Iran Threatened with Sanctions as West Reacts to Nuclear Plans

Speaking during a White House press briefing yesterday President Barack Obama delivered an unequivocal message that a new tougher round of sanctions against Iran was imminent and that his government was in continuous discussions with other Western leaders to increase pressure on Iran to end its nuclear drive. Obama’s eroded patience with Iran was clear, as was the intentions and scope of the sanctions the U.S. president appears to be aiming to achieve—"developing a significant regime of sanctions that will indicate to them how isolated they are from the international community as a whole". Nevertheless, the United States is some way from achieving the unanimity needed within the UN Security Council in order to push through another round of sanctions. With Russia increasingly on board with the possibility of implementing a fresh round of sanctions, Obama said that China remained the lone hold-out against a tougher suite of sanctions at the United Nations level. Obama expressed uncertainty over whether or not China would agree to another round of sanctions through the Security Council, Agence France-Presse (AFP) reported. Obama’s sentiments echo those expressed by European leaders this week who have increasingly joined the United States’ concern over Iran’s nuclear ambitions.

Rounding Up Allies

Cementing support from his European allies in pushing forward with his approach to Iran has been critical for President Obama. Over the last year Europe has become increasingly wary of a nuclear-armed Iran and has joined U.S. calls for tougher sanctions following a failed diplomatic push late last year (see Iran: 4 January 2010: End of January "Deadline" Raises Heat on Iran Nuclear Fuel Deal). For the European powers the diplomatic route has consistently been a top priority; however, with the latest diplomatic efforts nearly exhausted, sanctions are the next available option. Against this is the increasing fear of a nuclear-capable Iran and the destabilising effects this would have on the region. To be sure, European countries remain opposed to military action against Iran, particularly given that available intelligence about the locations of Iran's nuclear facilities (and how deep they are underground) appears to show that that Israel does not have the technical expertise or range to carry out a unilateral strike that would be effective as was widely speculated over the last several years (see Country Intelligence: Iran: 31 December 2009: Israel Says Key Iran Nuclear Site Immune to Conventional Strike). In the past, Russia—with its strong links to the Islamic Republic—has objected to punitive sanctions. The previous three rounds of UN sanctions against Iran were significantly watered down after Russian and Chinese pressure. However, recently the Russian stance has moved to an acceptance of the inevitability of punitive measures should diplomacy produce no fruit. Russia’s disapproval in the face of Iran’s decision to produce uranium enriched to 20% confirms Russia’s evolved position.

Sanctions Revisited

Over the last few years, the United States and its Western allies have begun to increase financial pressure against Iran by limiting the regime’s access to accounts held outside of the country and by punishing firms with business interests in both the United States and the Islamic Republic. This strategy has led large multi-national companies like Total, Statoil, and Siemens to pull out of Iran completely or permanently stall contract negotiations rather than risk alienating themselves from the lucrative U.S. market. The post-election demonstrations and violent crackdown by the government on the opposition has also made it increasingly difficult for multinational companies to remain in Iran without risking their reputations abroad. Siemens in particular came under fire from activist groups because of its purported role in providing the Iranian government with the telecommunications technology it used to monitor demonstrators during the post-election protests and soon after announced that it would stop seeking new contracts there when existing obligations expire in mid-2010.

Following this path, new sanctions against Iran—whether they originate from within the UN Security Council or via a co-operative effort by major Western powers—will likely continue to squeeze Iran’s access to the global financial network, limit technology imports that could be used to support its nuclear programme, and target individuals and entities with close ties to that project. Legislation recently passed in the U.S. Congress which would target both Iran’s vulnerable gasoline imports and international firms investing more than US$200,000 in the country’s oil and gas sector will also likely be used to pressure Iran to abandon its nuclear programme.

In the past, European Union (EU) states opposed U.S. attempts to enforce its domestic Iran sanctions legislation on multinational companies, threatening counter-action in the World Trade Organization. Although European countries still maintain a much larger trade relationship with Iran than the United States, their opposition is unlikely to be as great this time around. Europe (and Germany in particular) remains a much more important trade partner for Iran than Iran is for Europe. Although on a macroeconomic level Iran is a minor trade partner for Germany (accounting for less than 1% of the country’s exports), in certain sectors like manufacturing machinery and parts, Iran accounts for a significant portion of German companies’ business and they have been vehemently opposed to their government supporting tougher economic sanctions. Nonetheless, although the German government has been so far reluctant to implement legally enforceable restrictions on Iran-Germany trade it has stepped up its discouragement strategy by cutting export guarantees and slowing regulatory approvals.

Outlook and Implications