Sanctions and Relief Implementation

Sanctions and Relief Implementation

by

Howard Adelman

Note that the EU3+3 (Britain, France, Germany + China, Russia and the U.S.) is the same as the P5+1 (Britain, China, France, Russia and U.S., permanent members of the UN Security Council + Germany).

To understand the current conflict over sanctions against Iran, it is helpful if we provide a brief history.

  • 1979 (November) President Carter’s Executive Order 12170 freezing Iranian assets (estimated value $10-12 billion) in response to Iranian hostage-taking of American embassy personnel by radicals protesting allowing entry to the Shah of Iran for medical treatment into the U.S.
  • 1980 embargo on U.S. trade with Iran imposed and travel ban to Iran issued
  • 1981 sanctions lifted after hostage crisis resolved
  • 1984 U.S. prohibits weapons sales, loans or assistance to Iran following Iraq invasion of Iran and belief that Iran is developing a nuclear weapons program
  • 1987 (October) President Ronald Reagan issues Executive Order 12613 prohibiting all imports from or exports into U.S. by Iran
  • 1995 (March) President Clinton issues Executive Order 12957 prohibiting all manner of trade between the U.S. and Iran in support of the Iranian petroleum industry
  • 1995 (May) President Clinton issues Executive Order 12959 prohibiting any trade with Iran
  • 1996 (August) under President Clinton, Iran and Libya Sanctions Act (ILSA) (H.R. 3107, P.L. 104-172) signed into law but Libya deleted from name of law when sanctions against Libya lifted in 2006
  • 1997 (August) Mohammad Khatami, considered a reformer, elected President of Iran and president Clinton eases some sanctions
  • 2000 sanctions reduced for pharmaceuticals, medical equipment, caviar and Persian rugs
  • 2001 (August) Iran (and Libya) Sanctions Act renewed under President George W. Bush
  • 2004 U.S. Courts overrule a Treasury Department application of sanctions to intellectual exchanges and reciprocal publication arrangements
  • 2005 Mahmoud Ahmadinejad elected President of Iran and lifts suspension of uranium enrichment program agreed to with Britain, France and Germany (EU3) and sanctions in place now vigorously reinforced
  • 2006 UNSC Resolution 1696 passed against the renewal of Iranian uranium enrichment program
  • 2006 UNSC Resolution 1696
  • 2006 UNSC Resolution 1737
  • 2007 UNSC Resolution 1747
  • 2008 UNSC Resolution 1803
  • 2008 UNSC Resolution 1835
  • 2010 (June) UNSC Resolution 1929
  • 2010 (July) EU expands its sanctions beyond those required by the UNSC
  • 2012 (October) EU significantly expands and details more specifically its bans on the provision of services and equipment for the petrochemical industry, including oil tankers, the supply of services upon which Iranian production was so dependent, especially the ban in the export of certain specific metals, including graphite, that would be critical to Iran’s ability to fabricate its own machinery related to Iran’s ballistic missile development as well as its petrochemical industry
  • 2013 (March) EU imposition of sanctions against judges, media officials and a special police monitoring unit linked to the death of a dissident held in custody
  • 2013 (June) election of Hassan Rouhani government in Iran
  • 2013 (July) almost five months before Joint Plan of Action agreement signed and after Rouhani elected on a pledge to enter negotiations with the UN, the U.S. House of Representatives voted 400:20 in favour of increased sanctions against Iran
  • In contrast, following Rouhani’s election, the EU took a pro-active stand to invite Iran to join negotiations and a step-by-step approach that would restore normal economic relations while ensuring Iran’s right to develop nuclear technology for peaceful purposes
  • Sanctions begin to be lifted for an initial six-month period by the EU in January 2014 after the JPA came into effect beginning with suspension of the ban on the import of petrochemical products and the banking and insurance related thereto.

While George W. Bush was renewing the sanctions regime against Iran, since 1998, Iran and the EU had been seeking to formalize its commercial and political cooperation arrangements and, in 2001, sought to negotiate a comprehensive trade and co-operation as well as political dialogue agreement. Negotiations started in 2002 but paused when Iran declined to engage in any further human rights dialogue after 2004. Once Iran’s clandestine nuclear development program was revealed in 2005 and Iran refused to co-operate with IAEA, all dialogue between the EU and Iran stopped.

The increasing severity of United Nations Security Council (UNSC) resolutions between 2006 and 2010 were in direct response to Iran’s refusal to abide by the international Nuclear Non-Proliferation Treaty and the requirements set down by the International Atomic Energy Agency (IAEA). IAEA was determined to resolve the Iranian nuclear issue to ensure the NPT was not breached. At the same time, the IAEA recognized Iran’s rights to develop nuclear energy for peaceful purposes.

