Posts Tagged ‘U.S. sanctions’

Iran will decide to negotiate with Trump

June 14, 2018

President Trump, flanked by Secretary of State Mike Pompeo, left, and White House chief of staff John Kelly, in Singapore on Monday. (Jonathan Ernst/Reuters)

The Trump administration’s withdrawal from the Iran nuclear deal and a subsequent speech by Secretary of State Mike Pompeo have engendered a range of responses: Some welcomed the new hard line, but most expressed concern and criticism. Critics have accused the administration of calling for war or regime change; others have denounced its strategy as unrealistic.

In actuality, though, the Trump administration’s approach has a reasonable chance of succeeding with Iran. A key point that seems to have been overlooked by many of the commentators is that the Trump administration has indicated a willingness to enter into negotiations, even as it escalates pressure against Iran through sanctions. And a policy of maximum pressure, followed by negotiation and deal-making, means that a comprehensive agreement between the two countries is not out of the question.

Perhaps the most intriguing message embedded in the Pompeo speech was the signaling of a desire to engage Iran in negotiation for a comprehensive agreement leading to normalization of relations. Pompeo invited Iran to “look at our diplomacy with North Korea” as evidence of the administration’s willingness to engage adversaries in negotiations on very complex issues.

Trump’s pressure tactics likely won’t bring Iran to its knees or facilitate the overthrow of the regime in the foreseeable future – but his approach might bring the Iranians to the negotiating table. Tehran is at present disinclined to take up the idea of direct negotiations with the United States. It is focused on seeking an agreement with the Europeans to compensate for the losses that it will suffer because of new American sanctions and assurances against pushing for limits on Iranian missiles and its regional policies. In the months ahead, it will probably assess its own options with several factors in mind.

First, Iran is likely to be disappointed by Europe. It is true that European governments are unhappy with the U.S. withdrawal from the nuclear agreement and the imposition of sanctions on Iran. But to European firms, the U.S. market is far more important than Iran. Global European companies are withdrawing from Iran, and no realistic European policy can fundamentally change this reality. Besides, given the limited size of European economic exposure to Iran, which is less than that vis-à-vis Kazakhstan, Europe is unlikely to provide the assurances and guarantees that Iran’s supreme leader, Ayatollah Ali Khamenei, has sought.

Second, a race toward nuclear weapons is fraught with risks. Iran could abandon the nuclear agreement and produce as much uranium as quickly and at as high a level of enrichment as it would like. Khamenei has already announced that he has ordered preparations to “upgrade” Iran’s enrichment capacity. Iran could also decide to restart work on weapon designs and fuses, and sprint to a nuclear weapons capability without declaring that it is doing so.

But any such Iranian decision, if it became known, would most probably lead the Europeans to join the United States in imposing sanctions. Given that Washington has stated that it will not allow Iran to acquire nuclear weapons, Tehran would also be risking an attack aimed at its nuclear infrastructure (and perhaps more). The Iranians would probably also lose the support of Russia and China — at a time when some in the Iranian leadership are pushing for stronger ties with both. It appears unlikely that they would pursue this course in the near term.

Third, Iran’s calculation will certainly be shaped by assessments of the impact of U.S. strategy. It is unclear how comprehensive U.S. sanctions will be and how damaging these would be to Iran’s already weak economy. It is likely that fresh U.S. sanctions will cause significant damage by discouraging investment, encouraging further capital flight and perhaps increasing labor unrest.

If sanctions against Iran are accompanied by pressure against Iranian proxies in the region, through support to those willing to resist them, Iran will confront the choice between retreat or escalation. Escalating will divert resources from use at home and add to Tehran’s economic and perhaps political problems, including increasing tensions among factions inside the regime, strengthening those who seek a fundamental change. Such a development in turn could risk instability and perhaps even revolt. Iran may already be in a pre-revolutionary phase; hardship from sanctions and increased costs of its involvement in regional conflicts could tip the balance.

Fourth, Iran will watch developments in the U.S.-North Korea negotiations. It appears that U.S. withdrawal from the nuclear agreement with Iran has not, at least for now, undermined the North Korean desire for negotiations and a search for settlement. The Singapore summit was a promising start, with difficult, complex and vital details of a final agreement to be negotiated. Real progress with North Korea could have a salutary effect on Iran, encouraging its leaders to engage in negotiations with the United States.

