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USA

US mulls options against Iran in wake of plot reports

Text by News Wires

Latest update : 2011-10-14

Among the options the US is considering in response to an alleged Iran-linked plot against the Saudi ambassador to Washington is a move against Iran's central bank that could stop firms doing business with Bank Markazi from entering the US market.

AFP - Contrary to popular belief the United States is not out of ammo when it comes to punishing Iran with economic sanctions, but experts say Washington may yet shy away from using what few weapons it has left.

After three decades of blanket US sanctions against Iran, it has become received wisdom that the United States has few financial tools left to bend Iran's will.

It is a claim that has reached a crescendo as the United States responds to allegations that Iran plotted to kill the Saudi ambassador to the United States on American soil.

But sanctions experts, including former Treasury Department officials, say the problem for Washington is not a lack of options: sanctions could be introduced against third party arms dealers, firms that transfer technology to Iran or any number of specific issues.

The main problem, they say, is that the only forceful options remaining are virtually sanctions of mass destruction.

At the pinnacle of that arsenal is an official Treasury designation of the Central Bank of Iran -- or Bank Markazi -- which sits at the center of Iran's financial and energy interests.

While the US government already bans its citizens and entities from doing business with Bank Markazi, a specific designation could essentially freeze any foreign firm doing business with Bank Markazi out of the US market.

"Essentially financial institutions around the world would have to choose between doing business with the United States and with the central bank," according to Avi Jorisch, a former advisor at the Treasury Department's office of terrorism and financial intelligence.

That could have profound implications for foreign banks, for Iranian government revenues and the stability of Iran's currency.

What makes this sanction so powerful is the institution's role in funneling the wealth of Iran's energy industry, which accounts for 70 percent of Tehran's revenues.

"Iran handles its oil business through the central bank," said Jorisch. "What's happened over the last few months is that as the US has designated more and more financial institutions in Iran, maybe 20 out of 30, Iran has relied more and more on the central bank to clear those transactions."

According to leaked US diplomatic cables, Iran had sought to use Bank Markazi in recent years to transfer payments from as far afield as South Korea, France, the UK, Spain and Italy.

A recent report by the Congressional Research Service outlined the stakes in choking Iran's oil revenue which in turn would cause a shortage of currency reserves that would force Iran's currency lower and make imports prohibitively expensive.

"The Central Bank plays a role in keeping Iran's currency stable, and an unstable currency could harm Iran's ability to import some needed foodstuffs and medical products, according to those opposing that sanction," the report said.

Such a designation has long been considered, but both president George W. Bush and Barack Obama have been unable to convince Europe to adopt multilateral sanctions and unwilling to use US legal provisions to do it unilaterally.

"The original problem more than anything else was with Europe, I am not sure that key European powers at this point in time are as concerned about Iran as the United States is," said Anthony Cordesman, a former intelligence assessment advisor to the defense secretary, now with CSIS.

There are other risks for Washington in such a move.

Choking off Iran's ability to sell oil in Europe, India or Japan, without pumping more from the likes of Saudi Arabia, could also result in significantly higher oil prices in the United States and Europe.

And it could simply force Iran to go shopping for unsavory customers willing or able to dodge the sanctions, although finding new buyers for a large proportion of the two million barrels of crude a day Iran exports would be no mean feat.

But with Obama now vowing the "toughest sanctions" against those responsible, the paradigm may have changed.

A senior Treasury Department official on Thursday acknowledged the United States was considering sanctions against Bank Markazi.

In discussing a narrower measure to close a loophole allowing Europe to export refined Iranian oil to the United States, the Treasury's sanctions czar on Thursday described the economics of that idea as "complicated."

The decision may come down to what the United States hopes to achieve through the sanctions: to punish Iran, to prevent a future attack, to thwart the country's nuclear program or to push regime change?

If the aim is broadly "all of the above" then sanctions against the Central Bank of Iran may have little chance of success despite causing significant broader upheaval.

"There is a fairly wide range of stuff the United States can use that would put leverage on Iran. Whether any of them would be decisive is another matter," said Cordesman.
 

Date created : 2011-10-14

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