The biggest change came because of independent EU action in July 2010 since the EU was then Iran’s largest trading partner. Further, London is a global financial centre; UK financial restrictions made it much more difficult for Iranian banks to use the international financial system to support its oil and gas business and Iran’s nuclear and ballistic missile programs. In addition to an embargo on nearly all dual-use goods and technology which could contribute to uranium enrichment, reprocessing of nuclear fuel, heavy water or to the development of nuclear weapons delivery systems, the EU introduced bans on the export of telecommunications, monitoring and transport equipment as well as arms, followed by more sanctions on instruments that could be used for internal repression. Perhaps the bans on investments, services and technology for the oil and gas industry were the most crippling since Iran’s oil production systems were based on European technology. European banking restrictions related to investments, grants, financial assistance, especially transfer of funds to and from Iran, and the ban on the provision of insurance services, were also enormously effective. But perhaps the sanctions that most hit home to persons of influence in Iran were the restrictions on the admission of specific persons (a long list to which more names were continuously added), freezing of their funds and economic resources and their inability to satisfy any claims.

By the time the JPA was put in place in November 2013, oil imports from Iran had fallen to zero and EU exports fell again by 26% in the 2012-2013 period. EU sanctions against Iran are based not only on the failure of Iran to be compliant with the Nuclear Non-proliferation Treaty (NPT) but also because of Iran’s human rights record, support for terrorism, and its destructive approach to Israel-Palestine peace negotiations. Given the close economic ties between the EU and Iran, the targeted sanctions against specified individuals and organizations were even more significant because they entailed freezing of funds and economic resources of persons responsible for serious human rights violations in Iran and persons, entities and bodies associated with them. The list of people and organizations affected was long.

It was in the context of the UN sanctions against Iran for its breach of NPT that the Joint Plan of Action (JPA) has to be understood rather than the 35 years of U.S. up-and-down sanctions against Iran. In return for Iran taking steps to halt and roll back its nuclear enrichment program, the E3/EU+3 agreed to:

  • Pause efforts to further reduce Iran’s crude oil sales to enable Iran’s current customers to purchase their current average amounts of crude oil
  • Enable the repatriation of an agreed amount of revenue held abroad and, for such oil sales, suspend the EU and U.S. sanctions on associated insurance and transportation services
  • Suspend U.S. sanctions on Iran’s auto industry and associated services
  • Suspend U.S. and EU sanctions on:
    • Iran’s petrochemical exports, as well as sanctions on associated services
    • Gold and precious metals, as well as sanctions on associated services
  • License the supply and installation in Iran of spare parts for safety of Iranian civil aviation and associated services. License safety related inspections and repairs in Iran as well as associated services
  • No new nuclear-related UN Security Council or EU sanctions
  • U.S. Administration, acting consistent with the respective roles of the President and the Congress, will refrain from imposing new nuclear-related sanctions
  • Establish a financial channel to facilitate humanitarian trade (transactions involving food and agricultural products, medicine, medical devices, and medical expenses incurred abroad) for Iran’s domestic needs using Iranian oil revenues held abroad involving specified foreign banks and non-designated Iranian banks yet to be defined
  • This channel could also enable: transactions required to pay Iran’s UN obligations; and, direct tuition payments to universities and colleges for Iranian students studying abroad, up to an agreed amount for the six-month period
  • Increase the EU authorization thresholds for transactions for non-sanctioned trade to an agreed amount.

Nine months ago as the first deadline for the Joint Plan of Action approached, the negotiations on a comprehensive nuclear agreement hit a snag over the issue of sanctions, though, as became a pattern over the last nine months, the Iranians continued to voice optimism about the results of the negotiations. Thus, on 21 May 2014, Iranian President Hassan Rouhani said, “Today, the nuclear negotiation is progressing and is on the threshold of reaching a conclusion.” The very next day, this was the same message coming from Supreme Leader Ayatollah Ali Khamenei. Saeed Jalili, the former lead negotiator, a conservative very close to Khamenei, said, “We should permit the (Iranian) nuclear negotiation team to proceed with its programs in the framework of (the Supreme Leader’s proposed) ‘heroic lenience’ and we should all assist them in their bid to materialize the nation’s rights.”

There could be two reasons for the articulation of this optimism: 1) domestically to dampen down the ultra-conservative voices critical of the negotiations; 2) to send a message to the P5+1 that the Iranians are fully committed to the success of the negotiations. But there were two sets of issues which this optimism masked. There were disagreements about Iranian compliance that would persist for the next nine months and that I will deal with in tomorrow’s blog. Second, there were rising voices within Iran that the pace of lifting sanctions had been far too languid given the enormous concessions (in their minds) that the Iranians had made thus far in their nuclear program. Just as there were continuing concerns within the U.S about the Iranian commitments to a successful outcome of the negotiations., within Iran there were an increasing number of queries from many quarters about whether the U.S. was truly committed to lifting sanctions or whether the whole process was just a ruse to stop, set back and eventually derail Iran’s development of its nuclear program.

