World News

11.08.13

Exclusive: Obama’s Secret Iran Détente

Long before a nuclear deal was in reach, the U.S. was quietly lifting some of the financial pressure on Iran, a Daily Beast investigation reveals. How the sanctions were softened.

The Obama administration began softening sanctions on Iran after the election of Iran’s new president in June, months before the current round of nuclear talks in Geneva or the historic phone call between the two leaders in September.

While those negotiations now appear on the verge of a breakthrough the key condition for Iran—relief from crippling sanctions—began quietly and modestly five months ago.

A review of Treasury Department notices reveals that the U.S. government has all but stopped the financial blacklisting of entities and people that help Iran evade international sanctions since the election of its president, Hassan Rouhani, in June.

On Wednesday Obama said in an interview with NBC News the negotiations in Geneva “are not about easing sanctions.” “The negotiations taking place are about how Iran begins to meet its international obligations and provide assurances not just to us but to the entire world,” the president said.

But it has also long been Obama’s strategy to squeeze Iran’s economy until Iran would be willing to trade relief from sanctions for abandoning key elements of its nuclear program.

One way Obama has pressured Iran is through isolating the country’s banks from the global financial sector, the networks that make modern international commerce possible. This in turn has led Iran to seek out front companies and cutouts to conduct routine international business, such as selling its crude oil.

In this cat and mouse game, the Treasury Department in recent years has routinely designated new entities as violators of sanctions, forcing Iran to adjust in turn. In the six weeks prior to the Iranian elections in June, the Treasury Department issued seven notices of designations of sanctions violators that included more than 100 new people, companies, aircraft, and sea vessels.

Since June 14, however, when Rouhani was elected, the Treasury Department has only issued two designation notices that have identified six people and four companies as violating the Iran sanctions.

When an entity is designated as a sanctions violator it can be catastrophic. Banks and other investors almost never take the risk of doing business with the people and companies on a Treasury blacklist because of the potential reputational harm and the prospect they could lose access to U.S. financial markets.

“Sounds like Obama decided to enter the Persian nuclear bazaar to haggle with the masters of negotiation.”

A Treasury spokesman contacted by The Daily Beast said the effectiveness of sanctions should be measured by their results and not the number of entities designated. (A White House spokesman declined to comment, directing inquiries to the Treasury.) The Treasury spokesman also said that the significant financial pressure on Iran in recent years changed the calculus of the country’s leaders and led to the election of Rouhani, who is a former nuclear negotiator and is considered more moderate than his predecessor.

“In the months since the Iranian election we have continued to pursue our unwavering goal of preventing Iran from obtaining a nuclear weapon,” the spokesman said. “We have not let up on vigorous sanctions enforcement one iota. This includes new designations of sanctions evaders as well as other steps to address potential sanctions evasion.”

But the enforcement of sanctions, experts said, is very different than the process of designating new violators. To start, sanctions enforcement means the levying of fines or other legal measures against those people and entities already designated by the Treasury Department as a violator.

The designation process is more proactive. “The designations are important because they identify illicit actors that are abusing the international financial sector in addition to signaling the U.S. intention to isolate Iran’s economy,” said Avi Jorisch, a former U.S. Treasury official who has worked closely on Iran sanctions and has advocated for toughening these sanctions since leaving government.

Advocates of sanctions relief also acknowledge that the administration has pursued a policy of quietly lessening financial pressure on Iran. They argue that was a logical policy when married to the process of renewing diplomatic negotiations with Iran, which according to the Wall Street Journal this week, has been going on for several months.

“Before the election there were a lot of these designations,” said Trita Parsi, the executive director of the National Iranian American Council, a group that has advocated for ending sanctions on Iran since. “Their impact was probably not decisive, but it was a way for the White House to signal to the Iranians and Congress they were going forward with the sanctions train.” Parsi continued: “After the election [the Obama administration] wanted to give the opposite signal, a pause. The last thing you would want to do is let the sanctions train go forward and potentially scuttle an opportunity that could have been there.”

Following the Iranian elections, there were also a lot of changes inside the Iranian government, making the task of designating officials and entities a bit more tricky, Parsi said. But a significant part of the administration’s decision, in Parsi’s opinion, was the belief that continuing a high pace of designations would “undermine the signal that they were trying to send, that there was an opening.”

Mark Dubowitz, the executive director of the Foundation for the Defense of Democracies, an organization that has worked closely with Congress and the administration on devising the current Iranian sanctions, said the slow pace of designations was only one kind of sanctions relief Obama has been offering Iran.

“For five months, since Rouhani’s election, the United States has offered Iran two major forms of sanctions relief,” Dubowitz said. “First there’s been a significant slowdown in the pace of designations while the Iranians are proliferating the number of front companies and cutouts to bust sanctions.”

The second kind of relief Dubowitz said the White House had offered Iran was through its opposition to new Iran sanctions legislation supported by both parties in Congress.

By Dubowitz’s estimates, Iran is now selling between 150,000 and 200,000 barrels of oil per day on the black market, meaning that Iran has profited from the illicit sale of over 35 million barrels of oil since Rouhani took office, with little additional measures taken by the United States to counter it.                                                           

“Sounds like Obama decided to enter the Persian nuclear bazaar to haggle with the masters of negotiation and has had his head handed to him,” Dubowitz said.