By Maarten Sengers
US Iran Sanctions are currently being hotly debated in Washington. Although there is no clear consensus yet, one thing seems clear: The US will likely tighten the screws on Iran sanctions in some form soon. The pressing question is by how much and how soon. Though it is impossible to predict the final outcome given all the moving interests and variables, we will stick our neck out (for a change) and make some predictions. We think it is likely that final US sanctions will include restrictions on refined petroleum products related trade with Iran – sanctions that will probably apply to both US and non-US companies. Also likely will be a further clamp down on Iran trade by overseas subsidiaries of US companies, and an increase in the use of targeted sanctions on trading with Iranian entities that the US believes are closely associated with Iran’s nuclear program and the Revolutionary Guard. We currently give 50/50 odds that the US will also impose reexport licensing requirements on non-strategic US origin goods, many of which currently do not currently require a license for bona fide reexport to Iran. When will this happen? : By June, barring any major breakthrough in negotiations with Iran.
Our predictions do have some basis in reality. The US House and Senate each recently passed legislation on Iran sanctions. The House bill (H.R. 2194) focused mostly on petroleum related sanctions. In an era where Democrats and Republicans agree on almost nothing, the House passed this bill by an overwhelming 412-12 vote. This vote provides a pretty good litmus test of the current overwhelming political popularity of increasing US Iran sanctions. The Senate bill (S. 2799) is more comprehensive and contains three general sanction provisions. The first set of sanctions focuses on the refined petroleum related trade. The second set of sanctions would restrict Iran trade by overseas subsidiaries of US companies, in a similar fashion to the current US Cuba sanctions. The third set appears to restrict all reexports of US origin items to Iran, including in strategic and dual use Export Control Classification Number (ECCN) classifications and as classified in the default non-strategic classification of EAR99. Currently, US regulations do not always restrict bona fide reexports of most EAR99 items and a few other ECCNs to Iran. To have a look at both bills and monitor them, go to www.thomas.gov, and enter the bill number in the search box.
The Iran sanction legislation will now need to go to a conference committee, a process whereby the legislators will attempt to resolve differences between the House and Senate bills. Once a common bill exists, there will be a final vote in the House and Senate. According to a Congressional Quarterly report, key legislators have stated they would like to have a final bill in April. Given that everything in Washington usually takes longer than anyone estimates, we think it is an easy call to state that the legislation is more likely to slip into May or June. Given that both bills contain restrictions on the refined petroleum trade, we believe these sanctions could easily find their way in the final bill. Non-US companies involved in the refined petroleum trade with Iran, including those who service and support activities to refine petroleum with Iran should accordingly be on alert. Some apparently already are: http://news.bbc.co.uk/2/hi/business/8573087.stm.
Given that restricting Iran trade by overseas US subsidiaries is also not so controversial from a US political perspective, we believe that these sanctions are also likely to be in the final bill. European and other allies often grumble about US extra-territorial restrictions on companies organized under their laws, such as these US subsidiaries, but we doubt that in the current Iran climate, any such government will take a strong stand in opposition to these kinds of restrictions.
Press reports indicate some potential tension between the Obama Administration’s Iran approach and the legislative activities on Capitol Hill. Press reports indicate that the Administration is opposed to sanctions that hurt the Iranian people in general. See http://www.nytimes.com/aponline/2010/03/22/us/politics/AP-US-US-Iran-Clinton.html?_r=1&scp=3&sq=iran%20sanctions%20iranian%20people&st=cse. The Obama Administration appears to favor holding off final legislative action until a multilateral approach can be negotiated, but legislators appear increasingly impatient to wait much longer. See, e.g: http://thecable.foreignpolicy.com/posts/2010/03/23/senators_pressure_obama_on_iran_sanctions and http://thecable.foreignpolicy.com/posts/2010/03/17/full_steam_ahead_on_iran_sanctions_bill.
Developing a multilateral consensus seems to be as difficult as ever to achieve, and Secretary of State Hillary Clinton has her work cut out for her. See: http://www.nytimes.com/2010/03/20/world/middleeast/20policy.html?scp=1&sq=iran%20sanctions&st=cse. Given the ever muddied multilateral picture, we doubt that the increasingly impatient legislators on Capitol HillH will wait months or more for a perhaps elusive multilateral consensus to develop. And if they do act and pass a final bill, the Obama administration will be hard pressed to not sign it into law given its political popularity, multilateral consensus or not. But that does not mean the Administration will have no influence over the bill. So provisions that appear to have the most direct impact on the Iranian people, like blanket restrictions on all reexports of US origin non-strategic trade goods, may not find their way into the final bill. Even if these provisions appear in the final bill, the bill might contain an optional implementation clause to give the Administration some room to decide what final sanctions to enact.
Finally, the Administration is already authorized under current laws to increase targeted pressure on designated Iranian entities. In recent years the Bush and Obama administrations have particularly targeted the Iranian financial sector by designating many prominent Iranian banks as Specially Designated Nationals (SDNs) which effectively restrict any of their activities that directly or indirectly touch the United States. Whatever the legislative outcome, we expect that the Administration will continue to expand the use of these tools, likely targeting the activities and business interests of the Revolutionary Guard and other persons and entities thought to be involved in the nuclear program.
