Negotiations Behind
U.S. Sanctions Against Iran
July 3, 2012 By Reva Bhalla
Over the past week,
the latest phase of U.S.-led sanctions against Iran has dominated the media.
For months, the United States has pressured countries to curtail their imports
of Iranian crude oil and is now threatening to penalize banks that participate
in oil deals with Iran. In keeping with the U.S. sanctions campaign, the
European Union on July 1 implemented an oil embargo against Iran. The bloc
already has begun banning European countries from reinsuring tankers carrying
Iranian oil.
On the surface, the
sanctions appear tantamount to the United States and its allies serving an
economic death sentence to the Iranian regime. Indeed, sanctions lobbyists and
journalists have painted a dire picture of hyperinflation and plummeting
oil revenues. They argue that sanctions are depriving Tehran of resources
that otherwise would be allocated to Iran's nuclear weapons program. This
narrative also tells of the Iranian regime's fear of economically frustrated
youths daring to revive the Green Movement to pressure the regime at its
weakest point.
But Iran's response to sanctions deadlines has
been relatively nonchalant. Contrary to the sanctions lobbyist narrative, this
response does not suggest Iran will halt its crude oil shipments, nor does it
portend a popular uprising in the streets of Tehran. Instead, it suggests that
sanctions are likely a sideshow to a much more serious negotiation in play.
Loopholes in the
Sanctions Campaign
The sanctions applied
thus far certainly have complicated Iran's day-to-day business operations.
However, Iran is well versed in deception tactics to allow itself and its
clients to evade sanctions and thus dampen the effects of the U.S. campaign.
One way in which Iran
circumvents sanctions is through a network of front companies that enable
Iranian merchants to trade under false flags. To enter ports, merchant
ships are required to sail under a flag provided by national ship registries.
Tax havens, such as Malta, Cyprus, the Bahamas, Hong Kong, the Seychelles,
Singapore and the Isle of Man, profit from selling flags and company registries
to businesses looking to evade the taxes and regulations of their home
countries. Iranian businessmen rely heavily on these havens to switch out
flags, names, registered owners and agents, and addresses of owners and agents.
The U.S. Treasury
Department has become more adept at identifying these firms, but a
government bureaucracy simply cannot compete with the rapid pace at which shell
corporations are made. Several new companies operating under different names
and flags can be created in the time it takes a single sanctions lawsuit to be
drawn up.
Many of Iran's clients
turn a blind eye to these shell practices to maintain their crude oil supply at
steep discounts. Notably, the past few months have been rife with reports of
countries cutting their Iranian oil imports under pressure from the United
States. However, after factoring in the amount of crude insured and traded
via shell companies, the shift in trade patterns is likely not
as stark as the reports present.
The United States
already has exempted China, Singapore, India, Turkey, Japan, Malaysia,
South Africa, South Korea, Sri Lanka, Taiwan and the 27 members of the European
Union from the sanctions. Many of these countries imported higher than average
quantities of Iranian crude in the months leading up to their announcements
that they had cut down their supply of Iranian crude. China, South Korea, India
and Japan also are finding ways to provide sovereign guarantees in lieu of
maritime insurance to get around the latest round of sanctions. Even though
many of these countries claim to have reduced their oil imports from Iran to
negotiate an exemption, falsely flagged tankers carrying Iranian crude likely
compensate for much of Iran's officially reduced trade.
U.S. lawmakers are
drawing up even stricter sanctions legislation in an effort to track down more
Iranian shell companies, but the U.S. administration is likely aware of the
inadequacies of the sanctions campaign. In fact, while Congress is busy
trying to expand the sanctions, the U.S. administration is rumored to be
preparing a list of options by which it can selectively repeal the sanctions
for when it sits down at a negotiating table with Iran.
The Real Negotiation
While talk of
sanctions has dominated headlines, a more subtle dialogue between Iran and the
United States has been taking place. In an editorial appearing in U.S. foreign
policy journal The National Interest, two insiders of the Iranian regime,
Iranian political analyst Mohammad Ali Shabani and former member of Iranian
nuclear negotiating team Seyed Hossein Mousavian, communicated
several key points on behalf of Tehran:
- The United States and Iran
must continue to negotiate.
- Sanctions hurt Iran
economically but by no means paralyze Iranian trade.
- Iran cannot be sure that any
bilateral agreement made with the United States will be honored by a new
administration come November.
- The United States must
abandon any policy intended to bring about regime change in Tehran.
- Washington has few remaining
options other than military intervention, which is an unlikely outcome.
- Iran can significantly
increase pressure on the United States by, for example, threatening the
security of the Strait of Hormuz, an act that would raise the price of
U.S. oil.
Perhaps most
important, they said, "the Islamic Republic is willing to agree on a
face-saving solution that would induce it to give up the cards it has
gained over the past years."
On June 27, the United
States delivered an important message. U.S. Chief of Naval Operations Adm.
Jonathan W. Greenert said during a Pentagon news conference that the Strait of
Hormuz had been relatively quiet and that the Iranian navy had been
"professional and courteous" to U.S. naval vessels in the Persian
Gulf. According to Greenert, the Iranian navy has abided by the norms
that govern naval activity in international waters. Previously, armed
speedboats operated provocatively close to U.S. vessels, but they have not done
so recently, Greenert said. It is difficult to imagine Greenert making
such a statement without clearance from the White House.
Red Lines
When Iran began the
year with military exercises to highlight the threat it could pose to the
Strait of Hormuz, Stratfor laid out the basic framework of the U.S.-Iranian
relationship. Both countries have defined their red
lines. Iran raises the prospect of closing the Strait of Hormuz or detonating
a nuclear device. The United States moves its naval carriers into the
Persian Gulf to raise the prospect of a military strike. Both remind
each other of their respective red lines, yet both stay clear of them because
the consequences of crossing them are simply too great.
The situation calls
for a broader accommodation. Over the past decade, Iran and the United States
have struggled in negotiations toward such an accommodation. At the heart of the negotiation is Iraq
-- a core vulnerability to Iran's western flank if under the influence of a
hostile power and Iran's energy-rich outlet to the Arab world. The United States has tried to maintain
a foothold in Iraq, but there is little question that Iraq now sits in
an Iranian sphere of influence. With
Iraq now practically conceded to Iran, the other components of the negotiation
are largely reduced to atmospherics.
Iran's biggest
deterrent rests in its threat to close the Strait of Hormuz. The leverage
Tehran holds over the strait allows Iran room to negotiate over its nuclear
program. Of course, the United States would prefer that Iran abandon its
nuclear ambitions and will continue efforts to impede the program, but a
nuclear Iran might in the end be tolerated as long as Washington and Tehran
have an understanding that allows for the free flow of oil through the strait.
Everything from the sanctions campaign to U.S. covert backing of Syrian rebels
to the nuclear program becomes negotiable. As the Iranians put it, a path
has been created for a "face-saving solution" that would
allow both to walk away from the dialogue looking good in front of their
constituencies, but would also require the sacrifice of some of the levers they
have gained in the course of the negotiation.
With only four months
until the U.S. election, it is difficult to imagine that this negotiation will
reach the point of a strategic understanding between Washington and Tehran.
However, one would be remiss to overlook the important confidence-building
measures that are being communicated at a time when neither power wants to
skirt its respective red lines, Iraq is more or less a moot issue and the
United States is trying to redirect its focus away from the Middle East.
