The Middle East Program hosted a discussion on Dec. 11 with Stuart Levey, Under Secretary of the Treasury for Terrorism and Financial Intelligence, Department of the Treasury; Robin Wright, journalist, author and Public Policy Scholar, Woodrow Wilson Center; and Jahangir Amuzegar, international economic consultant and former executive at the International Monetary Fund. The meeting focused on what Robin Wright described in a recent New York Times Magazine article, "Stuart Levey's War," as an effort by the Department of the Treasury to isolate Iran from the international financial system.

Levey described the strategy as a way to create leverage to peacefully confront the complex challenge posed by Iran. Rather than use traditional trade-based sanctions, which have acquired a bad reputation, Levey said the Department uses "targeted financial measures" to identify specific individuals and agencies within Iran that are engaged in illegal activities. By focusing on specific elements, Levey said, the Treasury can more successfully build an international coalition, not just of governments but of private companies, to deny Iran access to foreign capital and credit.

Levey stressed the value of engaging the private sector; while private companies traditionally try to evade sanctions, they are reluctant to be associated with specific Iranian programs once they are revealed to be linked to illicit activities such as terrorism financing, money laundering or nuclear proliferation. The effect of the Treasury's efforts has been to essentially destroy Iran's "credit rating"; there is almost no foreign investment in Iran because no financing is available.

These efforts mainly affect those doing international business in Iran, those who have the means and the resources to exert some pressure on the regime. Levey concluded by mentioning that President Mahmoud Ahmadinejad's polarizing rhetoric and economic mismanagement have been instrumental to this strategy, uniting world opinion against Iran while exacerbating the effects of the financial siege on the Iranian economy.

Wright characterized this policy as one of the few effective measures pursued by the Bush administration against Iran. Despite extensive cooperation during the initial campaign in Afghanistan, she said, the Bush administration subsequently alienated Iran with hostile rhetoric while failing to consider how the Islamic Republic would be empowered by the outcome of the Iraq War.

Wright noted that over 90 banks around the world have curtailed or cut back on financial dealings with Iran. As a result, these measures have added some 20 percent to the cost of Iran's imports. She cautioned, however, that Iran has displayed an enormous adaptive ability, shifting to rely more on money flows brought into the country by alternative means. Hawala, Arabic for "transfer," is an informal monetary transfer system being used by Iranians living abroad, particularly in Dubai. The long-term impact of the Treasury's strategy relies, in part, on preventing these activities as well.

In his presentation, Amuzegar questioned the effectiveness of this strategy. He argued that while the Treasury had certainly impacted Iran's economy, Iran remains regionally powerful and has been courted by non-U.S. dominated associations, such as the Gulf Cooperation Council and the Shanghai Group. He pointed out that Iranian reserves in European banks have actually grown this year.

Amuzegar also questioned the target of Levey's measures, saying that they mostly hurt individual Iranian entrepreneurs already frustrated with the regime. While he ceded that the Treasury's strategy is effective, Amuzegar warned that it may alienate people who were already supportive of the changes Washington wants to see.