Iran is for the moment unprepared to enter direct negotiations with the United States. But with more economic pressure and increased costs, Tehran may change its approach and become willing to start a dialogue that can lead to talks based on the interests of the two countries, ultimately leading, perhaps, to normal relations. The alternative path would entail huge economic costs and even the risk of a conflict — outcomes that Iran can ill afford.

By Zalmay Khalilzad

Zalmay Khalilzad was the U.S. ambassador to the United Nations from 2007 to 2009.


ZTE Pays $1 Billion Fine in Settlement With U.S.

June 7, 2018

Chinese telecom giant had been accused of violating U.S. sanctions on North Korea, Iran

ZTE has been effectively closed for business since a mid-April Commerce Department order restricting its trade with the U.S.
ZTE has been effectively closed for business since a mid-April Commerce Department order restricting its trade with the U.S. PHOTO: GILLES SABRIE/BLOOMBERG NEWS

WASHINGTON—The U.S. and China have reached a deal that will allow telecommunications company ZTE Corp. to continue to do business, requiring it to pay a $1 billion fine and place U.S. enforcement officers in the company to monitor its actions, Commerce Secretary Wilbur Ross said Thursday.

According to Mr. Ross, speaking on CNBC, ZTE must change its management and its board, pay the fine, and put $400 million in escrow, which it will forfeit if it violates U.S. sanctions on North Korea and Iran. In addition, he said, “we still retain the power to shut them down again,” if the U.S. finds the company doesn’t abide by the settlement terms.

Mr. Ross said the compliance team would be staffed by Chinese-speaking U.S. agents and would report to ZTE’s new management as well as the Commerce Department. But critics of the deal doubt that will be sufficient to keep tabs on the company’s actions.

Mr. Ross said that the ZTE deal isn’t part of the overall trade fight between the U.S. and China. It is far from clear that the agreement will forestall the U.S. from assessing tariffs on $50 billion of Chinese goods after June 15, as the U.S. has threatened.

However, the agreement comes as a bit of positive news in an otherwise tumultuous economic relationship.

ZTE has been effectively closed for business since the mid-April Commerce Department order restricting its trade with the U.S., after the company violated U.S. sanctions laws and then didn’t carry out the terms of an original settlement. Mr. Ross said that the company had lied to the U.S.

The firm relies on an array of critical American components to build its phones and cellular equipment, including smartphone chips from Qualcomm Inc. and optical components from smaller firms such as Maynard, Mass.-based Acacia Communications Inc.

Although Mr. Ross said that the ZTE deal was simply an enforcement action, it clearly had a broader impact. China is ready to sign off on Qualcomm’s proposed acquisition of NXP Semiconductors , a person with knowledge of the situation said.

“The deal should be cleared very soon,” the person said. In the past few days, Chinese regulators have been working with Qualcomm’s legal team on the “technical details” required for the approval, the person said.

Write to Bob Davis at and Lingling Wei at

As Trump Riles Europe on Trade, Putin Offers More Natural Gas

June 4, 2018
Pipeline to Germany moves ahead despite U.S. sanctions threat — Gazprom on track for record gas sales to Europe this year
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As Donald Trump’s trade policy risk worsening economic conflict with Europe Union, Russia’s Vladimir Putin is strengthening ties with the region.

Putin will mark 50 years of gas exports to Europe at an event in Vienna on Tuesday. A controversial 9.5 billion-euro ($11 billion) pipeline to feed more supplies from Siberia directly into Germany is progressing despite a U.S. sanctions threat. And Moscow-based Gazprom PJSC last month settled a seven-year-old pricing dispute with the European Union, enabling it to expand its market share.

Russia’s success in tightening its grip on Europe’s fuel supply contrasts with friction in the trans-Atlantic relationship, after the U.S. president’s decision to pull out of the Iran nuclear deal and slap tariffs on steel imports. Those moves have left the European partners in the new Russian pipeline wondering whether they can get around any sanctions that Trump deploys.

“Trump is forcing the Europeans closer to the Russians,” Stefan Meister, Russia expert at the German Council on Foreign Relations in Berlin, said in an interview. “This is playing right into Putin’s hands.”

U.S. officials also are making the rounds in Europe, with less impact. State Department envoys have appeared in Berlin, Copenhagen and Brussels in recent weeks warning that the Gazprom-sponsored Nord Stream 2 pipeline will leave Europe too dependent on Russia for its energy supply.

