Will New Iran Sanctions Have An Effect?

Last week, the U.S. imposed its harshest sanctions to date on Iran, following the action of the U.N. Security Council, whose new Iran sanctions were much watered down. Banking has been the most important focus, with the U.S. prohibiting most dollar transactions with all state-owned Iranian banks. Still, Europe, Japan and China are resisting taking similar actions, and without them the new sanctions are unlikely to have the impact the U.S. wants.

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Iran could very well be the most sanctioned nation in history. Recently, the UN Security Council adopted its fourth round of economic sanctions against Iran in as many years. Then the U.S. Congress, supported by President Obama, slapped more sanctions on the Islamic republic, all to pressure Iran to think twice about its nuclear ambitions.

Still, it's not clear yet whether these sanctions will actually change Iran's behavior, as NPR's Mike Shuster reports.

MIKE SHUSTER: The sanctions adopted by the Security Council are extensive but not without loopholes. They prohibit some military equipment for Iran. They broaden the black list of Iranian companies and individuals. They ask nations to scrutinize their banking operations with Iran, and they encourage the inspection of ships suspected of carrying cargo connected to Iran's nuclear program.

The unilateral U.S. sanctions are tougher, focused mainly on blocking Iran's banks from financing nuclear activities. They penalize not only Iran's banks, but banks in other countries that might facilitate transactions with Iran.

President Obama put it bluntly when he signed the sanctions into law in June.

President BARACK OBAMA: If you want to do business with us, you first have to certify that you're not doing prohibited business with Iran.

SHUSTER: There are 16 state-owned banks in Iran, and now all of them are the object of U.S. sanctions. In addition, if banks in Europe or Japan or the Middle East cooperate with these Iranian banks, the United States can impose stiff fines on them - hundreds of millions of dollars, possibly.

Pres. OBAMA: We're showing the Iranian government that its actions have consequences. And if it persists, the pressure will continue to mount, and its isolation will continue to deepen. There should be no doubt: the United States and the international community are determined to prevent Iran from acquiring nuclear weapons.

SHUSTER: But there are problems and loopholes. Many banks in many nations have been eager to get Iran's business. The financial flows are enormous. Iran, after all, is one of the largest oil exporters in the world.

Stuart Eisenstadt, former deputy secretary of the Treasury, who was responsible for implementing earlier sanctions against Iran, concedes that UN sanctions have been porous. The combined UN-U.S. sanctions are tougher, he insists.

Mr. STUART EISENSTADT (Former Deputy Secretary, Treasury Department): It certainly hasn't been a game changer, but it has raised the cost of their activity. And the hope is that the fourth and new round of UN sanctions, which target the financial sector for the first time, combined with the enhanced U.S. sanctions, and most particularly the hope for cooperation of the European Union and Japan, will make an even greater difference.

SHUSTER: Right now, Eisenstadt says there are about 40 international banks - from Europe to the Middle East to Asia - that because of U.S. pressure have decided not to finance transactions with Iran.

Credit Suisse is one of them. Last year, the U.S. fined it more than $500 million, and announced if Credit Suisse wanted to continue its operations in the U.S., it would have to end its cooperation with Iran's banks.

Eisenstadt wants to see the European Union persuade all its banking institutions to forego operations with Iranian banks and Japan as well.

Mr. EISENSTADT: If we can do all of those things, there really is a chance that the price will be so steep that Iran will come back to the bargaining table.

Professor HOSSEIN ASKARI (International Business and International Affairs, George Washington University): We do a little bit here. We do a little bit there. We hurt the wrong people. It is not a concerted effort.

SHUSTER: Hossein Askari, an expert on Iran's economy at George Washington University, would like to see the Iran sanctions bite, but he doesn't believe they will. There are ways around the banking sanctions, he says, and targeting Iranian insiders and rich merchants is ineffective because their external bank accounts are difficult to find.

New UN sanctions also encourage states to withhold refined petroleum products like gasoline or fuel for airliners. But they hurt the middle-class and the poor more than the government, says Askari.

Prof. ASKARI: I don't think the government is feeling a direct pinch right now from the sanctions. But I think one thing that is actually clear is that the Iranian economic situation is getting worse by the day.

SHUSTER: That's why Iran's government last week tried to impose a huge tax increase on Iran's merchants in the bazaars that led to a strike in the Tehran bazaar and the shuttering of shops. Iran's government backed down.

Mike Shuster, NPR News.

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