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U.S.: New Iran Sanctions Could Bring Unintended Blowback

Barbara Slavin

WASHINGTON, Aug 11 2011 (IPS) - A new Congressional push to sanction Iran’s Central Bank is aimed at reducing Iranian oil revenues, but could backfire and hurt the global economy.

On Tuesday, the Wall Street Journal disclosed a letter to the White House signed by 92 senators urging the Barack Obama administration to place new restrictions on dealings with the bank as part of a strategy to “cripple” Iran.

A copy of the letter, obtained Thursday by IPS, alleged that the Iranian Central Bank “lies at the center” of Tehran’s efforts to circumvent a long list of sanctions already imposed on the Islamic Republic by the United States and other countries.

Such a step – on top of prior sanctions that bar Iran from most transactions in dollars and make it hard for it to deal in euros – would make it even more difficult for Iran to obtain hard currency for its oil exports.

Experts on the Iranian economy told IPS that the intent was not to cut Iranian oil sales – which could cause a spike in global prices and ultimately help Iran’s oil-dependent economy – but to worsen the terms of trade with Tehran by giving more leverage to customers such as China, India and Turkey to strike hard bargains for Iranian crude.

“If this goes through, the big buyers of Iranian oil will be able to squeeze Iran,” said Kevan Harris, a sociologist at Johns Hopkins who studies the Iranian economy and recently returned from a trip to Iran.

“You want to move the market so that you have a smaller number of buyers” of Iranian oil, added Mark Dubowitz, director of the Iran Energy Project at the Foundation for Defence of Democracies, a Washington think tank that provides research for Congressional staffers crafting sanctions strategy against Iran.

“You want to remove the ‘white-hatted’ [reputable Western] buyers and ruthlessly drive the price down” that Iran receives from remaining buyers, he said.

Dubowitz said that rather than a blanket ban on dealings with the Iranian Central Bank, he would prefer barring certain transactions that he claimed facilitate the Iranian nuclear programme and support for terrorism, allow Iran to sell energy bonds and circumvent existing sanctions on Iranian banks. He called the Senate push the beginning of a “negotiation” with the Obama administration on further sanctions against Iran.

The administration has said – as recently as June – that it does not seek new legislation against Iran and is content to implement already stringent measures in force. However, the White House could act through executive order.

Republican Senator Mark Kirk, one of the main sponsors of the letter, told the Wall Street Journal he would introduce a law to sanction the central bank if the White House didn’t act by the end of this year.

“The administration will face a choice of whether it wants to lead this effort or be forced to act,” Kirk told the paper.

The move comes in the context of growing hawkishness against Iran in Washington, with neoconservative pundits questioning the success of sanctions and suggesting that military action might be necessary to slow Iran’s nuclear progress. The Obama administration has refused to rule out a “military option” even as it stresses economic measures.

The Senate letter, whose other main sponsor was Democratic Senator Chuck Schumer, got a big endorsement from the American Israel Public Affairs Committee (AIPAC), the influential Jewish lobby group that has made stopping Iran’s nuclear programme a major priority.

In a press release, the group said, “We urge the administration to heed the Senators’ call to sanction the CBI [Central Bank of Iran]. With other sanctions in place, the bank is Tehran’s remaining lifeline to the international financial system. Sanctioning it would deal a key blow to the regime by severely limiting its ability to conduct international trade and finance illegal activity.”

The group did not make anyone available Thursday to discuss with IPS the possible downsides of such a move.

Sanctioning the Central Bank would punish ordinary Iranians, something the Obama administration has said it wants to avoid, and could undermine what had been a growing international consensus against the Iranian nuclear programme. It could also jack up oil prices at a time when the global economy is teetering on the verge of a second recession.

“Some experts in international law view this as equivalent to a declaration of war,” said Trita Parsi, president of the National Iranian American Council, an advocacy group for Iranian Americans.

He added, however, “When push comes to shove, this administration is not likely to pick a fight with Congress over Iran in an election year.”

Harris agreed that sanctioning the bank would be “economic warfare” against Iran. He said the architects of the plan were “following the headlines” which have catalogued Iran’s difficulties getting paid in hard currency for oil already exported. China sometimes pays Iran in goods, not cash, he said.

After abortive efforts to pay Iran through an Asian financial facility and a bank in Germany, India is finally managing to clear five billion dollars in back payments to Iran through a Turkish bank.

In an interview last week with an Iranian newspaper, Etemaad, Hamid Reza Katuzian, chair of the Iranian parliament’s energy committee, faulted the head of the Central Bank for ordering the oil ministry to continue delivering oil to India despite the long delay in payment for prior shipments.

“There is disarray in the overall economic policies of the government,” Katuzian said. “There is confusion and chaos and it is not clear who is in charge… When we sell oil on credit, then we have to get the guarantees for it. You cannot just give them the oil and say God willing they will give us our money. Well, what if they don’t pay, especially countries that are problematic such as India with such records of getting the oil and paying with rupees instead of dollars.”

Harris told IPS Iran needs a steady infusion of dollars or euros to prop up its sagging currency, the rial, and to continue to give cash payments to Iranians to compensate them for ending subsidies on consumer staples. The current Iranian budget, he noted, is based on Iran getting at least 85 dollars a barrel for its oil.

“If they’re selling oil much lower than that, that will cause a crisis,” Harris said. He warned that new sanctions could backfire if a desperate Iran decides to punish the world by suddenly withdrawing its oil from the market.

“You have to be careful what you wish for,” Harris said. “You are really playing a dangerous game.”