They were spurred into action after Germany and Finland granted construction permits, allowing five boats to begin dredging along the 1,220 kilometer route. This summer, 24-ton sections of steel pipe will be lowered into the sea. Work may be complete by the end of next year, in time for the expiration of Gazprom’s current transport deal with Ukraine’s NJSC Naftogaz in 2020.

The American are threatening sanctions to stop the work. They’re concern is that the new route will allow Russia to bypass the existing transport corridor running through Ukraine, depriving that nation of crucial revenue.

The 1,220 kilometer (758-mile) Nord Stream 2 undersea link to Germany initiated by Russia in 2015.

Source: Gazprom

While those views have gained traction mainly in eastern Europe, top EU officials dismiss sanctions as a way of solving problematic issues. At an event in Brussels, European Commission Vice President Maros Sefcovic signaled the EU may protect the companies financing Nord Stream 2. Those include Royal Dutch Shell PlcBASF SE’s Wintershall unit, Uniper SEOMV AG and Engie SA.

“I would prefer if we can discuss the issue with the Americans,” Sefcovic said on May 25.

Meanwhile, relations at least on the gas front appear to be warming between Europe and Russia. Gazprom bowed to the EU’s interpretation for how the gas market should work in settling a priceing dispute last month. French President Emmanuel Macron and German Chancellor Angela Merkel joined Putin last month at a forum in St. Petersburg — and echoed some of his concerns about the damaging impact of sanctions and trade tariffs.

To read more about Putin’s effort to draw in world leaders, click here.

Not all European nations agree on the need for another Russian pipeline. Poland, Slovakia and Ukraine, which have for years moved Russian fuel via existing pipelines laid through their territories, object to such a bypass.

Alternative Sources

Europe has few alternatives to taking Russian gas. From the U.K. to Germany and Italy, governments are shutting down coal plants to meet the world’s most ambitious targets for slashing pollution and greenhouse gases. Wind and solar farms are filling some of the gap, but gas is the cleanest fuel to balance the grid on calm days or when the sun doesn’t shine.

Austria’s OMV, which signed a groundbreaking gas deal with the Soviet Union in 1968, called the Russian supplies “reliable.” Looking ahead to Putin’s visit to Vienna, OMV CEO Rainer Seele and Gazprom boss Alexey Miller hinted in a joint statement at “expanding the partnership” and say they “plan to reach a new level of strategic cooperation.”

The American suggestion is that Europe should take U.S. exports of natural gas in its liquid form. That requires expensive technology. And it wouldn’t prevent exports going to Asia where prices are even higher than Europe’s.

Washington’s concern is that Putin has lured Europe into dependence and is using gas as leverage to advance his political agenda.

“For Russia, it’s clear to us that gas is not simply a commodity to be traded — it’s a foreign policy tool and a weapon,” said Adam Shub, an official at the U.S. mission to the EU in Brussels.

It isn’t clear just how far the U.S. would go in holding up Nord Stream 2. Full sanctions against the project’s participants could prevent them from doing business in the U.S., a potentially fatal blow for companies like Shell with major U.S. operations. It could have more tailored moves, like a travel ban for executives, or ratchet up pressure slowly by asking the State Department to draw up a list of measures under consideration.

“Sanctions are a potential lightning bolt in the refinery,” said Richard Nephew, an expert on energy sanctions at the Center on Global Energy Policy at Columbia University in New York. “The companies have been thinking and planning around sanctions risk for a long time. The companies can do a few things to de-fang the U.S.”

Depending on the shape of the sanctions, the sponsoring companies might be able to set up independent legal entities to do the work, circumventing whatever Trump wants to impose, Nephew said. American officials may also lean on Sweden and Denmark to refuse construction permits. With Denmark at least, Nord Stream 2 has a plan to rejig the route and avoid those waters.

Regardless, Russia already supplies more than a third of Europe’s gas, and that portion is growing. It’s the biggest single supplier of the fuel, and Gazprom’s shipments to the continent reached a record last year. They’re on track to rise again in 2018 as a chilly winter drove up heating demand and left the content’s storage tanks depleted.

Russia for its part has always denied it uses gas as a weapon, noting that the fuel kept flowing all through the worst parts of the cold war. For Gazprom’s biggest customer in Europe, Nord Stream 2 is an essential piece in Europe’s energy system and necessary to satisfy increasing demand for gas.

