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Iran Sanctions: Still a Viable Option!


     By Victor D. Comras International Trade, Export Control, Sanctions, OFAC Transactions Regulations, Terrorism Expert

PhoneCall Victor C. Comras at (954) 563-4386


Earlier this month I had the opportunity to address a Canadian House of Commons Foreign Relations Subcommittee on the potential use and impact of sanctions on Iran and its quest for nuclear weapons. My Testimony is below:
I've been invited here today to talk to you about sanctions and their potential utility in dissuading Iran from policies that continue to challenge international peace and security. It's not just the nuclear issue at play here; there's also Iran's support for international terrorism, their interference in Lebanon and Iraq, their human rights abuses, and the growing tension between Shi'ite and Sunni Muslims throughout the Middle East.

These are not new issues. They've been around for some time, and they make Iran's role in the Middle East a very dangerous one, which is one of the main reasons we really do need to worry about Iran acquiring nuclear weapons. I don't think there can still be any doubt that Iran's current nuclear program, particularly its uranium enrichment program, is directed at establishing a nuclear arms capability. I believe that if Iran is allowed to succeed, and if North Korea is allowed to maintain its nuclear weapons program, the implications for international peace and security and for keeping any lid on future nuclear weapons proliferation are devastating. So I think the stakes here are very, very high.

I've long been an advocate of using well-considered targeted economic and political sanctions to dissuade Iran and North Korea from pursuing irresponsible nuclear programs. By “well-considered”, I mean sanctions that are tailored to achieve specific objectives by having an impact on those individuals or entities and those segments of the leadership and population that are likely to influence the course of conduct in question. I believe the credible threat or use of sanctions offer our last best chance of convincing Iran and North Korea to change course without our having to engage in costly and dangerous military action. I do not believe that the current sanctions programs in place with regard to Iran meets this need or criterion. Let's be clear, the low-impact sanctions now on the table simply will not work.

The sanctions measures adopted so far by the Security Council are clearly insufficient to motivate Iran to change course. Rather, it seems to me they've conveyed the sense that the key countries continue to lack the political will necessary to face up to Iran's challenge to non-proliferation norms. And this signal has been received loud and clear by the Iranian regime, as well as by the regime in North Korea. Iran will only change course if and when its leadership is convinced that the international community will in fact take the steps necessary to seriously impact these leaders, the IRGC, and the companies and other entities that support them and the vulnerable sectors of the Iranian economy. Such an impact, I think the Iranian leaders would understand and know, would in turn seriously threaten the stability and durability of their regime.

Three years ago, when I began speaking about the possible use of sanctions against Iran, there was reason for optimism that stringent sanctions directed at Iran's economic vulnerabilities and at isolating Iran's mullah regime might well convince these leaders to change course. Frankly, I am much less optimistic today. Too much time has elapsed without any meaningful international response to the challenges posed by Iran, and too little time remains before Iran achieves nuclear weapons capability.

Iran has been pursuing the development of nuclear weapons now for many years, and the closer Iran approaches the nuclear capability threshold, the fewer options we have to deal with this dangerous situation. Iran's nuclear program was already an important matter of concern back in 2003, when the G-8 leaders agreed they would act together to dissuade Iran from pursuing an unmonitored uranium enrichment program. Unfortunately, nothing happened. Again, in 2006, at the G-8 summit chaired by Russia in St. Petersburg, they warned Iran that its continued intransigence would result in Security Council sanctions.

It took a little while longer to get those sanctions, but Iran took little heed of these G-8 warnings. Rather, they gambled that with the tight international oil market and America stuck in Iraq they would be protected from any effective international response. They calculated that the international community was not likely to risk cutting off the flow of Iranian oil. They figured they could count on China and Russia to hold up any effective UN action. They hardened their key nuclear facilities against possible missile strikes, and they concluded that the United States was not in a position to launch any sustained military operations to take down their facilities. This gamble seems to have paid off, at least so far.

