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US-Iran Standoff: Sanctions and Reactions

Dr. M. Mahtab Alam Rizvi is Associate Fellow at Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile.
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  • November 29, 2007

    The United States imposed unilateral sanctions against Iran on October 25, 2007 to complement its efforts towards getting a third set of sanctions through the UNSC. The sanctions were imposed on 25 Iranian entities which involved the following: the Quds Force (a special unit of Iran’s Revolutionary Guards Corps for alleged support of designated terrorist organizations), three of Iran’s largest banks (Bank Melli and Bank Mellat for their alleged role in weapons proliferation and Bank Saderat for its role as ‘a terrorist financier’) and eight individuals, who were allegedly backing extremist groups in the region, and involved in missile trade. The sanctions also covered 9 Iranian companies owned or controlled by the IRGC that play a major role in Iran’s domestic economy and international trade. The US Secretary of state, Condoleezza Rice alleged that “unfortunately, the Iranian government continues to spurn our offer of open negotiations, instead threatening peace and security, through its nuclear programme, production and export of ballistic missiles and backing for Shiite insurgents in Iraq, the Taliban in Afghanistan, the Hezbollah in Lebanon and the Hamas in Gaza”. Earlier, the US had already declared IRGC an international terrorist group on September 26, 2007.

    Iranian officials categorically rejected US’ allegations of supporting insurgent groups in Iraq and Afghanistan, and asserted that Iran did not have any role in the killing of US soldiers. They reiterated that “the US tougher sanctions against Iran go beyond international rules and norms and it indicates that the US has adopted a unilateral and bellicose policy”, and further argued that the IAEA had described Iran’s cooperation as constructive. The Chief of the IAEA Mohamed El Baradei said that “there is no evidence that Iran’s nuclear activities are pursuing non-peaceful objective”.

    Iranian President Mahmoud Ahmadinejad was quick to urge the European countries not to follow the US lead in imposing sanctions against Iran. He said that “if they plan to cooperate with the enemy of the Iranian nation,” Iranians would not interpret this as a friendly action and will “show their reaction”. Calling the US sanctions over Iran’s peaceful nuclear activities ‘hollow’, he added that “the Americans think that they can force the Iranian nation to retreat by imposing unilateral economic sanctions and publicising through some of their internal agents that the sanctions are effective and that people are facing economic difficulties”. He also said that “today the political and propaganda campaigns to stop the Iranian nation have failed and the enemies have realised that they are unable to check the progress of the Iranian nation”.

    The US and European Union want a third set of UN Security Council sanctions against Iran for its refusal to suspend uranium enrichment. The US Under Secretary of State Nicholas Burns said that “the sanctions intended to convey the message that as long as it’s defying the Security Council, there’s going to be a price to what Iran does. And that price will be increased isolation and heightened sanctions”. It has to be added here that France and Britain are also in favour of a third set of UN sanctions.

    However, Russia and China have so far resisted a third round of UNSC sanctions against Iran. Russia, in particular, has strongly opposed any unilateral US sanctions against Iran. President Vladimir Putin went on record saying that “strong international sanctions would make the Iranian situation more difficult to handle” and added that “why worsen the situation by threatening sanctions and bring it to a dead-end?…by running around like a madman with a razor blade in his hand”. Rice sought to play down the differences between the US and Russia and said that “we may have some tactical differences”, but still “Russia did not want Iran to have a nuclear weapon either, and that the two were on the same page at the UN”.

    China, on the other hand, has a multi billion-dollar oil and gas agreement with Iran and this makes Beijing a very unwilling participant in any effort to impose tougher sanctions on Iran. China, not surprisingly, condemned the unilateral US sanctions stating that “sanctions should not be used to resolve the standoff between some western countries and Iran as a way to persuade the hardline Islamic regime to drop its nuclear programme”. Chinese Foreign Ministry spokesman Liu Jianchao added that “the unbridled use of sanctions should not be encouraged” and Premier Wen Jiabao rejected Israeli Deputy PM and Foreign Minister Tzipi Livni’s proposal to support the new UNSC sanctions against Iran.

    Analysts believe that the US unilateral sanctions are unlikely to impact oil and gas production or hinder international oil companies operating in Iran. Despite US economic sanctions, international oil companies are operating effectively. Some analysts argue that the new sanctions may not be effective. In an effort to counter US economic sanctions, the Iranian government has shifted its commercial transactions from the West to Asia. Asian banks and financial institutions have also expanded ties and cooperation with Iran. If the current trend continues, Asian banks and financial institutions, particularly the Islamic ones, in Asia will replace western counterparts in their transactions with Iran. On the other hand, oil traders say Iran is keen to replace dollar with euro in its oil trade. All these firmly point to the fact that Iran can resist the US unilateral economic sanctions.

    The US administration is yet to enforce the Iran Sanctions Act, which prohibits business companies from investing more than $ 20 million in Iran, ever since the act was passed in 1995. Presently, more than 40 banks, most of which are European – Deutsche Bank, HSBC, BNP Paribas – face US government pressure to cut trade transactions with Iran. However, Iran’s nuclear programme has been a matter of international concern ever since its discovery in 2003. The latest report on Iran’s nuclear activities, submitted by IAEA Chief El Baradei on November 15, 2007 acknowledges the progress being made regarding Iran’s nuclear activities, and Iran’s cooperation with IAEA teams is considered positive. But it has failed to satisfy the concerns of the US and Britain, and the file has been transferred to the United Nations Security Council. The recent report showed that Iran did not pose any immediate or remote threat through its latest uranium enrichment. But at the same time, Iran must sincerely cooperate and come out clean on all outstanding issues regarding uranium enrichment without much ado, and at the same time allow stronger and broader inspection rights of IAEA members to avoid harsh penalties.