“It’s strategically very important for the European market, for our customers – and we have an obligation to serve our customers reliably with gas,” Klaus Schaefer, chief executive officer of the German utility Uniper SE, said in an interview in St. Petersburg on May 25. “We are very supportive.”

— With assistance by Anna Shiryaevskaya, Brian Parkin, and Boris Groendahl


Poland says EU needs more ’empathy’ toward U.S. over Iran deal — “Economic considerations appeared to take precedence” in EU talks

May 26, 2018

The EU should pay more heed to U.S. security concerns linked to Washington’s withdrawal from the 2015 Iran nuclear deal as the bloc decides how to address American sanctions against the Islamic Republic, Poland’s chief diplomat said.

Since President Donald Trump withdrew the United States from the accord this month, European states have been scrambling to ensure Iran gets enough economic benefits to persuade it to stay in the deal and keep limits on its nuclear activities.

Tehran is pressuring Europe to come up with a package of economic measures to offset the U.S. pullout by May 31, saying it was “weeks” from deciding whether to quit the pact. Britain, China, France, Germany and Russia remain in it.

Image result for Poland’s Foreign Minister Jacek Czaputowicz, photos

Poland’s Foreign Minister Jacek Czaputowicz

Earlier this month, the European Commission, the EU executive, proposed a series of measures which include banning EU-based firms from complying with the revived U.S. sanctions.

Poland’s Foreign Minister Jacek Czaputowicz said Warsaw — a staunch ally of Washington — had not decided yet whether to back the ban, potentially complicating a decision that needs unanimous backing from the EU’s 28 members.

“We need to think, there is still time,” Czaputowicz told Reuters. “This doesn’t mean we don’t feel part of the EU community in these discussions … We will see what other EU members think.”

Referring to European companies doing business in Iran since the nuclear deal was put in place, Czaputowicz said Poland felt “economic considerations appeared to take precedence” in EU talks.

“During discussions (within the EU), we will emphasize the need to consider the motives of the United States and a greater empathy towards them.”

Warsaw has been at loggerheads with Brussels since the right-wing Law and Justice (PiS) came into power in 2015 over issues ranging from the rule of law, energy policy and logging in an ancient forest.

Warsaw is keen for security assurances from the United States as a deterrence policy against Russia.

Czaputowicz said EU member states should weigh broader security issues during discussions about policy on Iran such as Russia’s increased assertiveness in eastern Europe.

“It doesn’t seem there is a direct link, but … this is another issue we need to resolve.”

He cautioned that Washington could at some point impose economic sanctions against European companies participating in the subsea Nord Stream 2 gas pipeline from Russia to Germany.

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Secretary Pompeo Meets With Polish Foreign Minister Czaputowicz

“This would become another issue for the European Union to find a position on.”

EU foreign ministers will discuss policy on Iran at a meeting in Brussels on Monday.

Trump has complained that the Iran accord did not address Iran’s ballistic missile program, its nuclear activities beyond 2025 or its role in conflicts in Yemen and Syria.

Reporting by Justyna Pawlak; Editing by Helen Popper


ZTE revenues fall $2bn as US sanctions bite

May 23, 2018
Components ban hurts Chinese telecoms group as well as US suppliers
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ZTE has had to partially close its business following the imposition of sanctions by the US © AFP

Emily Feng and Louise Lucas in Beijing 

ZTE, the Chinese telecoms equipment maker, is estimated to have lost more than $2bn in revenue since the imposition of a ban on the supply of US components by Washington last month, according to calculations based on last year’s figures.

Although Beijing and Washington are said to be close to a deal to grant a reprieve from US sanctions that nearly destroyed ZTE, the damage to the Chinese telecoms group’s prospects could linger as suppliers and clients take long-term decisions on their supply lines.

ZTE reported full-year revenues of Rmb108.8bn ($17bn) in 2017, or an average of $1.4bn a month. The US ban on supplying parts to ZTE — after the group was found to have violated sanctions against North Korea and Iran — was imposed roughly six weeks ago, implying lost revenues of more than $2bn.

While customers are unlikely to opt to switch suppliers, American carriers buying ZTE handsets — the fourth most popular in the US — could start making back-up plans given the lead times involved, according to Edison Lee, a Hong Kong-based analyst at Jefferies, the investment bank. However, he added that if sanctions were lifted soon, the telecoms supplier should be able to regain its previous trading relationships.

The telecoms group, which has become a bargaining chip in a game of trade brinkmanship between the US and China, on Wednesday refused to comment on potential losses or on whether any production had restarted at its plant in Shenzhen.

