U.S. ramps up pressure on Iran

French Foreign Minister Bernard Kouchner says European leaders are considering their own economic sanctions against Iran.
French Foreign Minister Bernard Kouchner says European leaders are considering their own economic sanctions against Iran. Ivan Sekretarev / AP

WASHINGTON — One year after the United States launched an intensified global economic campaign against Iran with the stated aim of halting Tehran’s nuclear work, the Bush administration is counting its successes — and calling for still more pressure.

In recent months, once-reluctant European countries have joined the effort, which some are calling a financial war, with more vigor.

Germany’s largest bank, Deutsche Bank AG, said recently that it would stop doing business in Iran. France has trimmed export credits that encourage business in Iran and advised French firms, including the oil and gas giant Total S.A., not to start new investments there. Even Japan, heavily dependent on Persian Gulf oil, has pulled back from energy projects in Iran.

While hard to quantify, the multi-pronged effort appears to be causing significant pain in Iran, raising the cost of doing business and delaying Tehran’s plans to modernize its inefficient oil and gas industry, according to a dozen U.S. officials, Western diplomats and analysts.

In Washington, the drive for financial sanctions has proved a boon to Bush administration aides seeking to head off military operations against Iran, which Vice President Dick Cheney favors.

Whether it will succeed in thwarting Iran’s nuclear ambitions remains to be seen.

"The Treasury has had some success in jaw-boning financial institutions. That has contributed to decisions by several big banks to stop or reduce business in Iran," said former Treasury official Jeffrey Schott, of the Peterson Institute for International Economics.

But, Schott said, “I don’t think the level of (international) cooperation or intervention will produce noticeable results — and will not dissuade Iran from its policy objectives.”

The U.S. and several European governments see concerted economic pressure as the best hope for a peaceful end to the long-running showdown over Iran’s nuclear programs. But Russia and China worry that sanctions are a slippery slope that will lead to war.

Increased sanctions, coupled with an offer of negotiations if Iran suspends uranium enrichment, is the only approach “that can keep us from facing a disastrous alternative: an Iranian bomb or the bombing of Iran,” French President Nicolas Sarkozy said last month.

The financial campaign, led by the Treasury Department and based on executive orders and United Nations sanctions, has taken on new significance even as a U.S.-led drive to impose more draconian U.N. sanctions on Iran has faltered.

Envoys from six nations will meet in Washington on Friday to discuss an already-delayed third U.N. Security Council sanctions resolution. But of the six, China and Russia oppose more punishment for Iran, and Germany is unenthusiastic. The eventual resolution, if any, is expected to be watered-down, Western diplomats say.

The administration expects to impose new unilateral sanctions against the Quds Force, a paramilitary unit that's part of Iran’s Islamic Revolutionary Guard Corps, according to a senior U.S. official. The official and others spoke on condition of anonymity because they weren't authorized to speak on the record.

Iran, which is permitted under international law to have a civilian nuclear energy program, says its nuclear work is for peaceful purposes. But it has long hidden major aspects of its nuclear program that only recently have come to light.

The six nations meeting in Washington offered in June 2006 to negotiate with Iran over a package of economic, political and security incentives if it would first suspend uranium enrichment.

Neither Iran’s spiritual leaders nor President Mahmoud Ahmadinejad seems ready to negotiate under those terms.

A draft new National Intelligence Estimate on Iran concludes that hard-liners increasingly have the upper hand in Tehran, leaving a bleak outlook for deal-making, according to a former U.S. official who has been briefed on the document.

More broadly, nations from Cuba to Myanmar have managed to survive under economic assault, manipulating sanctions to blame outside forces and rally support from their people.

Another obstacle is here at home, where Secretary of State Condoleezza Rice faces stiff opposition from hard-liners led by Cheney. The Cheney camp argues that diplomacy and pressure are doomed to fail to stop Iran from going nuclear.

Despite the hurdles, the effort to squeeze Iran economically has scored significant gains recently.

Under Sarkozy, France has taken a much harder line with Iran than under his predecessor, Jacques Chirac.

"We have already asked a certain number of our large companies to not respond to (business) tenders, and it is a way of signaling that we are serious," French Foreign Minister Bernard Kouchner said Sunday. "We are not banning French companies from submitting. We have advised them not to.”

“Have the Europeans done everything they need to? No they haven’t. … Have they done more in the last year than they have in the last two decades put together? Yes,” said Danielle Pletka, a vice president of the conservative American Enterprise Institute.

Said a senior Treasury official: “The trend line is quite good.”

Countries of the European Union, Iran’s main trading partner, have significantly cooled economic ties since the U.N. Security Council first imposed financial sanctions in December 2006. Germany and France have both trimmed export credit guarantees.

Iran’s state-owned Bank Sepah, which was named in a second Security Council resolution in March, is close to collapse, according to Pletka and Washington-based diplomats.

Yet in some cases, when Western companies and banks move out of Iran, Chinese or other Asian firms simply move in and take the business.

Pletka, however, said Chinese firms can't always provide the same technology, such as sophisticated equipment for Iran’s struggling oil fields. “There are areas that the Chinese just cannot backstop,” she said.

The financial war began in earnest a year ago, when Treasury Department teams began briefing foreign governments and banks on intelligence the U.S. government had gathered on Iran. Among the findings was that the Central Bank of Iran was trying to conceal its role in financial transactions in which it was involved, a practice on which banks look askance, said the senior Treasury official.

“That’s just as suspicious as it sounds,” he said.

Treasury blocked another state bank, Bank Saderat, one of Iran’s largest, from even indirect access to the U.S. financial system through non-Iranian banks. It alleged that the bank had played a role in financing terrorism.

The Bush administration also pushed European banks to go beyond halting just dollar transactions with Iran. Many major European financial institutions now “don’t want to deal with them in any currency,” the Treasury official said.

Rice and other officials say the entire effort is aimed at hurting Iran’s decision-makers, without punishing the country’s population, which is largely pro-Western in outlook and suffers under decades of economic mismanagement. The big question is whether such targeted sanctions will work.

Said Schott: “Is it having an impact? Yeah. But compared to the damage they (the Western countries) are doing to themselves? I don’t know.”