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A tough new U.S. sanctions measure against Iran goes into effect today, restricting foreign governments from remitting payments for Iranian oil back to Tehran. The payments now must be kept within the banking system of the oil-importing country and can be used by Iran only to purchase local goods. If the local bank transfers the Iranian funds outside its national borders, it risks losing access to the U.S. financial system—a serious threat. Limiting Tehran’s hard cash in this manner is a smart escalation in the sanctions campaign, but will it be enough? Can any type of sanction curb Iran’s nuclear effort?
During the past year, the United States, European Union, and others have put into place the strongest sanctions yet against Iran. Nevertheless, during this same period, Iran has expanded its uranium enrichment program and refused to address allegations that it conducted nuclear weapon-related work. U.S. officials say there is still time for sanctions to prevent Iran from emerging as a nuclear weapon power. If so, what, specifically, can be done?
The Wisconsin Project on Nuclear Arms Control recently hosted a roundtable discussion by a panel of experts (*) that examined sanctions as a means of influencing nuclear decision-making by Iran’s leaders. The panelists identified three factors critical to influencing Tehran’s nuclear ambitions: money, oil, and China. In addition, the panel raised concerns about incentivizing an Iranian sprint toward nuclear weapons.
There was broad consensus among the panelists that sanctions are having an increasing impact on the Iranian economy. The sanctions implemented so far are causing economic strain that will worsen over time, despite efforts by Iran to mitigate their impact. The panelists also concluded that additional sanctions must be sought in order to hasten the unraveling of Iran’s economy, mainly by further diminishing its foreign exchange reserve and oil revenue.
The full moderator's report of the roundtable discussion is available here. Among the panel’s specific findings were:
Sanctions limiting Iran’s oil sales are working and should be tightened.
In 2012, the United States and European Union took serious steps to restrict Iran’s ability to sell oil and other petrochemical products. The panelists agreed that the ripple effect of these sanctions, especially since July, has resulted in plummeting oil sales: from over two million barrels per day in 2011 to under one million barrels per day by the end of 2012. Declining oil sales have cut access to hard currency. It is quite important, the panelists noted, that these sanctions are still relatively new. Iran has yet to feel their full impact.
The panelists found that the U.S. and its allies should seek even further reductions in Iran’s oil sales. One possible course of action: make waivers and exceptions to U.S. sanctions more difficult to obtain. As additional steps, the United States also could deny government contracts to firms that continue to do business with Iran and bar vessels owned by companies that are transporting Iranian oil from docking in the United States.
China is a key player.
China currently absorbs about half of Iran’s oil exports. The time to encourage China to reduce Iranian oil purchases is now, before Tehran works out ways to mitigate the impact of sanctions or influence the price of oil. Similarly, additional pressure could be placed on the Chinese government to crack down on proliferation-sensitive exports to Iran by private Chinese firms. It is nevertheless wise to tread carefully. Unity on sanctions with China also sends a valuable message to Tehran about the cohesiveness of the P5+1 group of countries that are leading sanctions and negotiations.
The regime must be convinced that attaining nuclear weapons will not bring an end to sanctions.
Officials in Tehran may believe that once they acquire nuclear weapons, sanctions will diminish and eventually be lifted, as was the case in India and Pakistan. It is important not to incentivize an Iranian sprint toward nuclear weapons—a scenario in which Tehran calculates it can bear sanctions for the relatively short time it would take to amass a small arsenal. The governments imposing sanctions must make clear that acquiring nuclear weapons will only increase the severity of sanctions, perhaps by spelling out what additional sanctions would be implemented should Iran withdraw from the nuclear non-proliferation treaty or test a nuclear device.
For the full moderator's report of the discussion, please see Iran Watch Roundtable: The Impact of Sanctions.
The discussion took place on October 25, 2012, in Washington, DC. Published versions of the Wisconsin Project Roundtables are the moderator’s summary of discussions. Theses findings are a composite of the panelists’ individual views. No finding should be attributed to any single panelist or be seen as a statement of government policy.
* The panelists were Ilan Berman, Vice President of the American Foreign Policy Council; François Delmas, Political Counselor for strategic affairs at the French Embassy; Michael Howells, First Secretary for Middle East policy at the British Embassy; Kenneth Katzman, Specialist in Middle East Affairs at the Congressional Research Service, Orde Kittrie, Professor of Law at Arizona State University and Senior Fellow at the Foundation for Defense of Democracies; and Michael Singh, Managing Director of the Washington Institute on Near East Policy. Mr. Katzman participated in this discussion in his capacity as an Iran expert, and not as a representative of the Congressional Research Service, the Library of Congress, or the United States Congress.