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Why Is the United States Subsidizing Iran?

It's a veritable international mystery: How did Washington end up funding its adversaries in Tehran?


U.S. President Barack Obama has often spoken of the ever-tightening ring of sanctions against Iran. The hope is that the sanctions will eventually bring the Islamic Republic to the bargaining table, if not to its knees. The effort, however, would be more effective if these sanctions did not go hand in hand with a longstanding and lucrative annual bonus to Iran from Washington. That’s right: The United States is effectively funding its adversary.

This bonus takes the form of a subsidy that arises from the United States and NATO’s tacit support for Iran’s ports on the Persian Gulf and the Gulf of Oman. The United States has largely failed to open any alternative route connecting Afghanistan and the great sea lanes that traverse the Arabian Sea, or between Afghanistan’s northern neighbors in Central Asia and those same warm-water corridors of trade. Thanks to this failure, shippers from China, Russia, India, and Europe have no alternative but to use the Iranian port of Bandar Abbas, from which some 90 million tons of goods annually are transported by rail to Turkey, the Mediterranean world, Europe, and Russia. Business at that old entrepôt on the Persian Gulf has boomed to such an extent that Iran, with help from India and Russia, has built an even more convenient port and free trade zone on the Gulf of Oman, at the city of Chabahar, from which goods will proceed overland by road and rail to Afghanistan.

Many goods from Afghanistan and further north traverse Afghanistan to get to the Iranian ports, deepening Afghanistan’s dependence on Iran. Meanwhile, new rail routes that run northward from Chabahar across Iran will cause most cargo shipped by land from India to bypass Afghanistan entirely on its way to Central Asia, Russia, or Europe. Again, Iran wins, while Afghanistan and the United States lose. For a full decade, the United States has turned a blind eye to this bizarre situation.

This is not for lack of a viable alternative. The Pakistani port of Karachi and its newer rival, the new port of Gwadar, less that 125 miles east of Chabahar, both feed directly to Afghanistan. Both provide a shorter and more effective land link between India and Southeast Asia, on the one hand, and Europe, the Mediterranean, and Russia, on the other. Karachi and its ports are directly connected by road and railroad to routes that traverse Afghanistan. Up until now, Gwadar has lacked facilities to handle large-scale shipments and been plagued by silting, but the Chinese firm that took over its development and management last week promises to address these shortcomings promptly.

These ports present the United States with a potential win-win situation: Using them would weaken Iran, while simultaneously boosting America’s Afghan partners. Instead of subsidizing Iran, these ports could put substantial sums into Kabul’s coffers in the form of tariffs and duties. The land routes across Afghanistan from Pakistan could also create thousands of jobs for Afghans in such fields as freight forwarding, storage, logistics, insurance, and transport services.

But the United States has failed to push for the opening of these natural land routes from the Arabian Sea to the north across Afghanistan. True, it provided solid support during the preparation of the Afghanistan Pakistan Transport and Trade Agreement, which goes far toward resolving the problems that have kept these land routes blocked. But this pact remains a dead letter, largely due to half-hearted and ineffective advocacy from Washington since the treaty was signed.

This situation is all the more bizarre because on this issue, the interests of Pakistan, Afghanistan, and the United States converge. Everyone benefits by opening Pakistan ports to large-scale transit across Afghanistan — except Iran, of course. Afghanistan will emerge as a major transit hub, and thousands of Afghans will find lucrative alternatives to fighting and drug trafficking; the Afghan government will gain a desperately needed income stream; and Pakistan’s powerful freight forwarders will gain lucrative new contracts to replace those with the U.S. military, which will dry up after the NATO pullout in 2014. The opening of the new routes across Pakistan and Afghanistan will also be immensely attractive to Indian shippers, providing a powerful stimulus for Pakistan and India to move beyond their current stalemate on trade links.

Skeptics could reasonably point out that this isn’t the first time Pakistan seems not to recognize and advance its own interests. But until Washington makes a more convincing case for it to take this obvious step — and until Washington indicates that it is committed to the opening of these continental trade routes for the long term — the United States is playing into the hands of the do-nothing forces in Islamabad.

The same failure of U.S. leadership that has channeled so much land transport to Iranian ports also threatens to place the transport of Central Asian gas to Pakistan and India into Iran’s hands. The proposed pipeline to bypass Iran, which would carry gas from Turkmenistan across Afghanistan to Pakistan and India, has always depended on a coalition of unlikely allies. Back in the 1990s, both the Northern Alliance and the Taliban agreed that this was an important national priority and agreed to support it — even as they fought each other. Later, India joined Pakistan in supporting the project — a rare example of cooperation between those two fractious states.

But neither Obama nor the National Security Council has championed TAPI, as the pipeline is known, and without top-level commitment and leadership this crucial energy corridor cannot be built. Instead, they have left it in the hands of Foggy Bottom bureaucrats and slow-moving international financial institutions, who have allowed it to drift aimlessly. Both Chevron and Exxon Mobil tried to push TAPI forward, but without strong backing from the White House, their efforts have flagged. Meanwhile, Iran proposes to move ahead with a speedy alternative, sending its own gas to Pakistan and India by a route that completely bypasses Afghanistan. With no breakthrough on TAPI, and given their urgent need for gas, both India and Pakistan are ready to move on this, and are restrained only by the U.S. embargo on Iran. If Washington can offer no alternative, how long will that embargo hold?

If the United States is serious about its embargo on Iran, and if wants to make good on its rhetoric about strengthening the Afghan economy, it will move at once on both these land and gas corridor projects. But can the United States afford to pursue this when it is grappling with a $16 trillion national debt?

The answer is yes. What is needed from Washington to resolve this problem is effective leadership, not money. Many donor countries and institutions will lend their support to these initiatives if they sense that Washington is serious about them. Private investors in many countries will also climb aboard once they see that these new channels of continental transport can become a reality.

But as of now, none is convinced that the United States has the commitment or leadership ability to make them happen. They note that both the White House and the National Security Council have sat on their hands on these crucial issues, waiting for someone else to take the initiative. If such passivity continues, Washington should not be surprised when someone else steps forward on both projects — and brings them about in ways that serves the purposes of America’s enemies.

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