Australia/Israel & Jewish Affairs Council

Sanctioning Iran

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Update from AIJAC


July 5, 2007
Number 07/07 #02

Today's Update features three pieces discussing negotiations over additional UN sanctions on Iran for its refusal to stop its illegal nuclear program.

First up, the Washington Institute's Matthew Levitt, a former US government expert in international money transfers and their relationships to terrorism and extremism, argues that the current negotiations over a third set of sanctions are the critical ones if there is to be hope of stopping the nuclear program. He also points out what these sanction must include, in contrast to previous largely symbolic measures, if they are to turn the anxiety the current sanctions are creating in Teheran into a real change of policy. For this full analysis, CLICK HERE.

Next up, Dick Morris, a former political advisor to US President Clinton, and his colleague Eileen McCann, argue that effective sanctions do not need to await a new UN resolution. They assert that divestment which targets the key energy sector can effectively reduce Iran's oil production, crucial to regime survival, by 50% by 2011. For their case that non-UN measures to economically isolate Iran, something some states and municipalities in the US are already doing, can help stop the Iranian nuclear program, CLICK HERE.

Finally, we offer a good story on the extent of discontent in Iran with President Ahmadinejad in the wake of the recent decision to impose petrol rationing. The London Telegraph story shows the regime does seem very vulnerable to economic pressures particularly related to the crucial energy sector. For this important background to any discussion of additional sanctions on Iran, CLICK HERE.


Make Iran Feel the Pain

By Matthew Levitt

Wall Street Journal Europe, June 26, 2007                                                                                             
                                                
The international community, led by the U.S. and the U.K., is now developing and debating new economic sanctions against Iran. This third round will be pivotal -- either by significantly increasing the cost to Iran of continuing to engage in illicit and dangerous activities, or by showing the regime that it can outlast whatever symbolic measures are levied against it without fear of being bled financially.
                                               
The first two rounds of targeted and graduated sanctions have failed to change Iran's nuclear calculus. Iran's chief nuclear negotiator continues to meet with senior EU officials, most likely to buy time, while Tehran refuses to accede to demands that it freeze its uranium enrichment program.
                                               
U.N. Security Council Resolutions 1737 and 1747, passed last December and March respectively, signaled seriousness about using financial measures against Iran. The first declared an international consensus to sanction Iran, and the second to target banks. In particular, Russian and Chinese support for these resolutions shocked Iran's President Mahmoud Ahmadinejad. Iran saw first-hand the weak U.N. pressure on Saddam Hussein and expected no worse treatment. Mr. Ahmadinejad reportedly predicted that neither Moscow nor Beijing would sign off on these resolutions. Their passage made the country's professional classes, which are proud of Iran's integration in the international system, feel the sting of diplomatic and economic isolation.
                                               
The most effective U.N. sanction was against Bank Sepah. Iran's fourth-largest and one of the most important financial institutions was shut out of the international financial system. But the package of measures was noteworthy less for the list of specific individuals and entities sanctioned than for starting a graduated process intended to force the regime to stop its illicit conduct.
                                               
For graduated sanctions to be effective, however, each deadline that passes without a change in Iran's behavior must be followed by another, more severe round of sanctions. To date, sanctions have had a primarily psychological impact, producing discontent within the powerful merchant (bazaari) classes and civil servants. Now the teeth must come out. Failure to follow up with tougher sanctions would undermine whatever progress sanctions have had to date.
                                               
So this third round is the moment of truth. The danger is that today's diplomacy produces only more symbolic measures, watered down by multilateral negotiations whose goal is international consensus.
                                               
To avoid such failure, this round should fill the gaps left open by the first two U.N. resolutions. Specifically, it can target additional Iranian banks, and focus on companies controlled by the Iranian Revolutionary Guard Corps, especially those involved in the oil and gas sectors.
                                               
The next resolution must also close loopholes like the lack of a mandatory travel ban on designated Iranian officials. It should include a two-way arms embargo banning not only the export of arms from Iran but also the importation of arms to Iran. And it should create a U.N. monitoring team, preferably based in Dubai, to ensure member states comply with the U.N. sanctions regime. It should also add to the U.N. list the 23 Iranian persons and entities subjected to asset forfeiture abroad by the EU but not the U.N. Another useful tool would be to require strict inspections of all Iranian ships and aircraft to prevent violations of the arms ban or the import of banned or dual-use goods intended for Iran's nuclear program.
                                               
