Report

Breaking Up Sanctions Is Hard to Do

A historic nuclear deal with Iran is in sight, but unraveling the web of financial embargoes, asset freezes, and restricted oil sales won’t be easy.

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The Obama administration is moving closer to a landmark deal with Tehran that would impose new restrictions on Iran’s nuclear program in exchange for loosening the punishing international sanctions that have brought the country’s economy to its knees.

But if a deal is struck — which is far from guaranteed — dismantling the U.S. restrictions against Iran that have been layered on by successive presidential decrees and congressional directives is not going to happen overnight. The Treasury Department website lists 26 executive orders related to Iran sanctions, dating back to President Jimmy Carter’s original command to freeze the assets of the Iranian government in the United States during the embassy hostage crisis in 1979. There are also 10 statutes, four United Nations Security Council resolutions, and tens of European Union regulations and amendments to implement the U.N.’s sanctions.

“I wouldn’t buy into the spin that we’re almost there,” said David Albright, a nuclear physicist and founder and president of the Institute for Science and International Security, who has been in contact with U.S. negotiators. “On sanctions, they are pretty stuck.”

There’s a simple reason to doubt the success of the talks: A long list of governments and international agencies have helped to impose and shape the sanctions over the years, and they would all need to play a role in unraveling them. The United States and its negotiating partners (Russia, Britain, China, France, and Germany) are attempting to create one comprehensive agreement that would lay out a plan to unwind restrictions imposed by the Obama administration, Congress, the European Union, and the U.N. Security Council. The Obama administration could suspend most of the American sanctions and successive administrations could continue those waivers for the duration of the deal, which is expected to be 10 or 15 years long; if Iran complies with its side of the bargain, an act of Congress would be needed at the end of the deal to permanently lift them. But lawmakers are showing no signs of wanting to wait that long to weigh in and opponents in Congress could intervene and pass laws to interrupt the process. The Security Council and the EU would also have to vote to lift their own restrictions, but since the permanent members of the Security Council and Germany are party to the talks, they are expected to follow whatever is outlined in the deal.

As the end-of-March deadline nears, Iran hawks have taken an unprecedented step to try to block a deal: A group of 47 Republican senators warned Iran’s leaders in an open letter this week that the agreement might not endure beyond Obama’s presidency, a clear attempt to push to Tehran away from the negotiating table. Senate Foreign Relations Chairman Bob Corker (R-Tenn.), one of seven Republican Senators who did not sign the letter, is seeking to rally a veto-proof majority for legislation that would require the president to seek congressional approval for any formal nuclear pact with Iran.

Secretary of State John Kerry is trying to overcome the growing political opposition in Washington as he prepares to travel to Lausanne, Switzerland, this weekend for what is supposed to be the final push for an agreement before the end of the month (a long-term deal is meant to be concluded by the end of June). Visibly angry, Kerry used Senate testimony this week to accuse Republicans of recklessly inserting themselves into the talks with Tehran and argued that Congress has no authority to “modify an agreement reached executive-to-executive between leaders of a country.”

The contretemps has alarmed America’s negotiating partners, with German Foreign Minister Frank-Walter Steinmeier saying Thursday that the Republican letter was “not really helpful, because we are in a decisive phase of the negotiations.”

The political sparring comes amid heightened signs that the administration is preparing a broad suspension of sanctions that will let Tehran rebuild its battered economy and re-enter the international financial system while retaining much of its nuclear power infrastructure. In exchange, Tehran would have to permit unprecedented scrutiny of its approved nuclear activities by the International Atomic Energy Agency (IAEA), including a more detailed account of the steps it has taken in the past to acquire nuclear materials.

If a deal is reached, the Obama administration will have to justify scaling back the complex web of financial, military, and nuclear sanctions that it previously claimed had all but brought Iran to its knees. Many lawmakers of both parties are signaling a growing reluctance to relax the sanctions unless Iran agrees to a deal that includes terms stricter than what the White House has told Tehran it would be willing to accept. That is raising the odds of Congress stalling, and perhaps entirely derailing, the movement toward a deal.

Richard Nephew, who served as the State Department’s lead sanctions expert on the U.S. negotiating team until December, said he started out the nuclear talks as the “most optimistic person” in the group. But the growing congressional opposition now has him worried that a failure to strike a deal will make it harder for the United States to persuade major Iranian trading partners like Japan, India, and China to keep U.S. restrictions on Iran’s energy exports and financial dealings in place.