As reported from the Tasnin News Agency in Al-Monitor, Seyed Hossein Naghavi Hosseini, spokesperson for the Iranian Parliament’s National Security and Foreign Policy Committee, noted “intense disagreements” over a variety of issues during the Vienna talks, including an alleged P5+1 proposal for a 10-year rollout for sanctions relief. The Iranians were afraid of a Republican backlash that could re-impose sanctions, since they already anticipated that American sanctions relief would only take place under U.S. President Barack Obama’s executive authority to waive many of the sanctions on Iran. Waivers can be easily rescinded. Iran might accept waivers, but only in an initial phase in a process leading to complete sanctions relief.

Hosseini called for lifting of all sanctions rather than segmentation and a phased-in approach, a comment directed not only at the then current snag in negotiations about sanctions, but an explicit critique of the JPA provision for the implementation of the agreement of “specified long tern duration” usually bandied about as ten years. The issue was a divide between ending or suspending sanctions.

If the U.S. insisted upon a 10-year rollout period for sanctions relief, then the Iranian rollback in its nuclear program should also be phased over ten years, Iran insisted. Yet the other side insists on Iranian compliance with IAEA requirements as a prerequisite to sanctions relief, consistent, not with the preamble of the JPA, but with the position that Iran is the outlier in its failure to comply with its international treaty obligations under the Non-Proliferation Treaty (NPA). The sanctions were imposed for Iran’s failure in compliance. Making relief implementation proportionate to Iranian compliance is akin to requiring the justice system to reduce a fine in proportion to a felon desisting in the future from recommitting the felony.

The JPA calls for a “comprehensive solution.” Comprehensive entails lifting all trade, technology, banking, energy and aeronautical sanctions – including UN Security Council, EU multilateral and national sanctions – with the implication that these even included non-nuclear sanctions by the U.S. (hence the importance of having the historical background). But U.S. oil and financial sanctions are subject to the Iran Sanctions Act described above. To waive sanctions, the President must certify to Congress, not only that Iran will not be able to build nuclear weapons within a one year breakout period, but that Iran no longer seeks to build weapons of mass destruction ever. Further, the President must certify that Iran no longer sponsors terrorism (Hamas and Hezbollah, both clients of Tehran, though Hamas had a fallout with Iran over Syria). Both Hamas and Hezbollah are listed by the U.S. as terrorist organizations. Finally, the President must certify that Iran no longer represented a security threat to U.S. Interests. Given the U.S. commitment to Israel and Saudi Arabia, how could this be possible given Iran’s continuing foreign policy?

Who said that sanctions are easy to lift but hard to impose? This analysis suggests that the opposite may be truer.

All these issues end up being tied into the negotiations. And I have not even delved into the Syrian part of the equation. It is a truism that Lebanese issues and conflicts over Hezbollah cannot be resolved without reference to Syria. So bringing all of these into the negotiations would definitely kibosh them. Where do you draw the line? As we shall see tomorrow, IAEA restricts the negotiations to nuclear issues, but then includes military developments (e.g. missiles) related to nuclear militarization, but excludes other foreign policy issues.

However, with the U.S. as the lead negotiator on the side of the UNSC, the matter becomes complicated in a totally other way – not over what is included and what is excluded, but over who is included and who is excluded. Many members of Congress insist they must have a say since an act of the U.S. Congress is involved. And the Iranians, as well as everyone else, know the position of the Republicans. Senator Bob Corker, ranking Republican on the Senate Foreign Relations Committee, however, insists that what is at stake is a good deal, not knee-jerk opposition to Iran. “If it’s a good deal, I’m going to vote for it. I want a good outcome… We haven’t been in the camp of wanting to add sanctions right now. We’ve been in the camp of wanting to find what a good deal is. So if we get a good deal, I’ll be glad to vote for it.” However, for the Republicans, merely extending the breakout period from three months to one year does not represent a good deal.

So the sanctions issue is bound to be a spoiler for both sides if politicians and the domestic constituencies behind them become convinced that Iran is not sincere in its quest to pursue a strictly peaceful use of nuclear energy. Hence, as we shall see tomorrow, the repeated reassurances that Iran is complying with almost all the requirements of the JPA. Hence, also the IAEA’s insistence of stretching beyond a narrow interpretation of nuclear negotiations to include other nuclear-related security issues (missile delivery systems) as well as assurances of full transparency.

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