U.N. sanctions freezing the overseas assets of Bank Sepah were the first significant step toward isolating Iran from the international financial system. Sepah had facilitated the Iranian-North Korean missile procurement business and tried to conceal its role in these transactions.
                                               
Several additional Iranian banks are likely candidates to have their funds frozen overseas and slapped with a ban on doing business with them:
  •   Bank Melli was implicated in the December 2005 U.S. government fine of Dutch bank ABN Amro for violating the Iran/Libya Sanctions Act. Investigators found that Bank Melli used ABN Amro's Dubai office to conceal its role in illegal (under U.S. law) bank transfers to Iran.
  •  Bank Saderat was shut out of the U.S. financial system last September for its role in financing terrorism, including the transfer of tens of millions of dollars through branches in Europe to Lebanon's Hezbollah and EU-designated Palestinian terrorist groups like Hamas.                                           
  • U.S. Treasury officials have also cited the Central Bank of Iran as one of the state-owned banks that ask financial institutions to conceal their involvement in facilitating missile procurement, nuclear programs and terror financing.
                                               
Beyond banks, the next sanctions resolution must target the massive military-industrial complex controlled by the Iranian Revolutionary Guards, an elite paramilitary force. Considered the foundation of President Ahmadinejad's political powerbase, the Guards are also deeply involved in the country's proliferation activities. It also maintains a special branch -- the Qods Force -- responsible for arming, training and supporting terrorist groups like Hezbollah and Hamas and insurgents attacking Coalition and Iraqi forces in Iraq.
                                               
The Revolutionary Guards are primarily self-funded, with annual revenues from its businesses empire estimated at $1 billion and expected to rise to $1.5-$2 billion with new projects awarded since Mr. Ahmadinejad came to power. According to the U.S. State Department, the Guards are "taking on an increasingly influential role in Iran's economy, with IRGC-affiliated companies winning important government contracts." Freezing the assets of industries controlled by them, like the behemoth engineering firm Khatam ol-Anbia, would resonate with the merchant class that is already critical of the Guards' exclusive access to no-bid contracts.
                                               
Moreover, while the prospect of directly sanctioning Iran's oil industry makes the crude markets jittery, the reality is that international economic sanctions will ultimately only be successful if they impact Iran's lucrative oil and gas industries. Going after Khatam ol-Anbia, which was recently awarded a $2.09 billion contract by the Iranian government to develop parts of the South Pars natural gas field and a $1.3 billion contract to build parts of a pipeline, would be a strong shot across the bow of the Iranian oil industry. Such contracts would be put in jeopardy by U.N. sanctions, since no international company could legally do business with a company like Khatam ol-Anbia.
                                               
Referring to the unanimously passed sanctions resolutions, President Ahmadinejad recently warned the international community "not to play with the lion's tail." But Iran, unlike North Korea, is well integrated into the world economy and vulnerable to economic sanctions that shut the regime out of the international financial system. Iran can survive a pesky, symbolic sanctions regime like a lion swatting flies with its tail. The regime couldn't easily ignore sanctions with real teeth.

 Mr. Levitt, a senior fellow and director of the Stein Program on Terrorism, Intelligence and Policy at The Washington Institute, is former deputy assistant secretary for intelligence and analysis at the U.S. Treasury Department. He is author of Hamas: Politics, Charity and Terrorism in the Service of Jihad (Yale University Press, 2006).

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STARVING THE MULLAHS

By DICK MORRIS & EILEEN MCGANN
 
New York Post, June 25, 2007

THE conventional wisdom says that we have two choices in confronting and containing Iranian nuclear ambitions - United Na tions sanctions and diplomacy, or a military strike to knock out key nuclear sites. But neither option is a good one. U.N. sanctions are relatively tame and don't go to the heart of how to cripple the Iranian theocracy. A military strike, meanwhile, would solve the regime's major problem: how to gin up popular support and stay in power. Any attack risks causing nationalism in Iran to soar, rallying the public around a now-unpopular government.

But there is a way to strike hard at Iran and encourage a change in regime or at least in policies: We can stop investing in companies that invest in Iran. Frank Gaffney, a former Reagan Pentagon official, and his group disinvestterror.org list 485 companies that do business in Iran.

Dennis Ross, a longtime Middle East negotiator, told me recently that he felt that disinvestment "could be important in bringing about a change in Iranian policy" on nuclear weapons.

