On February 6, 2012, President Obama intensified US sanctions against Iran by issuing a message to Congress indicating that he had signed an executive order implementing section 1245 of the National Defense Authorization Act (NDAA) [PDF]. Section 1245 of NDAA refers to the Menendez-Kirk Amendment, giving the president 180 days to levy sanctions against the Iranian Central Bank (Bank Markazi) after the enactment of the law in December 2011. In his message, the president also referred to some past laws and executive orders used against Iran, such as the International Emergency Economic Powers Act (IEEPA), Executive Order of March 15, 1995, and the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA). After accusing the Central Bank of Iran of "deceptive practices," Obama went on to say that he is freezing all property of the Central Bank of Iran and other Iranian financial institutions, as well as all property of the government of Iran.
Obama's executive order was puzzling and raised a number of unanswered questions. For example, what were the deceptive practices of Bank Markazi? More importantly, given that the Central Bank of Iran and other Iranian financial institutions have no assets in the US, what assets were being frozen? Furthermore, as Obama's message itself pointed out, the properties of the Iranian government were frozen by an executive order on November 14, 1979, so what properties of the government of Iran were being blocked? Lastly, in December 2011, the Obama administration had argued vigorously against immediate sanctions by the US Congress against Bank Markazi. That was why the Menendez-Kirk Amendment gave the president six month to implement the sanction. Why then did Obama go against his own advice and invoke the law prematurely?
The above questions cannot be answered without looking at the history of US-Iran relations in the past 33 years. Indeed, the current US policy of sanctions and threats of war against Iran cannot be understood without understanding the history of the policy of dual containment of Iran and Iraq. Below, I will briefly examine that history before returning to the issue of sanctioning the Iranian Central Bank.
The origin of the policy of dual containment goes back to the Carter administration. In 1979, following the Iranian Revolution that ended a symbiotic relationship between the US and the Shah, the administration of president Jimmy Carter invoked IEEPA against Iran and froze the Iranian government's assets in the US. This action was not only in response to the storming of the US Embassy and incarceration of its staff, but also the nationalization of some industries in Iran involving American firms. After many months of negotiations, the US and Iran signed the 1980 Algiers Accord, setting up The Hague Tribunal to settle all financial claims between the two countries. Iran agreed to release the hostages and pay reparations to the US corporations; the US agreed to unfreeze the Iranian assets and not to interfere in Iran's affairs again. Iran kept its part of the bargain. However, the Carter administration not only did not abide by the agreement, but covertly assisted Iraq's president Saddam Hussein in the Iran-Iraq war, a war which started after the Carter administration gave Hussein the green light to invade Iran. It was hoped that the war between the two countries would lead to the resolution of the hostage crisis and the overthrow of the Iranian government, but the US also hoped that down-the-line there would be a regime change in Iraq. This was evident in the fact that while the US was helping the Iraqi government, the Israelis were selling arms to Iran with the full knowledge of the US. Indeed, the Carter administration itself was considering the possibility of providing Iran with military spare parts. This was the beginning of the policy of dual containment.
Containing of Iran and Iraq became more overt and intense under the administration of president Ronald Reagan. New sanctions were levied against Iran with the intention of preventing Iran from winning the war, but while the Reagan administration was supporting Saddam Hussein in the war, and went even as far as engaging Iran militarily on behest of Saddam, it took a number of measures to assure that Iraq was not victorious either. Giving false information to both sides and selling arms to Iran, mostly with the help of the Israelis in the "Iran-Contra scandal," were examples of this double role that the Reagan administration played in the Iran-Iraq war. After the war, the US and Israel concentrated mostly on containing Iraq.
