Democrats can sanction Iran’s oil without tanking negotiations

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Iran’s indication on October 27 that it would return to nuclear negotiations in Vienna is welcome news for those who want a deal. But both proponents and opponents of a nuclear deal should agree that these talks cannot be just another stalling tactic: time should work against Iran. The Joe Biden administration can negotiate and sanction at the same time, and it should take advantage of the flexibility of US sanctions policy to drive down Iran’s oil exports, which have crept up over the past year.

It can do this without too much diplomatic jeopardy because of the tremendous flexibility of US sanctions laws, which was one of the main lessons of the Donald Trump administration’s Iran policy. Sanctions strength is dependent on the executive branch’s will, not really on its laws.

Of course, Iran didn’t come to the bargaining table for a new accord. But the economic side of Trump’s policy was unquestionably a success—based as it was on deterring foreign financial transactions. No prior administration had so successfully imposed secondary sanctions, though they had been on the books since 1996 when the Iran-Libya Sanctions Act (ILSA) was signed into law. ILSA—later renamed ISA after removing the Libya sanctions in 2006—mandated the president to sanction second parties—European firms at that time, in particular—that invested more than $20 million in Iran’s energy sector.

The weakness of ISA was that it was squishy, dependent on the will of the executive branch, meaning that in the end it was never enforced. The executive branch offered both willful blindness on certain investments—in the form of extensive, never-ending reviews—and national security waivers on another, for ISA had outraged the Europeans and all previous administrations had judged diplomatic consensus more valuable than unilateral sanctions of allies. When the Comprehensive Iran Sanctions and Divestment Act was passed in 2010, it drew from ISA to lower the threshold for investment in Iran’s oil sector and added some additional fillips, but kept the basic theoretical mechanism in place. This was bolstered by Section 1245 of the 2012 National Defense Authorization Act, which further expanded secondary sanctions to include certain transactions with the Central Bank of Iran.

The Barack Obama administration used the threat of the Section 1245 sanctions and the international legitimacy given by United Nations Security Council Resolution 1929, which imposed UN sanctions on Iran, to push states to reduce their oil imports. However, it took several years and a great deal of arm twisting to achieve a partial degree of economic success. When Iran agreed to the Joint Plan of Action in 2013, combined US, United Kingdom, and European Union sanctions had reduced Iranian crude oil exports to under eight hundred thousand barrels per day (bpd)—down from 2.5 million bpd in 2011. Then and now, Iran’s economy lives and breathes by the number of barrels of oil exported per day, which is the country’s main source of hard currency and revenue.

Under the Trump administration, that partial economic effect became near total. Exports fell perhaps ten times lower, despite laws being the same as in 2013 and having no comparable international consensus on Iran. Even the closest US partners went out of their way to stress to the Iranians that they intended to keep the nuclear deal in place. But it didn’t matter. After 2018, Western and then Asian economic activity with Iran’s oil sector—and even much of its un-sanctioned trade—dropped to basically zero, especially after the exemptions ran out.

But even with heightened sanctions application, the oil volume exported was never zero. There were always a number of transfer schemes with China, Syria, and other countries through which Iran managed to achieve a certain level of exports. The Trump administration played sanctions whack-a-mole with these schemes, but some always slipped through the cracks.

When the Biden administration came into office in January, it also reinterpreted these sanctions statutes and this mole-whacking to fit its—conceptually more lenient—Iran policy. Crude exports, which had begun to rise after Biden was elected, drifted up to six hundred thousand bpd and higher in what was arguably a tacit goodwill gesture for the Iranians to either reciprocate with some marginal nuclear concession or return to talks in Vienna.

The trouble after the election of Ebrahim Raisi in June, however, is that this number has become the new normal. Iran shows no signs of being willing to respond with reciprocal low-level moves to resume nuclear compliance or any other kind of goodwill gesture, including restraining proxy attacks in Iraq and Syria. Negotiating is not something the US should pay for and right now it’s arguably doing just that.

But the good news is that time is still on the US’s side. It’s difficult to see how Raisi will have a successful presidency given the economic strictures on Iran’s economy. And America’s secondary sanctions laws are still flexible, which allows for some diplomatic wiggle room. The Biden administration could simply start enforcing them again, particularly Iran’s oil exports to China, without acknowledging that it was returning to the status quo of the Trump and Hassan Rouhani era. Just as the Trump administration used existing sanctions laws to far more economic effect than his predecessors, the Biden administration could reduce the current elevated oil exports without officially changing its policy at all.

Discretion is important, especially if the Biden administration wants to hold out hope for a revived deal. Perhaps the most salient criticism of the Trump administration’s Iran policy was that the never-ending drumbeat of Iranian misdeeds raised the political price of doing a deal to an unacceptable level for Tehran internally. No Iranian official wanted to be the one to argue for capitulation. And why would the Iranians believe a US president wanted a deal when most of his staff—myself included—sounded like we wanted regime change?

Biden would not have this handicap—at the strategic level of political messaging, there can be no doubt his administration would like a deal. At the tactical level, the political fallout on negotiations would also likely be minimal. Since US policy would not have officially changed, the regime would be forced to accuse the US of malfeasance without the US having done anything differently.

This would prevent the Iranians from simply stalling any new round of negotiations, or at least make it more costly. The Iranians can negotiate in good faith or Raisi can ensure four years of dire economic consequences for the Iranian people—and risk something perhaps even more dangerous for the regime.

Source » atlanticcouncil

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