Of course it could: The Tehran regime gets 85 percent of its revenues from the energy sector and needs the cash to pacify the population. With high unemployment and low job growth, the government hangs on by the skin of its teeth by subsidizing prices - gasoline costs 30 cents a gallon in Teheran.

But oil exports have dropped year after year as domestic demand has grown 10 percent annually. Despite rising oil and gas prices, energy revenues to the government have dropped from $55 billion in 2006 to an estimated $44 billion this year.

Current estimates are that Iran's oil exports will drop in half by 2011, and hit zero three years later. The regime desperately needs new investment to prop up its oil production.

It's up to the public - and to our leaders - to see that Western companies don't provide that investment.

Already this month, California, Ohio and Florida have passed bills requiring their state pension funds to cut off any investment in these companies. State Sen. Jeff Klein (D-Bronx/Westchester) has proposed similar legislation in New York. He says that $20 billion of our state pension-fund assets are now invested in companies that invest in terror sponsoring nations. (The list includes most major oil companies and international banks.)

But state Comptroller Thomas DiNapoli doesn't have to wait for the Legislature to act. He should withdraw all investments by New York's state-employee-pension fund (the No. 2 in America) from companies that do business of any sort with Iran, Syria, Sudan or North Korea.

American companies are already banned from investments in Iran - but not so, European ones. Thanks to former Sen. Al D'Amato, a 1996 law imposes sanctions on foreign companies that invest in either Libya or Iran - but President Bush, like Bill Clinton, has consistently exercised the law's national-security loophole to waive it.

But the Europeans can't stop us from selling off the stock of companies like Shell, Repsol or Total that do business with Iran. The disinvestment drive is only a few months old, but it has already pushed Repsol, a Spanish company, and Shell, a Dutch firm, to reconsider their Iranian investments.

It's no sure thing - but disinvestment is a safe way to weaken the Iranian regime, and one we don't need approval from the United Nations - or Washington - to execute.


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Iran curses Ahmadinejad over petrol rationing

By Colin Freeman in Teheran

Sunday Telegraph 02/07/2007

The petitions kiosk outside President Mahmoud Ahmadinejad's home in Teheran, set up as a hotline to Iran's self-described "humblest servant", receives all kinds of requests.     

Yet amid the pleas for help with debts and joblessness, and tussles with Iran's byzantine bureaucracy, there is one letter that the men at the counter particularly remember.

"A woman asked if Mr Ahmadinejad could find her a good husband," said one proudly. "It shows how popular he is - you would only request something like that if you really felt he'd become part of your family."

In this particular case, the president's office replied that it was beyond his powers - a rare admission of defeat from a leader whose personality cult rivals that of Iran's "supreme leader", Grand Ayatollah Ali Khamenei.

Yet last week, two years after his election to power on a promise to help Iran's downtrodden masses, Mr Ahmadinejad, 49, finally learnt the downside of the demagogic approach - namely, that running a country of 69 million inhabitants as a one-man band involves taking blame as well as credit.

The issue was not over his notorious threats to "wipe Israel off the map", his defiance on Iran's nuclear programme, nor his puritanical desire to return to the early days of the Islamic revolution. Instead, the man who considers himself on a divine mission was floundering because of his inability to minister to one of his flock's most basic needs: petrol.

On Tuesday, a proclamation from his palace suddenly imposed a fuel ration of three litres (0.6 gallons) a day, a move designed to stockpile supplies because of fears of United Nations sanctions.

Within hours his name was being cursed, as motorists clashed with riot police at fuel stations and set garage forecourts ablaze.

"Without fuel I cannot earn," said the driver of a battered saloon car who had finally reached the head of a long queue for petrol. He was a shopkeeper who, like many residents of Teheran, supplements a meagre income by moonlighting as a cabbie. "Ahmadinejad is an ass. This is not what he promised the ordinary man."

The protests, the most open sign of discontent with Mr Ahmadinejad's rule since he took office in 2005, were accompanied by a stream of text-messaged jokes, which often serve as a vent for Iranians' suppressed frustrations. "On the orders of President Ahmadinejad," read one, "those who are short of petrol can have a ride on the 17 million donkeys who voted for him."

For a man whose key election promise was to "put the oil income on people's tables", there could scarcely be a more symbolic failure than the imposition of fuel rationing. Heavily state-subsidised, petrol normally costs less than bottled drinking water at about 1,000 rials (5p) a litre, and most Iranians regard it with a sense of entitlement.

