Why is Washington Stalling on Iran Sanctions Relief?

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At the second Iranian Trade conference in London, the UK trade envoy to Tehran made a seemingly innocuous remark that should raise eyebrows. Lord Lamont said Iran has been extremely patient and statesman-like under the Iran nuclear deal regarding the process of easing sanctions. This does not jibe with the remarks of multiple senior American officials who have repeatedly claimed that Washington has fulfilled its sanctions relief commitments under the Iran deal.

What gives?

Many policymakers and pundits in Washington assert that Iran’s self-inflicted economic mistakes (of which there are many) are preventing Tehran from deriving the full benefit of sanctions relief. This rhetoric does not match reality. Since the Iran deal was sealed in July 2015, I have traveled the world to meet with countless foreign governments and blue-chip multinational corporations on Iran-related issues. From DC to Dublin to Tehran to Tokyo, everyone I’ve met with acknowledges Iran’s economic policies as a problem, but no one has pointed to it as THE problem.

Every single person – without fail – has pointed to American sanctions as the primary obstacle. This begs the question: Why isn’t Washington fulfilling its commitments? In my personal assessment, I see three potential explanations:

1) The U.S. is intentionally squeezing Iran – because it knows it can.

In Section 24 of the Joint Comprehensive Plan of Action (JCPOA), it says that if Iran fails to receive the practical benefit of sanctions relief outlined in the JCPOA as a result of U.S. sanctions still on the books, Tehran can raise the issue with Washington (it has) with the aim of finding a resolution (so far, no such luck). Here’s the kicker: Any potential resolution can involve the lifting of any particular sanctions that happen to stand in the way of Iran receiving the aforementioned practical benefit of sanctions relief. If the U.S. and Iran are unable to find a solution through bilateral consultation, Iran can turn to the dispute-resolution procedures outlined in the JCPOA (it has, still no luck).

Currently, Washington and Tehran are working to find a solution to one problem above all else: Major international banks will not facilitate legitimate business transactions with potential Iranian counterparts. Why? Because existing U.S. sanctions law prohibits non-American, non-Iranian banks from providing dollar-clearing services for Iran. Translation: No Iran-related transactions can pass through the U.S. financial system. Not even for a millisecond. Furthermore, Section 36 of the JCPOA covers dispute resolution and makes crystal clear: The U.S. unilaterally determines what constitutes non-compliance on all sanctions-related issues, including UN and EU sanctions. No consent from any other party to the JCPOA – including Iran – is needed. So, is Washington playing dirty? Perhaps. But does the JCPOA allow Washington to play dirty? Yes.

2) All politics is local.

The domestic political ramifications of Iran sanctions cannot be understated. If President Obama is planning to fix this problem, he’s likely waiting until after Election Day to minimize the political cost of fulfilling America’s sanctions relief commitments outlined in the JCPOA. This avoids forcing Hillary Clinton to take a politically tricky position as she seeks to win the White House, and sidesteps an uber-aggressive Congress whose track record of unanimously passing Iran sanctions legislation is no secret. It also provides more time to secure the release of Iranian American dual nationals imprisoned in Iran. The optic of providing “more” sanctions relief while Iran arbitrarily arrests American citizens almost certainly has an impact on Washington’s sanctions relief calculations, regardless of its commitments outlined in the JCPOA.

3) Family friction inside the U.S. Government.

During the tail end of Mahmoud Ahmadinejad’s presidency, then-foreign minister Ali Akbar Salehi participated in a small roundtable discussion with American interlocutors while in New York for the UN General Assembly. When asked about Ahmadinejad’s bombast, he smirked and replied: “You have your John Boltons, and we have our John Boltons.” Salehi is not only witty, he’s also right. And with all due respect, when it comes to U.S.-Iran relations and “our John Boltons,” many of them operate out of the Treasury Department’s Office of Foreign Assets Control (OFAC).

