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Iran Sanctions bite, but will Teheran shift course?

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Update from AIJAC

October 19, 2012
Number 10/12 #04

There is growing evidence over recent weeks that the Iranian economy is in serious trouble, in no small part due to the international sanctions imposed because of Teheran's illegal  nuclear program,  - with a major plunge in the value of the Rial, Iran's currency, down at least 80% this year; signs some ordinary Iranians are starting to panic over the economic situation;  and even unrest from demonstrators angry about the economic situation, and currency dealers who have been the victim of a government crackdown designed to arrest the plunge. Even the International Atomic Energy Agency says the sanctions are starting to have a major effect on oil exports.

Yet, as reknowned American foreign policy expert Walter Russell Mead notes, there is yet little sign that these economic problems are causing any nuclear re-think in Teheran - indeed, the Iranian government seems to be rushing ahead to install yet more centrifuges. This Update features some expert opinion on whether the current economic problems look likely to alter Teheran's nuclear course anytime soon.

First up is a look at the latest round of European Union sanctions, approved earlier this week, and whether they are likely to have the desired effect. Benjamin Weinthal of the Jerusalem Post speaks to four experts on Iran sanctions - two American, one European and one Israeli - and also quotes some prominent commentators to attempt to answer this question. All the experts agree that the sanctions are a move in the right direction, but some express concern that they must be rigorously enforced without loopholes. For all the details, CLICK HERE.

Next up, security analyst Riccardo Dugulin looks at additional signs the financial problems are affecting Teheran's ability to operate abroad, but is also sceptical that current sanctions are enough to change Teheran's course. He offers his own views of the sort of sanctions that would be a real game-changer. For the rest of his argument,  CLICK HERE. Meanwhile, Patrick Clawson, an economist and former International Monetary Fund expert on Iran, explores in more detail the economic situation in Iran - and, based on a review of past economic crises in Iran, argues the regime is unlikely to change political course as a result.

Finally, American foreign policy specialist Michael Singh explores the concept of "red lines" with respect to Iran's nuclear program, and how they relate to the various paths Iran can take to get nuclear weapons. He says that the most common red-lines on Iran, as enunciated by Israeli PM Netanyahu and others, are designed to forestall only one route Teheran could take to obtain nuclear weapons - "a dash using Iran's declared enrichment sites and uranium stockpiles." For all of what Singh has to say, CLICK HERE. More on why Israel insists on "red lines" vis-a-vis Iran from Israeli Ambassador to the US Michael Oren.

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Analysis: Will New EU Sanctions on Iran Count?

Benjamin Weinthal

The Jerusalem Post, 14th October 2012

The European Union’s foreign ministers are slated to convene on Monday in Luxembourg to rubber-stamp a new round of energy sanctions on Iran’s vulnerable gas, financial and shipping sectors.

While the sanctions are welcomed by Mideast experts in Israel, Europe and the US, there is increasing worry that the international community, particularly the Europeans, needs to inflict more economic pain on Iran’s clerical rulers to stop their nuclear weapons program.

Speaking from the Netherlands with The Jerusalem Post via telephone on Saturday, Wim Kortenoeven, a former Dutch MP and leading European expert on the Islamic Republic’s nuclear weapons program, said that “if the Europeans want to avoid war, there is a need for more than half-measures.”

The EU member states plan to ban imports of natural gas from Iran and the export of metals such as aluminum and graphites to Tehran. European diplomats said nautical equipment and the extension of short-term trade guarantees will be outlawed. In addition, the EU plans to bar European companies from building oil tankers for Iran.

The new bank sanctions might very well cause the most damage to Iran’s shaky economy, which saw a 40 percent drop in its currency – the rial – earlier this month.

Additional Iranian energy and financial companies will be covered by the new EU sanctions.

According to The Wall Street Journal, the sanctions will turn the financial screws on bank transactions: “The level of the threshold will depend on the sector, with humanitarian trade in food and medicines having a ceiling of 100,000 euros. But for many other items, any transaction over 10,000 euros with an Iranian bank will need preapproval.”

For Mark Dubowitz, the executive director of the Washington- based Foundation for Defense of Democracies, there is a race against the Iranian nuclear weapons clock.

“Iranian nuclear physics is beating Western economic pressure as Iran advances its nuclear weapons capacity, while using its foreign exchange reserves and still sizable oil earnings to head off economic collapse,” Dubowitz told the Post on Saturday via email. “Europe remains key if the West has any chance of ensuring that the economic cripple date occurs before the nuclear threshold date.

“The billions of euros in EU exports, particular the sophisticated machinery, industrial equipment and technology that Iran needs to run its economy, must be significantly and rapidly reduced,” he said.