The government, admittedly, has long threatened to introduce such measures, pointing out that such generous subsidies encourage wasteful usage and exacerbate the choking fumes on Teheran's streets. Now, however, the fuel restrictions are seen as the latest example of how hardship has grown under Mr Ahmadinejad.

The fear of UN sanctions following Iran's refusal to stop uranium enrichment means that foreign investment in the country has waned, hampering the president's ability to deliver on his pledge to slash unemployment. His response, a big, state-directed jobs and welfare programme using earnings from record oil revenues, has led to inflation soaring to 40 per cent.

Only weeks ago, 50 senior Iranian economists wrote an open letter warning that the president's policies were hurting the people he had vowed to help - the poor. It was the second such missive in a year, yet it is no surprise that it seems to have fallen on deaf ears.

Mr Ahmadinejad recently removed one of the government's main economic planning units, replacing qualified technocrats with his own acolytes. And in any case, he prefers to rely on the economic wisdom of "common men" like himself.

"We have hard-working shopkeepers in our neighbourhood from whom I get important economic information," he told Iranian newspapers recently. "For example, there is an honourable butcher in our neighbourhood who is aware of all the problems."

The Sunday Telegraph attempted to track down the traders with the presidential ear, but those near Mr Ahmadinejad's home denied that he had ever sought their counsel. Even if he had done, it is unlikely he would have liked what he heard.

"I voted for Ahmadinejad because I thought he represented a new way of doing things," said Samid Jalali, a grocer, whose cramped shop is a minute's stroll from Mr Ahmadinejad's house.

"But I am not satisfied with the way things are going. Inflation is much worse now: a tin of cooking oil has gone from $6 to $9 in just three months, for example. We have arguments every day with customers now, because they think we are just increasing the prices for ourselves."

Small wonder, then, that Mr Ahmadinejad's critics predict that his downfall may lie in the discontent of his ordinary working-class constituents, rather than the reformist efforts of Teheran's educated, pro-Western middle class. The reformists remain as fractured as they were during the last elections, and an increasing clampdown on the press, academia and student organisations seems to have further weakened them, rather than galvanised them.    

Instead it is the economy that is Mr Ahmadinejad's Achilles' heel, said one Western official, not least because his highly personalised style of government means there is nobody else to take the blame.

Even his harshest critics, though, concede that Mr Ahmadinejad has tried to connect with the Iranian people in a way that few of his predecessors, reformist or hardline, have ever done. Since he came to power he has made a point of touring the country's provinces and visiting remote villages that have suffered decades of neglect.

Of more concern, critics say, is the "narcissistic" way such visits are carried out. They usually start with a speech about the Mehdi, the Shia messiah whom Mr Ahmadinejad believes will soon arrive to deliver universal justice. Yet listening to the grandiose promises that inevitably follow, some might wonder what would be left for the Mehdi to do.

"He loves to show off by asking the ordinary people what they want, and telling them he will build roads and houses," said one senior reformist.

"But it's all about him, and it often involves humiliating the provincial governors. On some occasions he has told a crowd of people, 'I will twist this governor's ear for you,' while the governor is sitting there. How is the governor supposed to maintain his authority after that?"

Opponents are pinning their hopes on Mr Ahmadinejad being unable to satisfy his growing legion of supplicants, most of whom, they claim, get nothing more than one of five standard response letters when they send in a petition. "Soon there will be disappointment, because little of what people ask of him will materialise," predicted Abdullah Momeni, another leading reformist.

That, however, may not stop Mr Ahmadinejad spending billions of pounds in the attempt. He now has an extremely ambitious plan to create up to a million jobs in Iran's under-developed rural east, by building a vast network of steel, cement, and petrochemicals factories - despite the fact that some of the planned steelworks will be more than 200 miles from the nearest iron mines.

The scheme has been condemned as "Stalinist" by Mr Ahmadinejad's critics, who say it will squander state oil riches on plants that will eventually be left to rust away.

Yet for the president's diehard faithful, only when Islamo-communism's first five-year plan is complete will his own judgment day truly come. Even then, in keeping with all hardline ideologues, they are likely to insist that failure is not the fault of the revolution itself, but of its enemies.

"Ahmadinejad is number one," said Mohammed Reza, a member of the Basiji religious militia, which provides the bedrock of his support. "But we can only evaluate him once his work is done - and right now there are many people standing in his way."