Is the U.S. Even Serious about Iranian Sanctions?

Is the U.S. Even Serious about Iranian Sanctions?

by | published January 17th, 2019

Donald Trump’s move to reintroduce sanctions against Iran was supposed to result in crushing economic pressure against Teheran when they were introduced at the beginning of November.

Those sanctions were to have two overarching primary objectives:

  • Impeding Iranian oil exports,
  • And preventing access to international banking and financial transfers.

The former should have directly (and quite adversely) impacted the flow of revenue to Iran. The latter was to make the export of any product that requires foreign exchange much more difficult.

Well, that hasn’t worked out quite as expected…

The result of some very suspect decisions (or lack thereof) by Washington.

First, after building up some “suspense,” at the eleventh hour the White House granted a 180-day exemption to the eight primary importers of Iranian oil.

That means the net effect on reducing the movement of Iran’s oil is virtually nil.

But it was always the sanctions on global banking that involved a more serious immediate threat to Iran.

It is here that perhaps the most telling attempt by the U.S. to make some political noise, but not really upset the global apple cart, is revealed.

Let me explain…

The Banking Situation in Turkey

Several of the banks relied upon by Teheran to exchange currency and access international capital are licensed by European central banks and are still operating.

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The fact that all of the other signatories to JCPOA (Joint Comprehensive Plan of Action, also known as the nuclear accord) have rejected the Trump position has provided cover for allowing the banks to continue work.

This is combining with some other interesting moves to evade the sanctions. That Washington has jawboned about these developments but has made no serious efforts to attenuate them, leads to a very curious conclusion.

The sanctions were for American domestic political consumption.

The sanctions on global banking have always been the broader and more serious threat to Iran.

Now, there are more indications that Iran is setting up a concerted response.

In the center of this is a rising American-Turkish disagreement over the sanctions and the apparent lack of a concerted U.S. response to it.

These are situations I’ve known for some time…

A Look Back To the Beginning of the Sanctions

The following is something I noted a while back in a “Dark Files” special report to my Energy Inner Circle readers.

I don’t do this often, but this information I shared with my premium subscribers hammers this point down too much not to share with you:

“Much of the surviving oil trade will likely involve payments in kind or contract swaps. China has been utilizing a massive trade surplus with Iran to fund oil purchases for years. Moscow has been moving to design trading mechanisms that allow Iranian crude to pass into the global market as Russian throughput.

This time around Teheran has the support of Russia, China the EU, and erstwhile U.S. allies France, the UK, and Germany, along with second-level banking support from supposed NATO ally Turkey.

For its part, Teheran has taken serious moves into the crypto space to bypass Washington’s sanctions. President Hassan Rouhani ordered the Iranian National Cyberspace Center (NCC) to draft a plan for the nation’s own cryptocurrency backed by the rial – Iran’s rapidly depreciating local currency.

The rial may be the crippling weakness in any such approach, but sources tell me that Iran is well along in plans to employ a private blockchain-based on Hyperledger Fabric technology. Bank Markazi (the Iranian central bank) earlier this year prevented domestic entities from dealing at all with cryptocurrencies. Iran will also use foreign-based front companies to acquire essential materials, while also using markets for metals such as gold, silver, or platinum.

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Iranian contacts acknowledge that the developing push back to U.S. sanctions will result in lower oil exports and, thereby, declining revenues. On the other hand, they also are convinced that the plan to export some crude bypassing the sanctions will succeed.

Iran’s strategy has been telegraphed for months by European supporters of JCPOA. The use of European central banks to process payments to Iran, thereby turning the application of U.S. sanctions into a direct sovereign contest with apparent American continental allies, was approved at a June meeting in Sophia.

However, the geopolitical bluster may have a major vulnerability. European banking contacts tell me out that the proposed payment approach depends on the SWIFT messaging system keeping Iranian banks connected to its system. Every Iranian bank has a SWIFT code. So long as these banks remain connected to the system, a door to sanctions evasion is always left open.

In 2012, Congress authorized a presidential prerogative to impose financial sanctions on the board of Brussels-based SWIFT if they refused to disconnect backlisted Iranian banks. Then, a passage of sanctions by the U.S. Senate Banking Committee was enough to prompt the EU to order SWIFT to disconnect Iranian banks. Of course, in those days, the European Union and the US were on the same side. Not so today.

Nonetheless, the SWIFT board remains composed of financial institutions. If those institutions believe the US will enforce the Iran sanctions, it may well accede to Washington. It will require some concerted action by the EU (physically located a few blocks away from the SWIFT headquarters in Brussels) to prevent that acquiescence.

In all of this, the position of a non JCPOA nation – Turkey – is becoming central. Ankara has already declared it will not abide by the U.S. sanctions and Istanbul banks are rumored to be active in designing bypass conduits connecting Iran, Russia, and China. Yet, it is uncertain how strongly Turkey will persist in the effort.

The Turkish situation may be somewhat better on the natural gas side. By the end of 2019, alternative pipelines from Russia (Turkish Stream) and the Caspian (TANAP) will make dependence on Iranian gas less acute.

Whether Turkey actually allies with the JCPOA nations intent on evading U.S. sanctions remains to be seen. It is still unclear how the EU, Russia, China, the UK, France, and Germany will be able to implement a genuine payments system bypassing both the U.S. dollar and the dollar-based global banking system.

As one of my banking colleagues wryly put it: ‘Right now, it looks like smoke and mirrors, or perhaps bottle caps and phantom banks.'”

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When Politics and Policy Collide

As the sanctions idle, the combination of a solid European, Russian, Chinese – and now Turkish – opposition has tempered policy expectations among the Trump Administration.

Forget the strong rhetoric that no less than three exchange banks controlled by Iran but located in Europe and licensed by EU-member central banks continue to operate. These are known to, and ignored by, Washington.

I have suggested in the past that the real reason for the sanctions renewal with other global producers assuming a decline in Iranian exports would require an increase in volume from other sources.

What resulted, however, was an oil glut in the market once the last-minute exemptions were provided. In fact, there has been little change in Iranian export flows. The only result was a dramatic decline in oil prices…

Just before an American election.

When put together with a noticeable U.S. reluctance to cut the Iranian banking ties, one conclusion is inescapable.

This has been, the entire time, about politics.

Not policy.



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