Sham sanctions

April 14, 2012

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TALKS between Iran and the P-5-plus-1 (Germany) in Istanbul on the nuclear issue resumed yesterday. Western officials have asserted that Iran has been obliged to ‘return’ to the nuclear negotiations due to the pressure imposed on it by the sanctions applied against Iran by the US, EU and their allies. But Iran says that sanctions have not influenced its position at all.

The efficacy of the anti-Iran sanctions has assumed a critical dimension not so much for the nuclear talks as for the prospects of a new conflict in the region. Israeli Prime Minister Netanyahu has called for early military action against Iran’s nuclear facilities before Iranian nuclear enrichment is shifted to facilities which are invulnerable to aerial destruction.

President Obama has reportedly held back the Israelis, arguing that Iran’s agreement to freeze and reverse its nuclear programme can be achieved through the application of ‘punishing’ sanctions.

Economic and political sanctions are an old tool of coercive diplomacy. In recent decades, UN sanctions have been imposed against several, mostly small, countries. Where agreement escaped the Security Council, some major powers, mostly the US and its Nato allies, resorted to ‘unilateral’ sanctions.

The effectiveness of sanctions has been patchy at best and disastrous at worst. The ‘pain’ of sanctions has been borne mostly by the common citizenry of the target countries. In several cases, sanctions have proved counterproductive. For example, the Pressler nuclear sanctions against Pakistan in the 1990s obliged it to develop several indigenous capabilities that, later, enabled Pakistan to emerge as a credible nuclear and missile power.

The US and EU have initiated new ‘severe’ sanctions against Iran. The US sanctions aim primarily to isolate the Iranian banking system. US banks are prohibited from dealing with the Iranian central bank and other major Iranian banks.

Non-US banks which continue to deal with the Iranian banks will be excluded from the US dollar clearing house system. Most have been obliged to fall in line. Only the banks of countries whose national currencies are accepted in international trade can defy or circumvent the US restrictions. Meanwhile, the SWIFT system, used for bank wire transfers, has excluded Iranian banks.

The EU has decided to halt imports of Iranian oil. This policy will be implemented progressively to enable each EU member to arrange for alternative sources of oil imports. The US has pressed non-European countries to also halt or at least reduce oil and gas imports from Iran. Reportedly, Japan and South Korea have agreed to significant reductions over time. India has basically turned down the US démarches, citing the ‘technical’ dependence of its refineries on Iranian oil. China has not responded.

The US and western contention is that the combination of banking and oil sanctions will dramatically reduce Iran’s revenues from exports and disrupt its economy, increase popular discontent and oblige it to make concessions on the nuclear issue. How realistic are these presumptions?

There will be some reduction in Iran’s oil exports as a result of the new sanctions. Major importers will not be able to shift away quickly from Iranian oil due to existing contracts and crude quality. The biggest countries — China and India — have not agreed to stop or reduce imports and are conducting trade in Chinese renminbi and Indian rupees. Iran is offering long-term credits to oil importers. Traders continue to buy Iranian oil on the ‘spot’ market. Oil is also likely to be smuggled across Iran’s borders. Thus, Iran’s revenues may be reduced by as little as 20 to 30 per cent.

Nor are the banking restrictions likely to prove an insuperable impediment to Iran’s trade. Various alternate banking channels — Chinese, Indian, South Korean — are being utilised by Tehran to import and export food and other commodities and goods. And, despite the US-Nato military presence in Afghanistan, that country’s notorious smuggling routes will be used to supply not only the Pakistani but also the Iranian market.

Pakistan’s response to the Iran sanctions reflects fear and confusion. Pakistani banks have stopped accepting Iranian letters of credit, disrupting normal trade between the two neighbours. The media has reported proposals for barter trade, but this has become embroiled in inter-ministerial bickering.

An interesting report from Tehran on March 17 cited US sources as saying that “despite the unilateral sanctions imposed by Washington against Tehran, Iran is close to completing purchases of 220,000 tons of wheat from American exporters due to be shipped as early as April”. The report added that “grain giants, Cargill Inc. and Bunge Ltd, were the likely suppliers”; that Iran had already purchased 180,000 tons of American wheat; and that the price of the total imports of 400,000 tons would be $160m.

In December 2010, The New York Times had reported that, over the past decade, US based companies have done billions in trade with Iran despite the sanctions and embargoes imposed against Iran. The NYT report said the transactions were made possible by a 2000 US law which allows exemptions from sanctions to companies selling food or medical products.

The report also stated that an American company had been permitted to do work on an Iranian gas pipeline, despite the sanctions aimed at Iran’s gas industry. Yet, a few weeks ago, US Secretary of State, Hillary Clinton, warned that Pakistan would face sanctions if it proceeded with the proposed Iran-Pakistan gas pipeline project.

The conclusion is inescapable that the leaky US-EU sanctions are not the reason for the resumed nuclear talks in Istanbul. Nor are they likely to wring concessions from Iran in the talks. If the West is conducting the negotiations on the basis of wrong presumptions, these are likely to fail.

But there is an even greater danger. The failure of the talks would reinforce the Israeli prime minister’s assertion that the best option is military action against Iran’s nuclear facilities.

In the current charged US electoral environment, President Obama is in danger of being pushed by the Israeli and Republican hawks towards a military option. Instead of relying on the uncertain promise of sanctions, Obama should come forward with a more realistic strategy for the talks with Tehran. He should also be frank in explaining to the American electorate why going to war with Iran would be so disastrous for the region, for Israel and for America.

The writer is a former Pakistan ambassador to the UN.