Dubowitz, a leading expert on international sanctions and Iran’s economy, added, “If the latest EU measures force an import and balance of payments crisis that brings Iran’s economy to the brink of collapse, we may soon have our answer to the question of whether severe economic pressure can break the regime’s nuclear will. If EU sanctions, however, are riddled with loopholes in design and halfmeasures in implementation, the regime soon will be a threshold nuclear power, by which time it will be too late to peacefully resolve this crisis.”

Tommy Steiner, a senior research fellow at the Institute for Policy and Strategy at the Interdisciplinary Center Herzliya, told the Post on Saturday, “The new package of sanctions on Iran is yet another step in the right direction, but it is far from clear that sanctions alone will compel Iran to renounce its nuclear program. The time has come for the EU not only to match US sanctions but also American declaratory policy on Iran – that is to say, the EU should announce that it will not accept a nuclear Iran, and it will use all measures within its power to this end.”

Kortenoeven, meanwhile, said the EU sanctions “are too little and too late.” Though he criticized the efficacy of the new round of EU penalties, he said he was “still in favor” of the sanctions and that the EU “needs to take the whole financial section, including the Central Bank of Iran,” out of service.

Kortenoeven proposed that the EU issue Tehran a ultimatum by notifying the Iranians that they have three months to stop their nuclear enrichment program.

If Iran’s leaders do not cease their nuclear work, the EU should prevent Iran from receiving payments for oil and other financial services, he said – terming the approach “strangling sanctions.”

The Post conducted a telephone interview with Josh Block, a former Clinton administration official recently named CEO of The Israel Project – an American pro-Israel organization based in Washington. He said that “Iran’s effort to arm and help [Syrian President Bashar] Assad as he murders his people is a reminder just how much more dangerous the world would be if Tehran – whose support for global terror, actions to dominate the Mideast, and human rights repression of their own people knows no bounds – were to obtain nuclear weapons capability.”

Block, who has sharply criticized the Swiss government for failing to fully adopt EU sanctions, added, “The EU knows that the danger posed today to freedom and security would be dramatically worse if the conventional threats from Iran were nuclear threats, and these new sanctions are sorely needed, if late in coming. All sanctions on Iran must be fully enforced... to completely isolate the regime and bring their economy to a halt.”

The potent effect of economic sanctions from Europe did not escape the notice of The Boston Globe’s foreign policy columnist. Writing in the paper on Thursday, Juliette Kayyem argued that the riots in Iran because of the currency meltdown were a product of the “sanctions begun by the Bush administration and expanded by the Obama administration.”

Her column titled “The toughest sanctions” noted the globalization of the economic sanctions seeking to influence a change in Iran’s behavior. She cited the example of the Dutch maritime firm Maersk – the world’s largest shipping container companies – in pulling the plug on its cargo deliveries to Iran’s southern port of Bushehr.

While deeming Maersk’s move as “not a victory to cheer about [as] Iranians will suffer,” she raised the question of “whether the Iranian regime will respond by agreeing to stop enriching uranium.”

However, a growing body of testimonials suggest that ordinary Iranians understand that regime is to blame for sanctions.

While writing a series of commentaries in The New York Times on his visit to Iran this year, columnist Nicholas Kristof cited an unemployed salesman as saying, “We blame our regime, not Western countries.”

Iranian President Mahmoud Ahmadinejad acknowledged that the “currency fluctuations” were caused by “psychological pressure” from outside.

In short, the sanctions are disrupting the regime’s management of the economy, sending Iran’s market into a tizzy, and possibly laying the foundation for a second act by the Iranian Green Movement. All of this suggests that the only cure for remedying the Iranian nuclear crisis and jump-starting its struggling democracy movement is even more powerful economic sanctions.

The writer is a European affairs correspondent for The Jerusalem Post and a research fellow at the Foundation for Defense of Democracies.

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Targeting the bazaar

Op-ed: Regime change in Iran may be possible if hardships forced on middle class become unbearable

Riccardo Dugulin

Ynet.com, Oct. 11, 2012

On October 3rd the first evidences of the hardship following the current sanctions system have been exposed. Demonstrations have rocked the center of Tehran as local security forces have waged a raid against non-authorized cash dealers that have been attempting to fuel the black market with much needed foreign currency. During the same day, Tehran's grand bazaar closed in solidarity with the demonstrators and further scuffles took place in the area.

For the moment it is highly unlikely that the sanctions imposed on the country will result in any major social movement, as security forces and regime irregulars have tight control on the population and are able to pre-empt any mass protest. Nevertheless these events have highlighted a meaningful reality. If the militarized and religiously radical ruling class may push the country it controls toward irrational geo-political decisions, the commercial oriented middle class remains highly responsive to economic incentives.

