The new wave of US and European Union sanctions introduced in
the summer is starting to bite, but few diplomats or analysts
expect Iran to make any early diplomatic response.
I see no signs that sanctions are having any effect on
Irans foreign policy or its nuclear programme, says
Sir Richard Dalton, UK ambassador from 2003 to 2006.
Elected with a pledge to engage Iran, US
president Barack Obama has extended the punitive regime
developed by his predecessor. President Obama looks like
he is continuing or even intensifying the Bush Administration
policy of sticks and carrots, says Farideh Farhi, an Iran
specialist at the University of Hawaii. Obama has
abandoned the insistence on preconditions for talks, but it is
not clear whether the US will show any flexibility.
Leading Washingtons drive to squeeze Iran out of the
international financial system is Stuart Levey, retained as
Treasury under-secretary from the Bush administration. Levey
has stalked the halls of the USs allies seeking action
against Iran beyond the July fourth round of UN sanctions,
which at the insistence of Russia and China relate directly to
Tehrans nuclear and missile programmes.
US pressure on third parties, especially banks, to boycott
Iran led in the summer to fines of a European bank and a
European shipper: Barclays paid $298 million to settle charges
that it structured financial flows over more than 10 years, to
disguise the origin of hundreds of millions of dollars moved to
the US from Iran and other sanctioned countries; Denmarks
Moller-Maersk paid a $3.1 million fine for violating sanctions,
after the US Treasury ruled a subsidiary had made nearly 5,000
shipments originating in or bound for Sudan and Iran between
2003 and 2007. These followed settlements by ABN Amro of $500
million in May, by Credit Suisse of $536 million last December,
and by Lloyds of $350 million in January 2009.
Most, if not all, banks around the world deal in dollars and
are therefore susceptible to US action over dealings with Iran.
The US has also decided this summer to blacklist any companies
selling petrol to Iran [see box].
But how far Washington is prepared to push action against
third parties is unclear. With US sanctions and EU sanctions
barring western companies, China, Russia, India and Turkey have
also all signed deals or opened talks on investments worth
billions of dollars in Irans oil and gas fields,
petrochemical plants and pipelines. Hence the real impact of
the new wave of sanctions will depend on those called
dismissively backfillers in Washington for taking
opportunities left by western companies.
The crucial factor with the backfillers
China, Turkey, Brazil, India and Malaysia is how
far they evade pressures from the US and the, as yet unknown,
effect on their businesses in the US, of any actions Washington
may take against infringements of US sanctions, says
The backfillers mood is resentful against Washington,
but all fear for their operations in the US market. The biggest
challenge for US plans is China: Beijing has already ploughed
$40 billion into Irans energy sector, according to the
Iranian oil ministry, and Iranian ministers have been in China
seeking further investment, especially in new refineries.
Beijing is also Irans biggest trading partner, with Iran
Chinas third-largest supplier of crude, with exports this
year of around 375,000 barrels per day.
But Obama has made a direct appeal to Chinese president Hu
Jintao, and overdependence on China is worrying pragmatists in
Iran. Professor Sadegh Zibakalam, professor of Iranian studies
at Tehran University, wrote last month: It would be most
unpleasant if the Americans make trouble for the Chinese,
and that he believed the next countries to sanction
Iran would be China and Turkey.
Turkey voted in July at the UN Security Council against new
sanctions, and was annoyed by the negative US reaction earlier
this year to its efforts alongside Brazil to negotiate a
nuclear agreement with Iran. Nihat Ergun, minister for industry
and trade, has said that agreed cooperation projects with Iran
would continue, including a joint industrial zone on the border
and a scheme for joint car production. During the summer, Iran
and Turkey signed a Memorandum of Understanding to build a
power plant on their shared border, and Recep Tayyip Erdogan,
the Turkish prime minister, told a business conference last
month Ankara wants to triple trade with Iran, around $11
billion this year, over five years.
But this is below Turkeys $15 billion annual exports
to the EU. Turkish banks will certainly seek to avoid US
blacklisting, and there have been reports of some scaling back
dealings with Iran, which could hamper Iranian businesses
raising euros in Turkey to finance trade with Europe.
Iraq is a second neighbour vital to Iran, with around $8
billion in trade consisting almost entirely of Iranian exports.
Iran supplies 750mw of power daily to Iraq as well as fuel for
power stations. Two private Iranian banks, Parsian and
Karafarin, are seeking approval to open branches, and Iraq may
play a pivotal role in third-party trade. Iraq is
becoming central with regard to Irans exports to the
UAE, says a leading Iranian economist, noting reports
that the UAE, a busy conduit of Irans indirect trade, is
imposing greater scrutiny at its ports.
India is also important to watch. Recent Iranian ministerial
visits have focused both on improving economic links and on
Afghanistan, where both countries want a stable government to
contain the Taliban. On energy, their interests match.
Indias hopes for sustained 810% growth despite
scant energy resources make it hard to follow the US line.
India already imports from Iran around 14% of its crude
or $11 billion annually.
The Indian private-sector Reliance Industries ended petrol
sales to Iran last year. But this summer New Delhi resumed
talks with Tehran over the ambitious peace pipeline
for Iranian gas, and India and Iran in July signed six
bilateral security and economic cooperation agreements.
Iran wants Indian investment in its undeveloped South Pars
gas field, and the two countries share an interest in
developing Chabahar port in south-east Iran, which New Delhi
sees as a transit for trade bypassing Pakistan into Afghanistan
and central Asia. New Delhi has part-financed a highway from
Chabahar to the Afghan border, where it would meet a 213km road
laid by India from Dilaram, an Afghan transportation hub.
Like India, South Korea looks for US diplomatic support, in
its case over North Korea. Seouls trade with Iran reached
$10 billion last year, with Iran supplying 10% of its crude and
importing consumer goods including IT products. Trade rose this
year until July, when fears over sanctions led to a sudden
The government has tried to hedge, but last month suspended
the operation of Bank Mellat in Seoul, its only east Asian
branch, apparently for two months, while a tighter system of
supervision is put in place. Kia Motors last month joined
Japans Toyota in halting exports to Iran, although its
sales had fallen from a peak of 450,000 vehicle-kits in 2006 to
17,000 last year.
But the Korean government also in August announced a plan to
help companies trading with Iran, offering 18-month rollovers
on maturing loans and some new loans at low rates. These would
enable Korean companies to continue trade despite difficulties
in raising letters of credit.
Given all the complexities, many now sense a long haul over
Iran sanctions. Indeed, some analysts fear pressures on Iran
hamper a diplomatic breakthrough. Past sanctions
certainly paved the way for the increased political role of
security-oriented establishments [within Iran], including the
Intelligence Ministry and the Revolutionary Guards
[IRGC], says Farhi. Economically, a perfect example
is the increased role of the construction arm of IRGC in the
oil industry after increased sanctions.
Others believe sanctions could help a diplomatic solution.
Former ambassador Dalton argues the EU should be more
proactive. Addressing the challenges Iran poses has to be
an international endeavour, he says. There is still
as much scope as ever for an effective input from the
Europeans... provided they genuinely want to make such an input
and dont simply tuck in behind the Washington