The Security Council has already gone through three rounds of sanctions resolutions against Iran, but has in fact done little to pressure Iran for change. Further sanctions are now threatened, yet Iran appears to remain intransigent. They don't seem very concerned by new sanctions. Based on past experience, they figure they have little to worry about. The sanctions in place have not amounted to much. What do they do? They freeze the assets of 40 individuals, 35 entities associated with Iran's uranium enrichment and missile development programs, and they don't even include Ahmadinejad, Supreme Ayatollah Ali Khamenei, or any of the other ruling mullahs on this freeze list. The sanctions place a limited ban on shipping sensitive materials and technology to Iran. They call on countries to exercise “vigilance and restraint” when it comes to supplying Iran with sensitive dual-use items, and they curtail Iran's ability to market its own military equipment overseas. Finally, they warn the international community to be extraordinarily cautious when dealing with banks domiciled in Iran, particularly Bank Sepah, Bank Melli, and Bank Saderat. While these sanctions may have complicated an already difficult economic situation in Iran, they are far from sufficient to pressure Iran to give up nuclear ambitions. Much harder sanctions, I think it's clear, would be needed for that.

In the past, the Security Council has shied away from imposing measures that might restrict investments or loans or financial and development assistance to Iran. Security Council members have declined to limit commercial ties with Iran. They've left Russia free to pursue a multi-billion-dollar trade promotion program with Iran and to service the Russian-built nuclear reactor. They've left on the table several major international oil and gas development deals, and they did nothing to dissuade China from pursuing its own large-scale sweetheart oil and gas arrangements, including a 25-year LP gas development and export contract that could be worth upwards of $100 billion. These major projects completely undercut efforts to get Iran to change course. Iran will only change course if and when its leadership is convinced that the international community will actually take the steps necessary to have some impact on them, for they know and they fear that such an impact on their economy could seriously weaken their durability.

What are our options? There are five basic options that stare us in the face: we can wait and do nothing; we can seek to persuade Iran by engaging in a new direct dialog with the Iranian regime; we can hope for, encourage, or foment regime change; we can put pressure on Iran by imposing increasingly stringent economic and political sanctions; or we can engage in the threat or use of force. None of these are exclusive courses of action, and any combination is possible.

I don't think we can sit by idly and watch Iran thumb its nose at the rest of the world on this issue. Doing nothing now will only leave us with fewer options later. I don't think we can afford to wait until our choices are only taking military action or learning to cope with an even more dangerous and disruptive Iran.

What about engaging Iran in dialog? The Obama administration has put this option squarely on the table, and there is some hope that the forthcoming Iranian election tomorrow may provide us with some new interlocutor, perhaps more rational than President Ahmadinejad. Yet dialog without leverage could well prove unproductive and could risk providing the Iranian regime with sufficient latitude and time to advance and solidify their nuclear weapons capability.

President Obama has given Iran until the end of the year for some sign that they are actually willing to consider putting a hold on their enrichment and other nuclear programs related to weapons capabilities. That leaves only about six months. We need to be ready to act on additional measures quickly if such talks fail to pan out. Talking for talking's sake and without short-term benchmarks would simply leave open the door for Iran to pursue its goal unfettered by western constraints.

I have to admit that I'm not optimistic on this score. The Europeans tried dialog with Iran for more than three years. They offered all sorts of carrots to convince Iran to suspend its enrichment program, but made no real progress. Europe certainly has more carrots, more leverage, and more influence with Iran these days than we do in the United States. Our agreeing to normalize relations with Iran or lift our own unilateral sanctions is not as precious to them as we would like to believe, and would not really buy us that much goodwill. They digested U.S. sanctions long ago, and we didn't get much from Iran the last time we lifted our Iran sanctions some two decades ago.

We will need to consider more leverage on Iran if we are going to make dialog a useful course. This leverage can only come from increasing the international economic pressure on Iran now through clear signals to Iran that, as Mrs. Clinton recently put it, “crippling” international sanctions will be imposed, but that's not something we can be sure of. Certainly we in the United States can't do that alone. We have almost nothing left in our unilateral sanctions bag. This will require concerted action by the Security Council, or at least by our European, Canadian, and Japanese friends and allies.

Sanctions can be useful tools when crafted and used wisely and in conjunction with other measures aimed at specific results. Iran's economy is very fragile, and the current economic situation has already created internal opposition to the policies of an erratic Ahmadinejad. That makes Iran's economy quite susceptible to stringent sanctions.

Iran's mullahs must also be made to feel the pinch of these sanctions. So far they've really enjoyed a free ride. With the corruption running rampant throughout Iran's ruling circles, there's quite a bit of money outside of Iran that could be frozen if you went after the mullahs.

The Security Council's current sanction measures, as I said before, are not designed to disrupt or distress Iran's economy or its normal trade and business relations, and so far they do not penalize Iran's leaders in any way; rather, they've been directed only at hampering Iran's access to nuclear material and technology. I say “hampering” because I don't think they're going to stop it.

