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By: Roger Cohen
Perhaps nothing is more important to President Obama’s foreign policy legacy than the success of the Iran nuclear deal. It bears his personal imprimatur and will stand or fall on whether it prevents Iran from producing a bomb over the 15-year term of the agreement and beyond.
If an Iranian hard-liner returns to power in the presidential election next year, replacing President Hassan Rouhani, the likelihood of the deal unraveling will increase. The balance between the reformist Rouhani and the hawkish Supreme Leader Ayatollah Ali Khamenei produced the political conditions in which the accord became possible.
But today America is undermining that balance, reinforcing Iranian hawks and putting the hard-won deal that reversed Iran’s steady advance to the nuclear threshold at risk. It’s a shoot-yourself-in-the-foot policy after a major diplomatic achievement.
The growing cry in Tehran is that Rouhani and his foreign minister Javad Zarif were had by Washington because Iranian concessions — the slashing of the number of centrifuges and its uranium stockpile — have not produced promised economic benefits. Hard-liners are baying: “Where’s the beef?”
The chief problem is that European banks are terrified that if they provide financing to Iran they will fall foul of United States sanctions that are still in place. Many of these banks — including BNP Paribas, Commerzbank and Société Générale – have paid hefty fines in recent years. In all, European banks have handed over more than $15 billion since 2012 for infringement of U.S. financial sanctions on Iran. From a risk-reward standpoint no European bank can make enough revenue in Iran to offset the possibility of being slapped with a big fine.
Secretary of State John Kerry attempted to break the logjam last month by saying that, “We have no objection and we do not stand in the way of foreign banks engaging with Iranian banks and companies, obviously as long as those banks and companies are not on our sanctions list for non-nuclear reasons.”
But the ownership structure of Iranian corporations is often opaque, making it difficult for European companies to be sure there is not, for example, a Revolutionary Guard Corps interest. Knowing exactly who the customer is may be arduous.
One international businessman based in Tehran told me he’d received a letter from United Against Nuclear Iran, an American advocacy organization, warning him that he might be working with the Revolutionary Guards and could get into trouble. “You can be sure that letter is going to all the European banks,” he said.
Most international transactions are dollar-denominated, so they have to transit the U.S. banking system before being settled. Because the U.S. trade embargo on Iran remains in place, making it illegal, with limited exceptions, for Americans or American companies to deal with Iran or its government, this is very problematic. A bank may be located in Europe but unable to demonstrate that a proposed Iran contract does not involve its United States subsidiary at some level.
In an e-mail, Hamid Biglari, an international financier and a former vice-chairman at Citigroup, wrote: “We’ve turned what should have been a win-win opportunity for greater engagement into a lose-lose outcome where neither Iran can truly benefit nor American firms can compete on a level international playing field.”
In an earlier conversation, Biglari told me, “The irony of the nuclear deal is that we did the heavy lifting in terms of the negotiation and then opened it up to European companies to do business with Iran” while blocking American firms.
Airbus has already concluded multi-billion dollar deal with Iran, but in general the Iranian market remains fraught with obstacles.
Short of lifting the U.S. trade embargo — which would make political sense because nothing will undermine the Revolutionary Guards and the hard-liners faster than a more open and competitive Iranian economy where IRGC monopolies are eliminated — there are steps that should be taken as fast as possible. (Opposition in Congress makes an end to the embargo inconceivable.)
On the American side, Kerry needs to keep pressing his message encouraging European banks. The Department of the Treasury’s Office of Foreign Assets Control (OFAC) needs to be aggressive in granting licenses of the kind that has enabled Boeing to hold talks with Iran. Technocrats need to come up with a way to insulate from potential fines Iranian transactions by European banks that involve “round-trip” dollar clearing.
Iran, in turn, must bring their banks up to international compliance standards when it comes to money laundering. Opaque ownership structures need to be cleared up so that European companies know whom they are dealing with. Iranian transparency is an oxymoron right now. That has to change.
The next Iranian presidential election is in June 2017. If Rouhani has nothing to show by then for his nuclear diplomacy, his chances of gaining a second term will be slim. That in turn will put Obama’s biggest foreign policy achievement at risk.
