Iran’s weekend offer to resume nuclear negotiations, coupled with new flexibility over how and where future uranium enrichment trials may be conducted, represents the first clear evidence that domestic and international pressure on Tehran’s hardliners is beginning to bear fruit.
But the United States military buildup in the Gulf, United Nations sanctions, or even Washington’s latest Iraq ”dossier” are not primarily responsible for this apparent shift. American meddling with the mullahs’ money has been much more effective.
Since imposing penalties last year on Iran’s largest commercial bank, Bank Saderat, for allegedly transferring funds to Hizbullah and other ”terrorist organisations”, the US treasury and associated agencies have been spinning an expanding, entangling web of unilateral sanctions and other punitive measures around Iran’s financial institutions and commercial enterprises.
Where direct US regulatory enforcement is impossible, as with European businesses trading with Iran, American political, diplomatic and other pressures are proving to be almost equally effective.
The unexpected success of similar action last year against a Macau bank used by North Korea’s government appears to have provided a template for the US drive.
Another Iranian state-controlled bank, Bank Sepah, and its wholly-owned British subsidiary, was targeted last month. Washington accused the bank of being ”the financial linchpin of Iran’s missile procurement network” and having links to a North Korean missile technology exporter. As in other cases, US entities and citizens were barred from dealing with the bank while assets under US jurisdiction were frozen. Officials said the US had also ”shared information” with European and other allies and private sector businesses. There is speculation, meanwhile, that three other leading Iranian banks — Bank Melli, Bank Mellat and Bank Tejarat — may be targeted.
Despite legal worries and concerns about ”extra-territoriality” — attempts to apply US laws beyond US shores — European governments are being urged to curtail all types of business with Iran, including commodities and manufacturing.
This goes far beyond the measures agreed in December by the UN Security Council and approved by European Union foreign ministers this week.
Further limited UN sanctions will follow if Iran misses the next UN compliance deadline later this month — but again, the scope of Washington’s action remains far greater.
Unlike the US, which has almost no bilateral trade, the EU is Iran’s top trading partner, with business worth $25-billion last year. EU countries provided $18-billion in loan guarantees in 2005 to companies doing business in Iran. All this must stop, the Americans insist, if Iran’s proliferation and terrorism-related activities are to be effectively discouraged.
Latest figures suggest the strategy is working. Exports from Germany, which, with Italy, is Iran’s leading European trade partner, dropped by an estimated 20% last year. ”Business dealings are going backwards, de facto,” a Berlin official said. ”A lot of German companies do business with the US. We don’t have to say anything. They’ve got the message.”
Private Western banks are also under pressure to comply with what is rapidly becoming a ”Cuba-plus” US-led international embargo, by withholding letters of credit, loans, loan insurance and transfer facilities. Barclays plc and HSBC holdings are among those that have curbed their Iranian dealings.
Iran’s oil industry, providing 70% of state revenues and crucial funding for an extensive welfare state, is a particular US target. The industry has suffered years of under-investment, and has never recovered from the Iran-Iraq war. US pressure on Western oil companies and energy-hungry governments such as Japan not to put money and technology into a country with the world’s third-largest oil reserves is intense. As a result, some estimates suggest Iran’s oil exports are falling by 10% annually.
All this hardly helps plans by President Mahmoud Ahmadinejad for a 20% increase in budget spending to quell growing public anger over rising prices and unemployment while maintaining domestic energy subsidies amounting to a massive 15% of GDP.
Iran’s fragile, mismanaged economy, 80% state-owned or controlled and plagued by corruption and inefficiency, is the weak link in the country’s defences — and Tehran’s leaders know it, hence perhaps their new nuclear flexibility.
Yet, according to Roger Stern of Johns Hopkins University, Washington’s financial squeeze may be unnecessary. ”The mullahs are doing a good job of destroying Iran’s economy. They should be left alone to complete their work,” he wrote recently. ”Attacking Iran would allow the regime to escape responsibility for the economic disaster it created. Worse, an attack could unite Iran behind the clerical terror sponsors whose grasp on power may be slipping. For these reasons, the best policy towards Iran may be to do nothing at all.” — Â