 The first week of October has also underlined the fact that the sanctions applied by the international community against the Iranian regime are having an effect on the budget Tehran is able to allocate to its international subversive operations. In fact, partially confirmed reports published by several international news outlets indicate that 257 Al Quds force members left Syria to reduce the cost of operations and restructure Iran's security apparatus.

These two pieces of information should not be overblown, as the current objective of the majority of sanctions targeting Iran is to curb the authoritarian and fundamentalist government’s will to develop military grade nuclear material. In addition to that, sanctions are aimed at deterring Iran from further formulating a foreign policy based on terrorist attacks and aggressive covert operations. In this sense, the international sanctions aimed at Iran are not working as the nuclear program has only accelerated in volume. Furthermore, Tehran is in no way renouncing its long lasting support of murderous terrorist organizations. In other words, the targeted objectives will be the last assets the Iranian leadership will renounce.

Yet, recent events indicate that sanctions are more likely to create a strategic rift between the commercially oriented Iranian society and its religious-military leadership than to have a quick effect on the country’s foreign policy. Regime change from within may be possible if the hardships forced on the middle class become unbearable. The equation that must be presented to the Iranian people is the one where the price of an irrational and unsustainable foreign policy only hurts the long term interest of the traditionally commerce-oriented middle class.

Last non-military option

For that reason the rationale and nature of sanctions must evolve. The current system is based upon strong restrictions aimed at weapon transfers, financial dealings, import of dual use material, limitation of the energy sector and travel bans for selected personnel. If these sanctions must be kept in place and hardened they cannot keep on functioning alone as their results do not guarantee peace and security to the region.

A strong message must be sent to the Iranian people by sanctioning their core commercial activities. The cost of supporting a murderous and irrational regime must be so high that the business oriented and relatively moderate middle class, dependent on the country’s international relations, could no longer accept the ayatollah’s stance and should therefore push for a cessation of the present foreign policy.

In 2011, the peanut trade alone has brought to the country’s trading class revenue of $1.4 billion. Such a figure cannot be overlooked as Iran is increasingly falling into an economic crisis. All commercial sectors of its trading capabilities should be unambiguously targeted by international sanctions. By doing so the international community can achieve a double objective: a first step is to increase the likelihood of a series of demonstrations and protest-oriented events generated from within Iran, a second and more feasible aim is to sensibly decrease the level of revenue of the Islamic Republic, thus further limiting the budget it can allocate to its armed forces. This second point will rapidly hinder its ability to wage war or defend all of its nuclear structure and ballistic missiles sites.

The message must be clear: the objective is to save lives and curb the country’s murderous aspirations. Implementing such a strong sanctions regime against elements non-related to the government or the armed forces would certainly be a task that requires a relentless international effort, but the payoff makes this necessary action probably the last attempt to safeguard a peaceful option to the present crisis.

A military strike against the Iranian nuclear power is in no-one’s interest and if a credible and detailed option linked to clearly expressed red lines commonly shared by Israel and the United States remains the best deterrent against a nuclear armed Iran, sanctioning the Islamic Republic’s middle class may represent a last good will attempt to prevent a regional conflict.

The message must be clear, the task of ridding the Middle East of the Iranian nuclear and subversive threat should not only be an Israeli mission, a global coalition must target all instances of the country’s economic structure. If Iranian FM Ali Akbar Salehi is confident when saying that “We can count on the patience of our people” and that increased sanctions won’t affect Iranian stability, it is an absolute priority to put his certainty to a test.


The objective is not to punish the Iranian people without any limit; the goal is to exponentially increase the economic weight of sanctions in order to provide the middle class with enough rational incentives to influence its country’s foreign policy.

As the Institute for Science and International Security indicates, Iran may have enough nuclear material to produce a nuclear device within 2 to 4 months (additional time is needed to have a functioning weapon). The unanimous and immediate activation of unprecedented sanctions against the Iranian trading class is the last non-military option to interrupt the regime’s path to the destabilization of the entire region.

Riccardo Dugulin holds a Master degree from the Paris School of International Affairs (Sciences Po) and is specialized in International Security. He is currently working in Paris for a Medical and Security Assistance company. He has worked for a number of leading think tanks in Washington DC, Dubai and Beirut.

 

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Defining Our Red Lines

Michael Singh

Foreign Policy, October 11, 2012

As Iran makes continued progress toward a nuclear weapons capability, defining our red lines takes on increasing importance.

In a column in the October 7 Washington Post, I argued that "red lines" with respect to Iran's nuclear program, far from leading us automatically to war, are designed to facilitate diplomacy and prevent conflict. As Iran makes continued progress toward a nuclear weapons capability -- and according to a new report by the Institute for Science and International Security, it is now as little as 2-4 months away from having sufficient weapons-grade uranium (WGU) for a single bomb -- defining our red lines takes on increasing importance.