Following the US invasion of Iraq in 1990-1991, and the short run containment of Saddam Hussein, once again, Iran became the main target of containment by means of sanctions. During the administration of president Bill Clinton, the Israeli lobby groups, especially the American Israel Public Affairs Committee (AIPAC) and its affiliate the Washington Institute for Near East Policy (WINEP), became the main architects of US foreign policy toward Iran and underwriters of sanctions. It was in this period that Martin Indyk, the former head of WINEP and subsequently the national security advisor to President Clinton, claimed to have devised the policy of dual containment of Iran and Iraq. Indyk, along with other remembers of the Israeli lobby groups, formulated three reasons for containing Iran: Iran's support for international terrorism, opposition to the Israeli-Palestinian peace process and pursuit of weapons of mass destruction.
The containment of Iran, as well as Iraq, became more intensified with the election of George W. Bush and the rise of the neoconservatives. Individuals close to the Israeli lobby groups, such as Paul Wolfowitz, Richard Perle (both on the Board of Advisors of WINEP) and David Wurmser, became instrumental in turning the policy of dual containment into the policy of "dual rollback." Iraq was targeted for invasion; it was hoped that Iran would be contained afterward by means of more severe unilateral and multilateral sanctions and, if necessary, military actions by the US, Israel or both. Israeli leaders, however, were more interested in targeting Iran than Iraq, but they ultimately settled for the neoconservative policy, hoping that after Iraq they could push Iran to the top of the US's "to do list," to use Ariel Sharon's words. Similar to the case of Iraq, the US and Israel used the allegation that Iran is developing weapons of mass destruction as the main reason to impose more severe sanctions and to prepare the ground for an eventual military operation.
The opportunity arose in 2002 when an Iranian exile group, working closely with the US and Israel, claimed that Iran was illegally constructing a uranium enrichment facility and a heavy water production plant. Following these claims, a case was made for reporting Iran to the United Nations Security Council and imposing multilateral sanctions. In July of 2006, UN Security Council Resolution 1696 was passed, demanding that Iran suspend all enrichment-related and reprocessing activities. Iran did not halt its enrichment and Security Council Resolution 1737, the first UN sanctions resolution against Iran, was enacted in December of 2006. This was the crown jewel of the US-Israeli policy of containment of Iran, the result of years of effort to pass multilateral sanctions against Iran. Subsequently, the Bush administration managed to pass two additional sets of sanctions against Iran in the Security Council: Resolutions 1747 in March 2007, and 1803 in March 2008. Toward the end of the second term of the Bush administration, there was a push for a fourth set of UN sanctions. Israel was also pushing the US to wage an attack on Iran's nuclear facilities. The Bush administration was running out of time as the 2008 presidential election was approaching, so containment of Iran was left to the next administration.
As I will explain in a forthcoming book, President Barack Obama came to office promising to engage Iran. However, given the list of his Middle East advisors particularly Dennis Ross, who had served as the director of WINEP it was not hard to predict, even prior to the 2008 presidential election, what the engagement would look like. Back in 2007, Senator Obama delivered a speech at the AIPAC policy conference stating that "while we should take no option, including military action, off the table, sustained and aggressive diplomacy combined with tough sanctions should be our primary means to prevent Iran from building nuclear weapons."
Obama's policy of tough or "aggressive diplomacy" originated with Ross and his associates at WINEP. The "diplomacy" was intended to arrange some face-to-face meetings with Iran, forcing Iran either to accept US-Israeli demands or face aggression, including more severe sanctions, a possible naval blockade and military actions. The meetings were also intended to create the illusion of engaging Iran and, in so doing, gaining international support for aggressive measures.
What was expected, happened. Once Obama came to office, Dennis Ross became special advisor to the Secretary of State and then special assistant to President Obama and his senior director for the "Central Region." In these positions Ross managed to become the main architect of the Obama administration's Iran policy, and to this day, even having recently left office to return to WINEP, he exerts considerable influence over the policy.
Soon after President Obama took office, he tried to create the impression of engaging Iran. For example, Obama's message of March 20, 2009, on the occasion of the Persian New Year, was intended to create such an impression. To the uninitiated the message appeared to be conciliatory, but to those familiar with the history of the US-Iran relations, the message contained nothing new. Actually, a few days later Obama showed how little the US policy had changed when in his trip to Prague he spoke about a "real threat" posed by Iran to its "neighbors and our allies" and advocated the same missile defense system proposed by the Bush administration.
