ISIS Iran Report

Pressure Building on Iran (Corrected Version)

Pressure Building on Iran (Corrected Version) photo

July 29, 2010

In recent weeks, Iran has been faced with a new round of United Nations Security Council (UNSC) sanctions, unilateral United States, European Union, Canadian, and Australian sanctions, and a resulting decreased ability to import gasoline, industrial, and consumer goods due to refusal by insurers to indemnify Iranian vessels and ships heading to Iran.  Is the squeeze finally on Iran, and if so, what impact could this have on the regime’s decision-making calculus with regard to its nuclear program?

The series of new sanctions has arguably placed more pressure than ever before on Iran’s trading activities.  In June, the UNSC passed its fourth round of sanctions aimed at compelling Iran to comply with previous resolutions and resolve questions about the peaceful nature of its nuclear program.  The UN sanctions tightened restrictions on Iran’s shipping and financial activities and sanctioned members of the Islamic Revolutionary Guard Corps (IRGC).  The U.S. sanctions, passed in July, broaden UN sanctions by threatening penalties against foreign businesses that supply Iran with gasoline and refined petroleum products.  This week, the EU announced sanctions that will restrict sales of equipment used for oil refining and gasoline production.  They also more tightly limit financial transactions, prevent EU companies and insurers from doing business with Iranian government-affiliated entities, and rein in sales of nuclear and dual-use items to impact the supply line to Iran’s nuclear program.  (Iran does not have the capability to indigenously manufacture much of the equipment it requires to run both its oil and gas sector and its expanding gas centrifuge uranium enrichment program, despite its assertions that the latter is self-sufficient).  The European Union is still calculating the expected losses from the new restrictions, but as Iran’s largest trading partner, the decline in trade could be significant.  Finally, Canada and Australia announced restrictions on investments and business transactions with Iran’s oil and gas sector, along with tighter constraints on sales of nuclear, missile, and dual-use goods. 

In addition, major insurers such as Lloyd’s and an unidentified Dutch insurer have announced that they will stop underwriting petroleum related shipments to Iran in favor of continued business with the United States, and other insurers are expected to follow suit.  This would make companies shipping fuel or other goods to Iran without insurance responsible for maritime accidents.  Iran’s annual import of 40 percent of its refined gasoline needs may become more expensive, and shortages could occur with a lack of regular shipments.  It remains unclear whether shortages of gasoline, industrial and specialized equipment, and other consumer goods will provoke popular discontent.  Suppliers in China and other countries may fill that void in short order, although pressure not to do so should be exerted on these countries by the United States. 

The new sanctions are designed to put greater political pressure on Iran to change its nuclear policy. The main goal is to get Iran to suspend its uranium enrichment program and to engage in a discussion on how to resolve outstanding questions with the International Atomic Energy Agency, increase transparency, and build assurances that Iran will not develop nuclear weapons.  These sanctions should be soundly implemented, given adequate time to work and, if necessary, strengthened.  Sanctions can also help hinder progress on Iran’s enrichment work by cutting off crucial supplies, which provides more time for negotiations.  A short-term goal is to swap Iran’s 20 percent enriched material for reactor fuel from abroad and achieve an end to any further production of 20 percent material. (Some reports have speculated that Iran’s recent move to re-start negotiations to exchange its uranium is a sign that it is already feeling the pressure from sanctions).  Iran yesterday indicated that halting further enrichment up to 20 percent is on the table.

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