“I think a lot of places are going to say, ‘Look, we followed you this far, but you walked away from a deal that would have worked. So, what is this all about?’” said Nephew, who is now with Columbia University’s Center on Global Energy Policy.

“What I’m afraid of here is that the negotiators will do their job and it will get killed here in Washington,” he added. “If this dies in Tehran, you can do something with that as a policymaker, but if it dies in Washington, that’s a big problem.”

* * *

The current crisis dates to August 2002, when a group of Iranian dissidents exposed the existence of a secret Iranian nuclear program that involved the construction of a pair of secret facilities — a uranium enrichment facility in the city of Natanz and a heavy-water compound at Arak — that could be used to produce enough uranium or plutonium to build a nuclear warhead.

Iran has consistently denied that it is seeking to build a weapon, arguing that it needs to develop a civilian nuclear program to provide energy for its growing population of 77 million people. Under the terms of the 1970 Nuclear Non-Proliferation Treaty (NPT), Iran is allowed to develop a peaceful domestic nuclear energy program, subject to monitoring by the IAEA. American officials have argued that Iran is bound by Security Council resolutions demanding that it suspend its enrichment of uranium. Iran has challenged the legitimacy of the council’s action, saying it constitutes an unjustifiable infringement on its “inalienable” right under the NPT to produce nuclear energy. But Tehran’s clandestine work has fed suspicions in Washington, Paris, London, and other capitals that it is secretly developing nuclear weapons.

After European-led nuclear talks aimed at heading off the crisis stalled, the Security Council passed a resolution in July 2006 demanding that Iran halt its enrichment and reprocessing of uranium and any work on its heavy-water facility. Six months later, the council imposed its first round of sanctions, restricting Iran’s trade in nuclear materials and freezing the assets of 22 Iranian individuals and institutions linked to the nuclear program. Faced with Iran’s persistent refusal to comply with its demands, the council gradually expanded the sanctions over the following years to ban its trade in conventional weapons, prohibit the development of ballistic missile technology, and impose constraints on Tehran’s ability to finance its nuclear activities.

U.S. and European measures over the past five years have gone even further by targeting Iran’s economy and cutting off Tehran from the international financial system. In 2010, Congress passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, expanding restrictions against the country’s energy industry and threatening sanctions against foreign banks that work with blacklisted Iranian companies or individuals. These so-called “secondary” sanctions significantly increased the economic pressure on Tehran because they applied not only to U.S. companies, but also to foreign companies.

Using New York’s leverage as a financial center and the ubiquity of the dollar in global trade and commerce, the new U.S. law gave foreign banks an us-or-them proposition: Shun Iran and keep your business with the United States or do business with Iran and risk being blacklisted too. Treasury Department officials traveled the world visiting banks and governments to issue warnings and reminders about the consequences of their choice.

Iran was further isolated in 2012 when the European Union cut off blacklisted Iranian banks from SWIFT, the messaging system banks use for cross-border transactions. Sanctions reduced Iranian oil exports in 2013 to their lowest level in 20 years. Iran’s currency, the rial, plummeted 60 percent between 2012 and 2013. Although the economy started to recover in 2014 and inflation dropped, the precipitous plunge in oil prices, which dropped 50 percent in the second half of the year, reduced the amount of revenue coming into government coffers.

But while the Iranian economy has been ravaged, Tehran has continued to make strides in advancing its nuclear program.

Since sanctions were first imposed in 2006, Iran has gone from operating about 300 centrifuges to about 20,000. Iran has also produced increasingly refined forms of enriched uranium, moving them closer to the purity levels needed for a nuclear weapon.

Obama and his top aides warn the current talks may yet fail. In advance of a controversial congressional address by Israeli Prime Minister Benjamin Netanyahu last week, Obama said in an interview with Reuters that diplomats were making progress but “it is probably still more likely than not that Iran doesn’t get to ‘yes.’”

The emerging deal would allow Iran to keep its nuclear complex intact, but restrict Tehran’s ability to produce highly enriched uranium capable of fueling a nuclear warhead. Tehran would also have to scale back its operation of centrifuges and submit to more intrusive international scrutiny of its program than ever before. The goal, administration officials say, would be to ensure that the United States would be able to detect Iranian cheating at least a year before Iran could develop the capacity to make enough fuel for a bomb. Iran would also have to downgrade its operations at its Arak heavy-water power plant. Many of the constraints on Iran’s program would remain in place for at least 10 years. Israel and Republicans have argued that Iran would then be given a free hand to develop nuclear weapons. But administration officials maintain that Iran’s nuclear program would be subject to permanent scrutiny by the IAEA.