By summer 2009, while numerous unilateral sanctions were being renewed, passed or contemplated, the Obama administration was working hard to pass the fourth UN Security Council sanctions resolution against Iran. In order to get the Russian vote, in July of 2009 Obama offered the Russians a quid pro quo: in exchange for a deal on the expiring 1991 Strategic Arms Reduction Treaty and postponing the US deployment of anti-missile system in Europe, Russia would agree to impose harsher sanctions against Iran. Later, the Obama administration sweetened the deal by promising to drop the deployment of anti-missile system in Europe altogether.
On October 1, 2009, Iran held a meeting with five permanent members of the Security Council and Germany, commonly referred to as P5+1. This, and three other meetings, one on October 19, 2009, and two in December 2010 and January 2011, were the only formal "engagements" that Iran had with the Obama administration. The first two meetings centered mostly on the swap of Iran's low enriched uranium for higher enriched uranium intended to be used by a reactor in Tehran that produces isotopes for medical purposes. The swap deal was viewed by many, both inside and outside of Iran, as a clever ploy by the US to get enriched uranium out of Iran and then give Iran an ultimatum to stop any further enrichment or face a fourth round of UN sanctions. Even some US officials described the deal as a ploy.
Under massive pressure at home, President Ahmadinejad's government, which had originally agreed to the swap, tried to modify the deal. The Obama administration rejected any modification and began the final push for a fourth round of UN sanctions. What stood between Iran and a new Security Council resolution, however, was China, which was opposed to additional UN sanctions. The Obama administration therefore twisted China's arms, cajoled it and even threatened it financially, to go along with the new set of sanctions. By mid-March 2010, China's resistance to slow down the US-Israeli push had weakened, and toward the end of March China joined the P4+1 to discuss the US proposal for the fourth round of UN sanctions. Now, the only stumbling block in getting a near unanimous vote in the Security Council was the presence of three non-permanent members Turkey, Brazil and Lebanon, which opposed the sanctions despite massive pressure by the US to drop their opposition.
On May 17, 2010, Brazil and Turkey struck a deal with Iran for swapping enriched uranium, almost the same deal that had been offered by the P5+1 to Iran in October 2009. The only difference between this so-called tripartite agreement and the US proposed swap deal was that Iran would send the low enriched uranium to Turkey rather than Russia, as it had been initially proposed. The Obama administration rejected the tripartite agreement, and pushed for what Benjamin Netanyahu and Hillary Clinton called "crippling sanctions."
On June 9, 2010, Resolution 1929, the fourth UN sanctions resolution against Iran was passed by the Security Council, with Brazil and Turkey voting "no." This was, of course, the same resolution that the Bush administration was unable to pass due to time running out. The passage of the resolution officially ended the "tough diplomacy" phase of the Obama administration's Iran policy. After this multilateral sanction, the US and EU intensified their unilateral sanctions, despite Russia's protest that the measures were exceeding the parameters agreed upon and reflected in the UN Security Council resolution.
With the Obama administration giving the green light, on June 24, 2010, the US Congress passed one of the most severe unilateral sanction acts against Iran, CISADA. The act, which was pushed through and applauded by AIPAC, had been in the pipeline for some time, but had been held back until the passage of the UN Resolution 1929. CISADA was signed by President Obama on July 1, 2010, and strengthened some of the harshest sanctions acts passed during the Clinton era, such as the Executive Order of March 15, 1995, and the 1996 Iran-Libya Sanctions Act.
After CISADA, much of the new sanctions against Iran were enacted by the State and Treasury Departments, particularly under the leadership of a neoconservative leftover from the Bush administration, Stuart Levey, and his successor, David Cohen. In addition, there were once again repeated talks of possible military attacks on Iran by Israel, the US or both.
