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Iran is once again threatening to block oil tankers moving through the Strait of Hormuz. The Iranian parliament says it's in response to the European Union's embargo on Iranian oil, which took effect on Sunday. Western governments want Iran to limit its nuclear program.
NPR's Tom Gjelten says Iran is emerging as a test case for whether economic pressure can force a country to change its policies.
TOM GJELTEN, BYLINE: Iran has been subject to Western sanctions for years. In the beginning, they were limited, targeting specific activities. No more. David Cohen, the Treasury Department's undersecretary for financial intelligence, says the U.S. and its allies now aim at the entire Iranian economy.
DAVID COHEN: One of the things that we are pursuing is a ratcheting up of the pressure on Iran, and that means pursuing this program in a way that will have a broader impact on the economic situation in Iran.
GJELTEN: The idea being that if the economic situation gets bad enough, the Iranian government will accept restrictions on its nuclear program. Oil is the basis of Iran's economy, and as of this week, European countries have halted the purchase of Iranian oil. As for countries that keep buying that oil, the United States is ready to deny them access to U.S. banks.
And there's more. Juan Zarate, a sanctions expert at the Center for Strategic and International Studies, says the U.S. and its allies have identified Iran's choke points in the international financial system.
JUAN ZARATE: So the Iranian banks have been a key focus, the insurance and reinsurance companies that allow for the shipping that is so important and critical for Iran - not just with its exports, but also its gas imports.
GJELTEN: And finally, blocking investment activity so Iran can't develop its oil industry.
Zarate, who served at both the Treasury Department and the National Security Council under President Bush, says the sanctions program can now be considered a major foreign policy tool, rivaling diplomacy and military force in its intended effect on Iran.
ZARATE: The deeper the isolation of the Iranians, the more that we embargo broad sets of their economy and their commerce, the more that starts to look like classic economic warfare.
GJELTEN: The U.S. and its allies now engaged in economic warfare against Iran, and with devastating effect. About four-and-a-half billion dollars a month in lost oil revenue, inflation of at least 25 percent a year, just by the Iranian government's estimate, the Iranian currency losing half its value.
So will this pain cause Iran's supreme leader, Ali Khamenei, to accept limits on his nuclear program? The Treasury Department's David Cohen points to the resolution of the Iran-Iraq war.
COHEN: The supreme leader agreed to ending that conflict in part because of the economic situation at the time. So we have reason to believe that we can achieve a political change in Iran's approach as a result of economic pressure.
GJELTEN: Plus, Cohen says, the sanctions regime can have an effect above and beyond its impact on Iranian thinking about the nuclear program. It can slow progress on that program just by making it harder for the Iranians to import the parts they need.
MARK DUBOWITZ: It disrupts the ability of those actors who are trying to build Iran's nuclear program from being to do their work.
GJELTEN: So, are sanctions working to make Iran less of a nuclear threat?
Mark Dubowitz of the Foundation for the Defense of Democracies says the regime still has abundant foreign reserves, and while its oil revenue is down, it's still making a lot of money.
DUBOWITZ: The supreme leader's economic expiration date, you know, when his cash hoard falls low enough to set off a massive economic panic, may still be far off. And if the administration wants to bring that date closer, it needs to make it clear the administration and our allies will do everything in our power to destroy Iran's energy wealth unless the regime compromises.
GJELTEN: Obama administration officials say there is one sign Iran is feeling some pressure: its relatively new willingness at least to discuss its nuclear program with the five permanent U.N. Security Council members plus Germany. Those talks continue today in Istanbul with a meeting of technical experts.
Tom Gjelten, NPR News, Washington.
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