That’s not a knock on OFAC, it’s the reality of their work and the ideological proclivities behind it. Understandably (and regrettably), this can cause interagency tension between the Treasury Department and State Department on the formulation and execution of Iran policy. During my tenure at the State Department, I can recall many instances in which the OFAC would carry out Iran sanctions-related activities without consulting the State Department or White House beforehand. Some chalked this up to miscommunication, others chalked it up to OFAC presenting fait accomplis and daring us to backtrack on Iran-related issues that have been politically toxic in the U.S. for over three decades. Regardless of where the truth lies, the White House is the only arbiter that can step in and give clear marching orders on procedure, policy, and execution. If it doesn’t, this problem won’t be resolved. 

So, why is Washington stalling on Iran sanctions relief? It could be one of these explanations. It could be none. If I were a betting man, I’d wager on a combination of all three. Regardless, it doesn’t change a simple reality: The status quo is not sustainable. President Obama has a two-month window between Election Day on November 8th and Inauguration Day on January 20th to fix this. If he doesn’t, his signature foreign policy achievement will be at risk of collapse. First-term presidents are almost always risk averse, and presumptive President Hillary Clinton’s hawkish militarism on Iran is well documented. Any expectations that she will continue Obama’s transformational efforts are likely misplaced. Obama has demonstrated tremendous political courage in reducing U.S.-Iran tensions more than any of his four predecessors. Before leaving office, he should use the Iran deal to finish – and institutionalize – what he started.

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ChamoshChamoshvnd ChamoshChamoshvnd (@ChamoshChamoshvnd)
Thanx for this informed analysis of US politics on sanction relief (or lack thereof).
While your analysis of the US side of equation is fairly comprehensive, the attention paid to Islamic Republic side of story is less than adequate.
I'll just very briefly go over some key points:

1) FATF remains a major point of disagreement within different factions of Islamic Republic, with "Reformers" in favor of it and Sepah and the clergy firmly against it. For anyone underestimating the threats of money laundering and terrorism financing in Iran they should just read the report below which quotes Mr. Abas Araghchi (Iran's deputy foreign minister) warning how Iranian banking system remains vulnerable to be used even by ISIS for its operations.
هشدار عراقچی نسبت به خطر استفاده داعش از سیستم مالی ایران
معاون وزیر خارجه ایران با اشاره به منابع مالی مورد استفاده "دولت اسلامی" می‌گوید: "داعش برای تامین مالی خودش از سیستم‌های مالی بین‌الملل استفاده می‌کند.
او افزود: «اگر مراقبت نکنیم چه بسا داعش از سیستم‌های مالی ما برای تامین نیازهای مالی خود استفاده کندـ برای تحقق این مهم آنها از حساب‌های مخدوش استفاده می‌کنند و با توجه به اینکه ایران در مجاورت افغانستان قرار دارد ممکن است گروه‌های موادمخدر در سیستم‌های مالی ما اقدام به پولشویی کنند.»

2) Incompatibilities of IR's banking system with the international financial network. Perhaps IMF's report on this subject sums up the issues most succinctly:
" Two important priorities for the short term relate to the banking system.
First, it will be critical to begin restructuring banks—both at their operational level and their high level of nonperforming loans--to help lower real interest rates and stimulate credit to the economy.
Second, given the difficulties for Iranian banks in reintegrating to the international financial system, the authorities should persevere with strengthening the framework for anti-money laundering and combating the financing of terrorism (AML/CFT), which should be critical to facilitate such reintegration."

3) The nature and function of banks in IR is also crucial in this subject. According to reports only 2% of the population in Islamic Republic is in control of more than 80% of banking and financial facilities and resources. . With such extreme social polarities in Islamic Republic the question perhaps becomes, even if all sanction reliefs are delivered would average Iranians gain any benefit from them at all?

۸۰ درصد منابع بانکی در اختیار ۲ درصد خانوارها

۹۰ درصد تسهیلات بانکی در اختیار ۱۰ درصد جمعیت ایران

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