The group’s prospects improved at the weekend following news that President Trump’s aides were negotiating a deal to lift US sanctions against ZTE in exchange for senior management changes and payment of a large fine. ZTE was previously fined $1.2bn by the US last year.

However, ZTE’s future is uncertain, with US Congressional Republicans, led by senator Marco Rubio, drawing up legislation that would block the White House’s attempt to rescue ZTE. The move highlights the mounting scepticism inside the GOP over the president’s conflicts with China over the US trade deficit and other issues.

Until it suspended trading in its shares on April 17 and partially shuttered its operations, ZTE was China’s biggest publicly listed telecoms equipment manufacturer, employing 75,000 people globally.

On a visit to ZTE’s headquarters in Shenzhen last week before news of the potential deal, the FT found workers milling around outside the plant. Local food providers said business had halved in the area. Managerial staff, software engineers and higher-level technical support personnel were still employed at that time, the ZTE employees said.

The potential reversal of the US ban on trading with ZTE would mark a victory for American hardware suppliers, which need access to the Chinese market in order to remain globally competitive and have been alarmed by how ZTE has become a political bargaining chip, according to analysts.

“There’s commercial interest [in ZTE’s survival] within the US industry, and that’s why Donald Trump was willing to reach a compromise . . . It affects not just US jobs but also US companies’ ability to fund research and development and stay at the leading edge of technology,” said Mr Lee.

The costs borne by US businesses would continue to accumulate for as long as it takes the US and China to reach an agreement on ZTE, analysts said.

“What most people do not realise is that in Silicon Valley right now there is a lot of opposition to the ZTE ban, because so many suppliers sell parts to ZTE,” said a venture capital investor who splits his time between the US and China.

“[The ban] obviously necessitates that Chinese players have back-up options, and when they develop those alternatives, it hurts the US companies right back. Samsung and MediaTek have expressed interest to offer their components to ZTE, including processors,” said Kiranjeet Kaur, smartphone analyst at market research group IDC.

Additional reporting from Xinning Liu and Lucy Hornby in Beijing

Syria and Russia say withdrawal of Iran, Hezbollah ‘not on agenda’

May 23, 2018

Syria’s deputy foreign minister said Wednesday Damascus did not envisage Iran and Hezbollah participating in the withdrawal of foreign forces from the war-torn country as announced last week by Russia.

Asked whether the removal of Iranian and Hezbollah forces could end Israel’s strikes on Syria, Faisal Mekdad told RIA Novosti state news agency that “this topic is not even on the agenda for discussion.”

“All these forces oppose terrorism. They are not making an attempt to violate the sovereignty and territory of Syria,” he said in comments translated into Russian.

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Russian Foreign Minister Sergei Lavrov

Syrian President Bashar al-Assad met Vladimir Putin in the Black Sea resort of Sochi on Thursday, with the Russian leader saying “foreign armed forces will withdraw from Syrian territory” although he gave few details.

But Russia’s chief Syria negotiator Alexander Lavrentyev later told journalists that the withdrawal of foreign troops should be done “as a whole” and include Iranians and Hezbollah, the powerful Lebanese group that is an ally of Iran and Assad.

“We are talking about all the foreign troop divisions which still have troops in Syrian territory. That includes the Americans and the Turks and Hezbollah, of course, and the Iranians,” Lavrentyev said on Friday, quoted by RIA Novosti.

Mekdad, however, suggested Russia had not meant to say this.

“I don’t think that our Russian friends meant the forces that entered Syria in agreement with the Syrian government,” he said.

“Russia demanded the withdrawal of forces that are here without agreement: that is the forces of the US, France, Turkey and other forces that are here illegitimately.”

Russia and Iran are both allied with Assad. Together with rebel-supporting Turkey, they have been brokering peace talks in Astana, the Kazakh capital, running in parallel to talks supervised by the United Nations.

Last year, Russian Foreign Minister Sergei Lavrov said Moscow was acting on the basis that both Hezbollah and the Iranians, “just like the Russian air forces, are in Syria at the invitation of the legitimate government.”


Iran slams U.S. sanctions push, Syria rejects idea of Iranian withdrawal

May 23, 2018

Iran on Wednesday kept up a drumbeat of opposition to U.S. demands for sweeping change in its foreign policy and nuclear program, and Tehran’s ally Damascus dismissed out of hand a U.S. call for a withdrawal of Iranian forces from Syria.

rance, one of several European powers dismayed by the U.S. withdrawal from a 2015 nuclear accord, said Washington’s method of adding more sanctions on Tehran would reinforce the country’s dominant hardliners.