We need now to put in place the ability to impose sanctions that target economic vulnerabilities, the elements that can truly place the stress on them. These vulnerabilities include their fragile financial system, their energy sector, their transportation and communication sector, and their urban commercial class.

The U.S. Treasury Department has already initiated its own strategy to put additional stress on Iran's banking system. They've designated several key Iranian banks. They've convinced FATF to issue its own warnings concerning Iranian banks' illicit transactions. They've cut off U-turn transactions, thereby blocking Iran's ability to dollarize many of its transactions, and they've used our market leverage to get European bank and other boardrooms to think twice when they deal with Iran.

In the United States there's also a growing threat of divestment. Negative publicity and reputational risks exist for these European and other institutions that do business in Iran when they want to approach or build on a valuable U.S. market.

Now, though, it's time for us to convince our European friends and allies and Iran's other key economic and trade partners to join with us in targeting these kinds of measures effectively, even if we can't get a Security Council resolution that does it.

Europe remains Iran's most important trading partner. European countries export much more to Iran than they import, even counting the oil. European businesses and banks are crucial for Iran's fledgling middle class. European sanctions now, if formulated adeptly, could have a major impact on Iran's cities and on its commercial class, and this commercial class is critical to holding Iranian urban employment figures from plummeting further. This may well represent Iran's Achilles heel.

I believe that Russia and China are not in a position to substitute quickly or to reduce the impact such sanctions would have in an immediate fashion. And I am doubtful that they would seek to undercut these sanctions in any major way, if they were convinced that we were very serious about them.

The United States has already completely cut off its financial ties with Iran, and we've made it extremely difficult and expensive for Iran to process any transaction in U.S. dollars. Europe might well threaten to do the same with euro-based transactions. They could also cut off their export credit programs. With a daily consumption of 18 million gallons of gasoline, Iran now imports—surprisingly, it is an importer—180 million to 200 million gallons of gasoline per month. Rising petroleum prices have already caused civil unrest there, and gasoline shortages could have a significant impact on their business activity. This is a point of stranglehold that ought to be used more effectively.

On the other hand, we see that Royal Dutch Shell is still serving in an advisory capacity to Iran on how to upgrade their refining capacities. This is the kind of activity that needs to be halted.

Europe, Japan, and Canada could also join the United States in cutting off Iran's access to high-tech items, including potential dual-use equipment and expertise. Together, we could put considerable pressure on the UAE, on Dubai, and the free port of Jebel Ali, which serves as a trans-shipment point for so many of the items that are not supposed to be shipped there.

Europe, Canada, and Japan might also consider joining with us in restricting access of Iranian ships to our ports, or refusing to insure or re-insure Iranian ships or cargoes, or increasing insurance premiums for Iranian merchandise or for ships carrying such merchandise. We could start imposing travel restrictions. We could cut off cultural, sporting, and scientific exchanges with Iran. These are examples of measures that could be threatened or taken to convince Iran that we mean business. These are the kinds of measures that give us our last, best chance of heading off a graver crisis just a few years down the road.

Of course, there is a human element here, one which your subcommittee is rightfully concerned with, for sanctions inevitably have an impact on the most vulnerable: the poor, the aged, the infirm, and the children. We must always be mindful of the unintended consequences of sanctions and how they best can be mitigated without defeating the ability of the sanctions to impact those targeted. But even understanding that there are unintended and unavoidable consequences, sanctions remain a much less costly approach, in terms of human tragedy and suffering, than military options and war.

I also fear the consequences and the human tragedy that might well occur from a nuclear-armed Iran led by Islamic fundamentalists all too willing to employ suicide bombing tactics and to sacrifice innocent lives, or from the likes of an Ahmadinejad, who seems to know no rational bounds.

Let's hope that sanity and responsibility finally do prevail in Iran and that at least some of these actions can be avoided.

ABOUT THE AUTHOR: Victor C. Comras
Victor D. Comras, a retired career diplomat of the United States, is special counsel to The Eren Law Firm. Mr. Comras joined the firm from the United Nations, where he served, under appointment by Secretary General Kofi Annan, as one of five international monitors to oversee the implementation of Security Council measures against terrorism (al-Qaeda) and terrorism financing. He is a leading expert and frequent speaker on international trade embargoes and economic sanctions, and the global effort to combat terrorism financing and money laundering.

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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
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