Wall Street Journal
December 29, 2006
Plan to Curb Trade, Lending Beyond U.N. Sanctions Has Yet To Stir Action Overseas
By Neil King Jr.
WASHINGTON -- Armed at last with a set of limited United Nations sanctions against Iran's nuclear program, the Bush administration has been stepping up efforts to persuade countries in Europe and Asia to go further and cut off bank lending and other financial interactions with Iran.
But the response overseas to the U.S. push to clamp down on trade with Iran beyond the U.N. resolution has been tepid. European officials say their first desire is to implement and enforce Saturday's package of limited sanctions on Iran. Any moves to limit bank lending or to curtail export credits also could run afoul of the sizable trade between Iran and countries such as Germany, Italy, Japan and China.
China's trade with Iran is up more than 40% this year, and while trade between the European Union and Iran has stagnated, it is still set to top $25 billion in 2006. The U.S., having imposed a series of unilateral sanctions on Tehran over the past 25 years, has only minuscule trade ties with Iran.
"Now is the time for all the actors to be very cautious in their dealings with Iran to make sure that they don't violate the U.N. resolution," said a senior European diplomat in Washington. A senior EU official said all energies for now will focus on ensuring that the EU's 25 member states use the same rules to enforce the U.N. measure. Tougher Pressure
The U.S. strategy to pressure countries and private banks to curb their dealings with Iran underscores a conviction within the Bush administration that getting Iran to compromise on its nuclear work will require much tougher pressure than the U.N. Security Council is likely to stomach.
The strategy, which has been months in the works, is a spinoff from a campaign launched in 2005 against Asian banks that helped to financially isolate North Korea. After the Treasury Department targeted one bank in Macau with sanctions, numerous other banks broke off their dealings with Pyongyang. More Chinese banks have severed ties with North Korea since the U.N. passed a sanctions package in October in response to Pyongyang's nuclear test. It is a pattern the U.S. now hopes to see repeated with Iran.
Senior U.S. officials say that the Dec. 23 U.N. resolution is crucial because it provides countries with the legal justification to push for tighter financial controls against Iran within their own systems. The measure falls under a provision of Chapter 7 of the U.N. Charter that makes enforcement mandatory but restricts the response to nonmilitary means.
"It's certainly a significant step to have a unanimous resolution backed by 15 countries under Chapter 7," said Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence, who has led the drive to squeeze Iran's access to international financial channels. "I think we will be able to get some real impact from this resolution."
To that end, the Bush administration is now looking to push ahead mainly on two fronts.
U.S. officials hope that countries with the greatest economic leverage over Iran -- primarily Germany, Italy, France, Japan and China -- will separately make clear to their own banks the risks involved in doing business with Iran. The Treasury Department for several months has been trying to persuade international lenders to help isolate a network of Iranian-controlled banks and companies that the U.S. suspects Tehran is using to acquire sophisticated weapons technology. Several large European banks, such as UBS AG and ABN Amro Holding NV, broke off all ties with Iran during the past year.
The Bush administration also would like to see about a dozen European countries end or at least curtail their export-credit-guarantee programs for companies doing business in Iran. Germany alone granted companies working in Iran credit guarantees of $1.9 billion in 2005, putting Iran third on Germany's guarantee list after Russia and China. Britain also has issued a number of large guarantees to cover the risk for British companies doing business in Iran. (Export-credit guarantees greatly diminish the risk a company faces when doing business abroad by insuring against the chance of nonpayment.) Reluctance to Act
"This export-credit issue is pretty significant," Mr. Levey said, adding that movement on this front would probably have to come from within the EU, as individual countries might be reluctant to act on their own. "It is hard for one of these countries to act for fear that the others will move in to fill the gap," he said.
European diplomats and officials, however, say the EU isn't likely to take additional actions quickly. The EU's first step will be to pass rules implementing the new U.N. resolution, which is itself highly complex, and then to see whether the new pressures spark a debate within Iran over the wisdom of rebelling against the international community.
Europe and the U.S. have been trying for more than two years to get Iran to agree to steps to ensure that its nuclear program is strictly for civilian purposes -- and not a cover for developing a nuclear weapon. Iran insists it isn't pursuing nuclear weapons, but it also has refused to suspend an increasingly elaborate uranium-enrichment program. Highly enriched uranium is a key ingredient for a nuclear bomb.
The aim of the U.N. resolution -- but even more so the additional steps being pushed by the U.S. -- is to ramp up the economic pain on Iran so that significant voices within the country begin to question the value of having a domestic uranium-enrichment program.
The new sanctions package was nothing if not hard-fought. When Iran refused to suspend its uranium-enrichment work by Aug. 31, as required by an earlier U.N. resolution, the U.S. hoped to win a set of punishments within weeks to show Iran that the Security Council meant business. Instead, amid significant resistance from Russia, the council spent nearly four months feuding over multiple drafts before it hit on a measure that won the support of all five permanent members as well as the council's 10 rotating members.
The resolution that emerged Saturday is meant to put the squeeze on Iran's nuclear program but isn't likely to cause much pain on its own. The package prohibits countries from supplying Iran with materials that would benefit its uranium-enrichment efforts or improve its missile systems. But the package is much looser on so-called dual-use items that can be for either military or civilian purposes. The resolution also imposes an asset freeze on 11 organizations and 12 individuals involved in Iran's nuclear and missile programs. Avoiding Financial Interactions
The Bush administration was particularly pleased by the move to target specific Iranian individuals and companies, because the shortened U.N. list overlaps partially with a longer watch list that Mr. Levey has been showing banks and finance ministries around Europe, urging them to avoid financial interactions with entities that the U.S. believes are supporting Iran's weapons programs or terror groups.
Both European and U.S. officials cite evidence that Iran already is feeling the pinch of increased economic isolation. A new study from Johns Hopkins University concludes that Iran's oil production is actually falling amid rapidly declining investments in its petroleum sector. And Iran's oil minister said recently that the country would have to dip into a special stabilization fund to finance increased production.
Beyond Europe, the U.S. also is trying to persuade certain Persian Gulf states such as Saudi Arabia and the United Arab Emirates to exert pressure on China to distance itself from Iran. China has become a major trading partner with Iran during recent years, as well as a growing investor in Iran's oil and natural-gas fields.