The combination of continuous military threats and increasing sanctions severely affected the Iranian economy, but Israel, its lobby groups and its supporters in the US Congress wished for more they were seeking sanctions against the Iranian Central Bank in order to choke off the Iranian economy, by stopping Iran's payment mechanism, particularly when it came to the energy sector. This was what Israeli and US officials were calling "crippling," "paralyzing" or "lethal" sanctions. As early as May and June 2008, two resolutions (supported by AIPAC) were introduced in the House and Senate that effectively called, among other things, for a US blockade of Iran and sanctioning Bank Markazi. However, the Bush administration resisted the action, realizing that the rest of the world would not go along with these actions.
Sanctioning Bank Markazi also became a campaign issue in the 2008 presidential election, when Senator John McCain called for such a sanction in his speech at AIPAC. The "Central Bank of Iran," McCain stated in the speech, "aids in Iran's terrorism and weapons proliferation." The push to sanction the Central Bank of Iran continued during the campaign season, and just prior to the presidential election of 2008, Senator Charles Schumer pressed the Bush administration to impose financial sanctions on Bank Markazi, but, once again, the Bush administration did not go along.
On August 8, 2011, more than 90 US senators, led by Mark Kirk and Charles Schumer, signed a letter to President Obama, pressing him to sanction Iran's Central Bank and threatening him with legislation to force the move. On the same day, The Wall Street Journal quoted Kirk as saying that "he would introduce a law by year's end to enforce sanctions on Bank Markazi if the White House doesn't move independently." It also quoted Schumer as saying: "It's time for the administration to use the tools Congress has provided and choke off the money spigot." The law that was pushed by Kirk and Schumer ultimately became Menendez-Kirk Amendment.
The pressure was on the Obama administration to act and bring on board the rest of the world to sanction the Central Bank of Iran. Two sensational pieces of news helped the administration to build its case for such a sanction. The first was the bizarre story of a used-car salesman hired by the Iranian Revolutionary Guard Corps to arrange for the assassination of Saudi Arabia's ambassador to the US, which surfaced on October 11, 2011. The second was the IAEA report on Iran on November 8, 2011, which actually presented very little that was new, but became the cause célèbre for the advocates of sanctions and war.
The Obama administration was hesitant to sanction Bank Markazi immediately, fearing that such a move might raise the price of oil domestically in an election year. In public they argued that a rise in oil prices might benefit the Iranian economy and harm the fragile European economy. The argument vanished when the Council of the EU announced [PDF] on January 23, 2012 that is was freezing the assets of the Iranian Central Bank and banning imports of Iranian crude oil and petroleum products, effective July 1, 2012. The Iranian economy was jolted and the rial fell precipitously, but the price of oil rose only by a very small amount. It appeared that the oil market had already discounted the share of Iran. The Obama administration, therefore, decided not to wait for six months to freeze assets of Bank Markazi and other Iranian financial institutions. Since such assets did not exist, the act appeared to be what Iran called "psychological warfare," yet there was more to it. By going ahead with these sanctions, in an election year, President Obama could not be accused by Israel and its allies of delaying paralyzing sanctions against Iran.
Obama's executive order of February 6, 2012, will not be the last set of major sanctions against Iran by the US. Until the policy of dual containment is fully implemented and, similar to Iraq, there is a regime change in Iran we should expect more such sanctions. We should also expect these sanctions to be followed ultimately by military actions.
Sasan Fayazmanesh is Professor Emeritus of Economics at California State University, Fresno. He is the author of The United States and Iran: Sanctions, Wars and the Policy of Dual Containment.
Suggested citation: Sasan Fayazmanesh, Latest US Sanctions Reflect Ongoing Tensions With Iran, JURIST - Hotline, Feb. 23, 2012, http://jurist.org/hotline/2012/02/sasan-fayazmanesh-iran-sanctions.php.
This article was prepared for publication by Sean Gallagher, an assistant editor for JURIST's professional commentary service. Please direct any questions or comments to him at firstname.lastname@example.org