IS the looming threat of war. A key factor here will be how much technical progress Iran makes, and thus how much of a threat of breaking out to make nuclear weapons it presents. Some so-called red lines have already been passed with no attack taking place. Such red lines, which it once was thought unthinkable for Iran to pass, were upping the level of uranium enrichment closer to weapon grade and outfitting with centrifuges a second enrichment site at Fordow, built under a mountain and so perhaps impregnable to an air bombing.

The Iranian nuclear crisis is littered with cautionary lines which have gone from red to pink to white as they failed to trigger any muscular, kinetic response. Obama has said that containment is not an option in dealing with Iran, but some think containment is actually what is taking place. As they say in investment advice, past performance is no guarantee of future returns. The crisis in Iran is a showdown in slow-motion, but it is still a showdown. There is no guarantee it will end well.

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