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U.S. Policy Puts Iran Deal at Risk
Perhaps nothing is more important to President Obama’s foreign policy legacy than the success of the Iran
nuclear deal. It bears his personal imprimatur and will stand or fall
on whether it prevents Iran from producing a bomb over the 15-year term
of the agreement and beyond.
If
an Iranian hard-liner returns to power in the presidential election
next year, replacing President Hassan Rouhani, the likelihood of the
deal unraveling will increase. The balance between the reformist Rouhani
and the hawkish Supreme Leader Ayatollah Ali Khamenei produced the
political conditions in which the accord became possible.
But
today America is undermining that balance, reinforcing Iranian hawks
and putting the hard-won deal that reversed Iran’s steady advance to the
nuclear threshold at risk. It’s a shoot-yourself-in-the-foot policy
after a major diplomatic achievement.
The
growing cry in Tehran is that Rouhani and his foreign minister Javad
Zarif were had by Washington because Iranian concessions — the slashing
of the number of centrifuges and its uranium stockpile — have not
produced promised economic benefits. Hard-liners are baying: “Where’s
the beef?”
The
chief problem is that European banks are terrified that if they provide
financing to Iran they will fall foul of United States sanctions that
are still in place. Many of these banks — including BNP Paribas,
Commerzbank and Société Générale – have paid hefty fines in recent
years. In all, European banks have handed over more than $15 billion
since 2012 for infringement of U.S. financial sanctions on Iran. From a
risk-reward standpoint no European bank can make enough revenue in Iran
to offset the possibility of being slapped with a big fine.
Secretary
of State John Kerry attempted to break the logjam last month by saying
that, “We have no objection and we do not stand in the way of foreign
banks engaging with Iranian banks and companies, obviously as long as
those banks and companies are not on our sanctions list for non-nuclear
reasons.”
But
the ownership structure of Iranian corporations is often opaque, making
it difficult for European companies to be sure there is not, for
example, a Revolutionary Guard Corps interest. Knowing exactly who the
customer is may be arduous.
One
international businessman based in Tehran told me he’d received a
letter from United Against Nuclear Iran, an American advocacy
organization, warning him that he might be working with the
Revolutionary Guards and could get into trouble. “You can be sure that
letter is going to all the European banks,” he said.
Most
international transactions are dollar-denominated, so they have to
transit the U.S. banking system before being settled. Because the U.S.
trade embargo on Iran remains in place, making it illegal, with limited
exceptions, for Americans or American companies to deal with Iran or its
government, this is very problematic. A bank may be located in Europe
but unable to demonstrate that a proposed Iran contract does not involve
its United States subsidiary at some level.
In
an e-mail, Hamid Biglari, an international financier and a former
vice-chairman at Citigroup, wrote: “We’ve turned what should have been a
win-win opportunity for greater engagement into a lose-lose outcome
where neither Iran can truly benefit nor American firms can compete on a
level international playing field.”
In
an earlier conversation, Biglari told me, “The irony of the nuclear
deal is that we did the heavy lifting in terms of the negotiation and
then opened it up to European companies to do business with Iran” while
blocking American firms.
Airbus
has already concluded multi-billion dollar deal with Iran, but in
general the Iranian market remains fraught with obstacles.
Short
of lifting the U.S. trade embargo — which would make political sense
because nothing will undermine the Revolutionary Guards and the
hard-liners faster than a more open and competitive Iranian economy
where IRGC monopolies are eliminated — there are steps that should be
taken as fast as possible. (Opposition in Congress makes an end to the
embargo inconceivable.)
On
the American side, Kerry needs to keep pressing his message encouraging
European banks. The Department of the Treasury’s Office of Foreign
Assets Control (OFAC) needs to be aggressive in granting licenses of the
kind that has enabled Boeing to hold talks with Iran. Technocrats need
to come up with a way to insulate from potential fines Iranian
transactions by European banks that involve “round-trip” dollar
clearing.
Iran,
in turn, must bring their banks up to international compliance
standards when it comes to money laundering. Opaque ownership structures
need to be cleared up so that European companies know whom they are
dealing with. Iranian transparency is an oxymoron right now. That has to
change.
The
next Iranian presidential election is in June 2017. If Rouhani has
nothing to show by then for his nuclear diplomacy, his chances of
gaining a second term will be slim. That in turn will put Obama’s
biggest foreign policy achievement at risk.
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