Still Trying to Squeeze Iran

A new U.N. Security Council resolution punishing Iran for its failure to comply with demands to cease uranium enrichment remains weeks away, despite last week's agreement on the matter between the five permanent Council members plus Germany. And the most positive spin U.S. officials are able to put on the new sanctions package is that it will carry the support of Russia and China. That support, of course, comes at a price: The new resolution is unlikely to be more than a mildly incremental increase of the existing sanctions package, which Tehran has simply ignored.

Western members of the Council are pressing for a resolution that requires countries to deny entry to any person involved in Iran's nuclear programs and, for the first time, include a ban on all trade in civilian nuclear equipment or technology that could also be used to create nuclear weapons. The U.S. and its allies also want U.N. member states to be asked to inspect cargo heading to and from Iran if there is reason to believe that contraband is aboard — a measure that raises the danger of further incidents at sea between U.S. and Iranian warships in the already tense Persian Gulf.

Progress in escalating sanctions has been undermined by Iran's posture, which while defying the demand to cease uranium enrichment has, nonetheless, demonstrated a greater willingness to cooperate with the International Atomic Energy Agency (IAEA) to resolve the underlying transparency issues that prompted the U.N.'s demand for an enrichment freeze in the first place. A new IAEA report is expected by the Council in February, which could cite further evidence of Iranian cooperation.

But a far more important political impediment to raising the pressure on Iran came late last year with the revised U.S. National Intelligence Estimate, which concluded that Iran had stopped its nuclear weapons program in 2003. The news that U.S. intelligence believes Iran currently has no active nuclear weapons program undermined the case for urgency claimed by the Bush Administration and by Israel in their argument to esclate sanctions. President Bush and others have sought to overcome this setback, maintaining that the civilian nuclear technologies Iran is pursuing would give it the means to build nuclear weapons, and by pointing out the NIE's contention that Iran halted its weapons program "...primarily in response to international pressure... [indicating] Tehran's decisions are guided by a cost-benefit approach rather than a rush to a weapon irrespective of the political, economic, and military costs."

That statement has been seized on by proponents of sanctions to make the case not only for new U.N. sanctions, but also for unilateral U.S. action, particularly in the international financial system. Several months ago, the U.S. banned all dealings with three of Iran's largest financial institutions, Bank Melli, Bank Mellat and Bank Saderat, claiming they were facilitating terrorism and supporting weapons proliferation. Washington also cited Iran's Revolutionary Guards Corps for weapons proliferation and accused its elite Quds Force of providing material support for terrorist organizations. Individuals and companies affiliated with both organizations were also cited. These citations are used to warn financial institutions doing business with U.S. banks against dealings with the named Iranian companies and individuals, hampering Tehran's access to the credit and financial instruments of international trade.

U.S. Treasury officials claim these unilateral efforts are working, although they admit that quantifying their impact can be difficult. "Iran is having a much harder time financing its trade — whether that's difficulty in obtaining letters of credit or establishing correspondent accounts abroad," Adam Szubin, Director of Treasury's Office of Foreign Asset Control told TIME. "Gradually, it's becoming more difficult for Iranian companies to do business, whether it's in the financial sector or industry and the great majority of reputable banks around the world are exhibiting much more care in dealing with Iran today than even a year ago."

Last year, the Organization for Economic Co-Operation and Development, a Paris-based grouping of the world's major economies, raised its risk rating on Iran, as export credits from countries such as Germany, France and Japan fell off sharply, which also pinched Iran's ability to import. Transport equipment and machinery imports from the European Union fell by one fifth during the first three quarters of last year, for example, to just under $6 billion. And a number of leading European banks have cut ties with Iran or are limiting their Iranian operations. Banks in China, the United Arab Emirates and Bahrain have been put under pressure to do the same.

U.S. pressure on credit institutions has also reportedly prompted India's largest private gasoline refiner to stop supplying Iran, where a lack of refining capacity means that 40% or more of its gasoline must be imported. Attempts to ration and raise heavily subsidized prices at the gas pump last year prompted rioting in various Iranian cities. Other gasoline suppliers are considering following the Indian example.

But there's only so much that U.S. and allied pressure can achieve, and more than 18 months after the first U.N. sanctions were imposed, Irans foreign currency reserves are high, largely the result of high oil revenues. That means Iran has little difficulty purchasing gasoline and other essential commodities for cash and it can still obtain financing and letters of credit, though not always from the same institutions where it once borrowed. In the two years over which the U.S. has been pressing for tighter sanctions, China — now Iran's top trade partner — has committed to investing tens of billions of dollars in Iran's oil and natural gas industry. Chinese contractors are constructing oil terminals for Iran in the Caspian Sea, as well as working on upgrading Iran's transport infrastructure. And Russia has completed the delivery of the nuclear fuel to power Iran's reactor at Bushehr. Plainly, the combination of U.N. sanctions and U.S. unilateral measures have not not yet put Iran's back against the wall.

So, it's a safe bet that, barring military action that appears increasingly unlikely in the wake of the NIE report, negotiating an end to the Iran nuclear standoff will be the foreign policy item left on the desk when the next occupant enters the Oval Office in 2009.