Congress Pushes Obama on Iran: Rising Political Pressure Not Just About Oil, Nukes
April 20, 2010 9:50 AM
At last week’s nuclear security summit, President Obama “issued a specific warning” to the Iranian regime, the New York Times reported. The President is working to secure United Nations Security Council support for new multilateral sanctions and penalties against Iran unless it curtails its nuclear weapons program.
Even if other nations decline to join the President’s effort, the climate for Iranian trade could change markedly. Both houses of Congress have passed bills that will build on the existing Iran Sanctions Act (ISA), which was passed in 1996. State legislatures are also increasing pressure on businesses that trade with Iran. Oil and technology companies have already been affected by these moves, giving a glimpse of possible dislocations to come.
After 14 Years, Congress Revises Sanctions
The Times also reported that, on April 14, 363 members of the House signed a bipartisan letter urging the President to take a hard line on Iran. While this gesture is mostly symbolic, Congress has already passed laws whose effects are beginning to be felt.
While the House bill (H.R. 2194, the Iran Refined Petroleum Sanctions Act) focused mostly on petroleum-related sanctions, the Senate bill (S. 2799, the Comprehensive Iran Sanctions, Accountability, and Divestment Act) adds restrictions related to goods that have a potential military purpose.
The new legislation includes an important difference from the existing ISA. While the 1996 law covered foreign direct investments (FDIs) in Iran, the revised sanctions will also restrict “non-equity” dealings with Iran. Non-equity ties, such as the buying and selling of oil and other goods, generate revenue without on-site investment in the sanctioned country.
Specifically, the Senate bill would implement:
- Sanctions on refined petroleum products trade with Iran by US and non-US companies.
- Sanctions on Iran trade by overseas subsidiaries of US companies, and more targeted sanctions on trading with Iranian entities that the US believes to be closely associated with Iran's nuclear program.
- Restrictions on all re-exports of US-origin items from third countries to Iran, focusing on strategic and “dual-use” items that could serve a military or police purpose.
The two bills still need to go to a joint conference committee to resolve differences; pass a final vote in the House and Senate; and be signed by the President into law.
Iranian Repression Aided by Western-Made Data Network
The expansion of sanctions to cover non-oil, non-weapons technology is partly a response to Iran’s crackdown in the wake of contested elections in 2009. In June of last year, the Wall Street Journal reported that the Iranian regime operates “one of the world's most sophisticated mechanisms for controlling and censoring the Internet, allowing it to examine the content of individual online communications on a massive scale.”
As described by WSJ writers Christopher Rhoads and Loretta Chao:
“The monitoring capability was provided, at least in part, by a joint venture of Siemens AG, the German conglomerate, and Nokia Corp., the Finnish cellphone company, in the second half of 2008, Ben Roome, a spokesman for the joint venture, confirmed. The ‘monitoring center,’ installed within the government's telecom monopoly, was part of a larger contract with Iran that included mobile-phone networking technology, Mr. Roome said.”
This enabled Iranian authorities to track down individuals who reported on violent police actions during 2009’s unrest. Despite its capacity for such repressive use, advanced network technology wasn’t covered by the 1996 ISA. To be fair, the Web was still in its infancy then.
Existing Sanctions Unevenly Enforced
The technology loophole is not the only weak spot in existing regulations. In March 2010, the Times published an analysis of federal records showing that, since 2000, $107 billion in contract payments were awarded by the federal government to US and foreign firms doing business in Iran. These companies include Royal Dutch Shell, Ingersoll Rand, Mazda and Daelim Industrials.
Approximately $15 billion was paid to companies that invested in the Iranian petroleum industry. The Iran Sanctions Act does call for sanctions on companies that invest more than $20 million in Iranian oil in a single year. No company has been penalized for defying this rule, however, during the ISA’s 14-year existence.
State Action Supplements Federal Efforts
The new Iran bills call for a harmonization of divestment and sanction efforts by individual US states.
While states are constitutionally restrained from conducting foreign policy, they can prohibit public funds headquartered in that state from investing in companies involved in sanctioned countries. So far, 19 states have adopted such measures against one or more sanctioned nations. Under the current law, states can opt to selectively enforce ISA sanctions against Iran. The new federal legislation would require uniformity in such measures.
Besides legislators, other actors are pushing Iran policy at the state level. Universities are directing their endowments to avoid Iran involvement and activists like United Against Nuclear Iran are pressing corporations to do the same.
Global Impact of US Iran Policies
This multifaceted effort is already affecting businesses.
In March 2010, the Financial Times reported that oil traders Glencore, Trafigura, and Vitol had stopped supplying petroleum products to Iran due to US pressure. Under the 1996 law this trade is still legal, but it would not be under the pending legislation. A Trafigura executive explained his firm’s withdrawal by citing the “political and financial risk" of continuing its Iran trade.
“Next Test” for Iran Policy Not Just about Nukes
The April 14 Times article said that “the next test” for US Iran policy will be a May summit on the Nuclear Nonproliferation Treaty. But as demonstrated by continued pressure on companies doing business in Iran, nuclear proliferation is not the only issue at stake.
President Obama acknowledged that “sanctions aren’t a magic wand.” As illustrated by the uneven record of the ISA, passing a law is only one piece of a concerted effort by citizens, activists, corporations and state and local governments to engage with a foreign regime. Still, their revision and renewal is important.
As the President said, “What sanctions do accomplish is, hopefully, to change the calculus of a country like Iran.”