For all of its bluster, the Iranian regime has proceeded carefully to reach this point, expanding its nuclear capabilities while avoiding full-blown conflict with the West. The final stage of its nuclear drive will pose a significant challenge to this strategy, however, as any outright lunge for a nuclear weapon is likely to draw a devastating response. Iran could take any of several approaches to this last leg, from throwing caution to the wind and making a mad dash in the open, to proceeding entirely clandestinely. For this reason, we need not just one but several red lines, closing off all routes available to Iran for achieving a nuclear weapons capability.

The route to an Iranian nuclear weapons capability that receives the most attention is the most straightforward, but perhaps the riskiest for Iran -- a dash using Iran's declared enrichment sites and uranium stockpiles. It is this route which both Israeli PM Netanyahu and ISIS warned about recently. Their worry is straightforward -- as Iran expands its nuclear capacity and increases its stockpile of 19.75 percent uranium, its breakout time diminishes even further, perhaps to the point where a military response could not be mounted quickly enough to prevent Iran from producing and secreting away a bomb's worth of WGU or more.

It is this worry that led Netanyahu to declare his redline -- Iran stockpiling sufficient 19.75 percent uranium to, if further enriched, produce a single nuclear weapon. It is important to recognize, however, that Iran can dial its production of enriched uranium forward or back and thus control the pace of its confrontation with the West -- forward, by increasing the number of centrifuges enriching; back, by sending 19.75 percent uranium to be converted into another form unsuitable for further enrichment, such as fuel plates for the Tehran Research Reactor (TRR). Iran in the past has done just this -- moving quickly ahead during lulls in negotiations, and then resuming international talks to diffuse the resulting threats and pressure. 

Iran could also proceed in a nonlinear manner that skirts this redline -- for example, by producing small batches of higher-enriched uranium without having first stockpiled a single bomb's worth of 19.75 percent uranium. A prominent Iranian legislator has already asserted, for example, that Iran would begin producing 60 percent enriched uranium for use in nuclear submarines. Iran could also simply continue amassing LEU while perfecting more efficient centrifuges, diminishing its breakout time for a future weapons dash.

Rather than a dash in the open, which would give the U.S. and Israel time and opportunity to mount a military response, Iran may prefer to attempt to limit the IAEA's access to its program and achieve a nuclear weapons capability out of sight of international inspectors. This would be in keeping with Iran's history of nuclear deception and subterfuge.

Iran could, of course, simply expel IAEA inspectors and hope that the US does not respond, but this would be a risky proposition. Far more likely would be incremental steps which reduce the IAEA's access or place obstacles in front of inspectors, in order to divert some portion of Iran's uranium stockpile (e.g. the 19.75 percent uranium removed from Fordow for conversion to fuel plates) to a heretofore undisclosed enrichment site, reduce the certainty with which the inspectors are able to account for Iranian activities at declared enrichment sites, or lengthen the time between inspections to a degree that would not permit a breakout to be detected in a timely fashion.

Because such steps might appear modest to a casual observer, Iran may believe that the U.S. would find it difficult to rally an international response to them. Iran has already reduced its cooperation with the IAEA over the last few years. Alarmingly, as detailed in a recent Washington Post article, Iran's far-fetched accusations that IAEA inspectors have engaged in acts of sabotage may represent an effort to establish a pretext to reduce that cooperation further.

There are further routes still that Iran could take to break out and achieve a nuclear weapons capability. It could attempt not simply to divert declared uranium stockpiles to a undisclosed enrichment facility, but to create an entirely parallel, covert uranium supply, conversion, and enrichment chain using the expertise and procurement networks it has gained from its disclosed program. It could also seek to acquire a nuclear weapon, or simply the fuel for one, from an existing nuclear power such as North Korea, with which it already cooperates extensively. Iran would face serious obstacles in either scenario, but neither can be discounted entirely.

By understanding Iran's pathways for completing the final stage of its nuclear drive, the U.S. and our allies can devise red lines -- whether private or publicly announced -- which fence off those pathways. These red lines should take into account not only Iran's stockpile of enriched uranium, but also the level to which it enriches any uranium, the access it affords IAEA inspectors, the expansion of its centrifuge program and other weapons-applicable technologies, as well as any covert efforts to build additional nuclear sites or acquire nuclear materials abroad.

Perhaps more importantly, however, such an analysis of Iran's pathways to a weapon can help policymakers strengthen existing tools and devise new approaches -- from better intelligence collection, to more focused efforts to enforce sanctions and stymie Iranian nuclear procurement efforts, to joint warnings from the U.N. or other multilateral bodies -- to ensure that Iran never approaches those red lines in the first place.

Michael Singh is managing director of The Washington Institute.

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