Jacqueline Shire, a former member of a U.N. panel monitoring U.N. sanctions on Iran, said the first order of business will be producing a new Security Council resolution authorizing Iran to enrich uranium. Diplomats in New York have already begun brainstorming with their counterparts in world capitals about what kind of Security Council resolution would be needed to achieve those goals, according to a senior diplomat.

Under existing resolutions dating to 2006, Iran is prohibited from enriching uranium, reprocessing nuclear fuel, and working on a heavy-water reactor, which can be used to produce plutonium.

“What is the deal going to say about U.N. Security Council prohibitions on transfers to Iran for uranium enrichment and heavy-water reactor? These are things the deal is going to have to address,” she said. “My suspicion is the [big powers] will want to maintain some strong controls over Iranian procurement.”

Diplomats add that an agreement would require the adoption of a new Security Council resolution that would revise a raft of sanctions that deny Tehran the financial and technical means to carry out sensitive nuclear activities, and permit Tehran to enrich relatively low-grade uranium. If there is a deal, Gérard Araud, France’s ambassador to Washington, tweeted that a Security Council resolution is “unavoidable.”

It “is not an option, it is a necessity,” he wrote.

The new U.N. resolution would allow Iran to resume the enrichment of uranium, though at a significantly more restricted level than in the past.

Any hopes of dismantling the Arak heavy-water reactor are off the table, according to one senior diplomat. However, Iran would have to overhaul its facility to ensure that it could not be used to produce weapons-grade plutonium. Another key sticking point in the negotiations is the extent to which Iran will have to account for the past and the military nature of the program. Diplomats say that Iran has made it clear that admitting it pursued a nuclear weapons program could be a deal breaker.

If those hurdles are overcome and a deal comes together, some U.N. sanctions would be suspended but many of the other U.N. measures aimed at containing Iran’s nuclear program — including constraints on trade in sensitive nuclear materials and restrictions on ballistic missiles — will likely remain the subject of tight controls for at least a decade. A U.N. sanctions committee, as well as a panel of experts set up to monitor the enforcement of sanctions on Iran, will likely remain in place, those diplomats said.

The United States is also likely to insist that a range of other sanctions, including a conventional arms embargo, remain in place, Albright said. That could hit Tehran both financially and politically. Iran has a large arms-export industry, providing weapons to wide range of allies and proxies, from President Bashar al-Assad in Syria to Shiite militias in Iraq and terrorist organizations like Hezbollah and Hamas. Iran has managed to skirt sanctions and arm the groups for years, but maintaining the measures would at least make it harder for Tehran to do so.

It remains unclear how swiftly the council would move to ease other sanctions on individuals linked to Iran’s banned programs, though that might not matter much since Tehran has largely been able to sidestep those measures for years.

A senior Iranian officer, Gen. Qassem Suleimani, who is subject to a U.N. travel ban for his role in breaching sanctions, moves freely across borders in the Middle East. In recent months, he has been commanding Iranian military operations inside of Iraq, including a major offensive against the Islamic State in northern Iraq.

As with most aspects of life and politics, though, the deal may eventually come down to dollars and cents.

* * *

Iran has one ironclad demand in the talks: In exchange for allowing greater international scrutiny of its nuclear program, Tehran wants the world to drop the punishing sanctions regime that has made it a global pariah in the business world. The United States and other key powers don’t want to give up the cudgel that has so effectively humbled Iran commercially and economically, but could agree to suspend certain restrictions in return for verification that Iran is rolling back its nuclear program. An agreement could lay out a plan for permanently removing the sanctions in 10 or 15 years, if Iran complies with its side of the deal.

Some observers say it’s possible to construct a deal at the United Nations that ensures that Iran doesn’t simply pocket its sanctions relief and flout any agreement it undertakes with the United States and other big powers.

One senior diplomat said that the nuclear deal could empower the IAEA to determine whether Iran is in breach of the agreement. If Tehran is found to be cheating, the Security Council could reimpose sanctions. The trouble with that approach is that sanctions are easier to lift than they are to impose. Russia and China, for instance, may resist any U.S.-backed plan to reimpose sanctions on Iran in response to violations.

