Ahmadinejad Undeterred As Sanctions Take Bite

Mahmoud Ahmadinejad

Iranian President Mahmoud Ahmadinejad speaks at United Nations headquarters in New York on Tuesday. Seth Wenig/Associated Press hide caption

itoggle caption Seth Wenig/Associated Press

Iranian President Mahmoud Ahmadinejad, in New York on Tuesday for a United Nations meeting on poverty, blamed suffering around the world on "capitalism" and "transnational corporations." He may as well have been speaking about his own country.

The latest round of economic sanctions on Iran has prompted Western banks and other corporations to back out of business deals with Tehran.

The effectiveness of the sanctions program is in part a tribute to relentless U.S. efforts to squeeze the Iranian economy, in the hope of dissuading Iran from pursuing nuclear weapons.

Whenever the Iranian government finds a loophole in the sanctions, the U.S. Treasury Department, or allied governments, move swiftly to plug it. There are now sanctions on Iran imposed by the United Nations, by the European Union and by individual governments — with the United States leading the way.

"Today, Iran is effectively unable to access financial services from reputable banks and is increasingly unable to conduct major transactions in dollars or in euros," said Stuart Levey, Treasury undersecretary for terrorism and financial intelligence. Levey ran the Iran sanctions program under President George W. Bush, and President Obama kept him on.

"This trend is no longer limited to the financial sector," Levey said in a speech before the Center for Strategic and International Studies. "Almost every day, we receive reports of major firms around the world deciding to pull out of business deals with Iran."

Companies Think Twice

Companies fear that by doing business with Iran, they could find themselves becoming U.S. targets. Sometimes a personal warning from the Treasury undersecretary is needed to drive that point home.

In 2007, Levey contacted a major European bank, asking why it was going to let Iran use one of its accounts to solicit contractor bids to build Iranian power plants. In response, the bank immediately blocked such transactions.

Other Western companies have also broken off deals with Iranian companies under U.S. pressure. One example is Naftiran, an oil-marketing firm in Iran that is now under sanction.

"Banks that do transactions with Naftiran will find their access to the U.S. financial system shut off," says David Kirsch, director of market intelligence for PFC Energy. "So Iran has had to find other channels through which to direct its crude oil exports." The U.S. financial market is the biggest in the world, and no Western company wants to jeopardize its U.S. connections.

Kirsch and other oil experts say such problems are likely to soon cause a drop-off in Iranian oil exports. And there are other problems: Insurance companies are increasingly reluctant to cover Iranian cargoes. Shipping companies think twice about sending tankers to Iranian terminals. Kirsch says Western companies worry someone may suggest they are facilitating Iran's nuclear program.

"Nobody wanted that reputation, no one wanted that tag applied to them," Kirsch says, "so we have seen a number of companies walk away from the Iranian trade even before sanctions were approached. Now you're seeing a lot of companies take a very broad interpretation and just limit their exposure across the board."

Ideological Blinders

There is even evidence that the impact of the sanctions is causing dissension within the Iranian leadership. Former President Hashemi Rafsanjani last week cautioned other Iranian leaders "to take the sanctions seriously and not as a joke."

But there's no sign Ahmadinejad is worried. In an interview with ABC on Sunday, he scoffed at the idea that sanctions have been effective in Iran.

"None of this is a problem," Ahmadinejad said, speaking through an interpreter. "If you want to say it's effective, why not wait for the next six months or a year and see with your own eyes whether there are effects or not? And I tell you, there are none."

In fact, some governments still support investing in Iran. China is one, but so is Turkey, a U.S. ally. Just last week, Turkish Prime Minister Tayyip Erdogan said he'd like to see his country triple its trade with Iran over the next five years.

The bottom line: Though sanctions are having an effect, there's no sign they're moving the Iranian government any closer to canceling any plans it has for nuclear weapons or considering rapprochement with the United States.

"The Iranian government may just be too ideologically intransigent to make those cost-benefit analyses," said Ray Takeyh, a senior fellow at the Council on Foreign Relations.

"They have very little else to base their rule on," said Takeyh. "This is not a republic that is economically efficient. This is not a republic that is representative in the sense that Iranian people vote for it. This is a country whose raison d'etre is ideological animus to American infiltration of the Middle East. For them to give that up, I think, would be very difficult."

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