Carne Ross, a former British diplomat who participated in Security Council negotiations in the late 1990s on Iraq’s weapons program, said there are a variety of ways the negotiators can ensure that sanctions can be reimposed if Iran fails to meet its obligations. For instance, he said, the council could approve the temporary suspension of the sanctions for a fixed period, say six months. An additional vote would be required to extend the sanctions when the mandate expires. That would allow the United States and its partners an opportunity to judge whether Iran has complied.

“If I were the Americans that is what I would go for,” he said. “But getting it agreed is another matter.” Iran is likely to be suspicious of any deal that will require approval by a new American administration after Obama leaves office.

Indeed, dismantling Washington’s own network of sanctions will be a long and politically complicated task. The bulk of the measures barring U.S. companies from doing business in Iran, as well as restrictions related to Iran’s designation as a state sponsor of terror, are expected to stay in place.

Any long-term deal will likely include upfront sanctions relief with years of oversight and verification to make sure Iran is indeed living up to the agreed-upon restrictions on its nuclear program, according to analysts and former officials. Former Treasury Department sanctions official Elizabeth Rosenberg said Iran could see the bulk of the economically significant sanctions relief — access to some of the estimated $100 billion in foreign exchange reserves frozen overseas, the ability to sell oil, and use of the international banking system — within the first year of an agreement.

“I don’t think Iran will agree to any staged program that doesn’t give them major relief pretty quickly,” said Rosenberg, who is now a senior fellow at the Center for a New American Security.

Another reason the major banking sanctions could come off early in the process is practical: Without access to the financial system, it will be hard for Iran to reap the benefits of any other sector opening up. “You have to do rather a lot of relief to make it viable to do a good amount of trade,” said Rosenberg.

Without a broad rehabilitation of the banking sector, companies that want to do allowable business with Iran may find it hard to find a bank willing to transfer their money. That’s been the case under the interim agreement, which was signed in November 2013 and relaxed constraints on the trade of automobiles and airplane parts, among other things.

“Nothing has really changed in terms of the ability to get paid,” said trade lawyer Doug Jacobson, who is based in Washington, D.C. “Nobody really wants to touch this stuff.”

Jacobson said that many of the banks willing to do these legal transactions are based in China or Japan, which is inconvenient for U.S. companies on the other side of the deal.

Banks are wary because fines for violating sanctions can reach into the billions. Germany’s Commerzbank agreed Thursday to pay the U.S. government $1.45 billion and fire some employees over alleged sanctions violations, including money handled for Iranian entities.

While Iranian officials might want all sanctions lifted at the same time, Nephew said they are prepared to live without direct business with U.S. companies so long as they are allowed back into the global banking system.

“What they’re not prepared to live with is the U.S. Treasury Department going to foreign banks [and] telling them not to do business with these Iranian banks,” he said.

This idea of lifting the bulk of the most onerous sanctions quickly has critics concerned that the United States will lose all leverage to go after Tehran for the other alleged transgressions that have prompted sanctions, including human rights abuses and supporting terrorism.

“They may yet meet the criteria for the nuclear deal, which in effect might qualify them to be removed from the proliferation sanctions regime, but there are still many questions that remain about Iran’s support for Hamas, Hezbollah, Palestinian Islamic Jihad, and beyond,” said Jonathan Schanzer, head of research for the Foundation for Defense of Democracies, a group that advocates for tougher sanctions.

“What we have is the potential, at least in theory, for the financial system to open its arms to a regime that still supports a range of illicit financial activity,” Schanzer said.

Lifting sanctions could also empower Iran, critics warn, by providing the Islamic regime a boost at a time when its influence is already on the rise in places like Iraq, Syria, and Yemen.

While the long-term geopolitical implications of bringing Iran — and its oil money — in from the cold won’t be clear for some time, the biggest immediate challenge is creating enough political support for a deal to endure. While Obama has sweeping authority to suspend sanctions through waivers, his opponents in Congress could in theory craft new legislation to restrict his waiver authority or simply reimpose the sanctions he has lifted. However, they would require a veto-proof majority in Congress, which they wouldn’t be able to achieve without the support of substantial members of Obama’s own party.

“Obviously, the president doesn’t want us involved in this, but he is going to need us if he’s going to lift any of the existing sanctions,” said Senate Majority Leader Mitch McConnell (R-Ky.). “He cannot work around Congress forever.”

RICK WILKING/AFP/Getty Images

Colum Lynch is Foreign Policy’s award-winning U.N.-based senior diplomatic reporter. @columlynch

 @jtrindle

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