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U.S. Secretary of State Mike Pompeo on Monday threatened Iran with “the strongest sanctions in history” if it did not curb its regional influence, accusing Tehran of supporting armed groups in countries such as Syria, Lebanon and Yemen.

Pompeo was speaking two weeks after President Donald Trump pulled out of an international nuclear deal with Iran that had lifted sanctions on Iran in exchange for curbs to its nuclear program. European powers see the accord as the best chance of stopping Tehran acquiring a nuclear weapon.

Iranian Foreign Minister Mohammad Javad Zarif (L) meets with European Union Foreign Policy Chief Federica Mogherini, to discuss Iran's nuclear deal, on May 15, 2018 at the EU headquarters in Brussels. (AFP PHOTO / POOL / Thierry Monasse)

Iranian Foreign Minister Mohammad Javad Zarif (L) meets with European Union Foreign Policy Chief Federica Mogherini, to discuss Iran’s nuclear deal, on May 15, 2018 at the EU headquarters in Brussels. (AFP PHOTO / POOL / Thierry Monasse)

Iran’s Foreign Minister Mohammad Javad Zarif said Pompeo had repeated old allegations against Tehran “only with a stronger and more indecent tone”.

“Mr Pompeo and other U.S. officials in the current administration are prisoners of their wrong illusions, prisoners of their past and have been taken hostage by corrupt pressure groups,” he told state television.

Image result for Major General Mohammad Bagheri,

Major General Mohammad Bagheri,

A senior Iranian military official, Major General Mohammad Bagheri, said Iran would not bow to Washington’s pressure to limit its military activities.

“This enemy (the United States) does not have the courage for military confrontation and face-to-face war with Iran, but it’s trying to put economic and mental pressures on the Iranian nation,” state news agency IRNA reported him as saying.


In Damascus, Syria’s deputy foreign minister dismissed the notion of a withdrawal of Iranian forces.

In Syria’s seven-year-old conflict, Iran has provided vital support to President Bashar al-Assad’s military. Its forces and the militias it backs from the region, including Lebanon’s Hezbollah, helped Damascus claw back control of major cities from militants and rebels.

“Whether Iranian forces or Hezbollah withdraw or stay in Syria is not up for discussion because it’s the (business) of the Syrian government,” Lebanon’s al-Mayadeen TV cited Faisal Mekdad as saying.

In Paris, France’s foreign minister said the U.S. decision to scrap the Iran nuclear deal and implement a tough strategy on the country would strengthen Tehran’s hardliners and endanger the region.

“We disagree with the method because this collection of sanctions which will be set up against Iran will not enable dialogue and, on the contrary, it will reinforce the conservatives and weaken President Rouhani. This posture risks endangering the region more,” Jean-Yves Le Drian told France Inter radio.

He said Paris would continue to implement the agreement even if it did agree with the United States that Iran’s ballistic missile activity and regional hegemonic ambitions needed to be curbed.

He said Paris shared Washington’s concerns over Iran’s ballistic missile “frenzy” and regional ambitions, but the 2015 nuclear deal was the best chance of stopping Tehran developing a nuclear bomb.

Deputy foreign ministers of the remaining parties to the accord – Britain, China, France, Germany and Russia – will meet their Iranian counterpart on Friday in Vienna.

The meeting will assess what can be done to keep the deal and circumvent extraterritorial American sanctions that are impacting foreign business appetite for Iran.

For a graphic on Iran’s nuclear program:

Additional reporting by John Irish in Paris and Parisa Hafezi in Ankara, Ellen Francis in Beirut, Editing by William Maclean and Janet Lawrence


Iran, Get Ready for the Battle Rial

May 22, 2018

The Trump administration has declared financial war on the regime. It’s a good bet America will win.

Iran, Get Ready for the Battle Rial

Secretary of State Mike Pompeo on Monday presented the Islamic Republic of Iran with a stark choice: Either change or face “unprecedented financial pressure” in the form of “the strongest sanctions in history when we are complete.” The Trump administration has declared financial war on the Iranian regime. Given the seriousness of its currency emergency, it’s a good bet America will win.

Iran’s economy is in crisis. Inflation is skyrocketing, banks are in turmoil, and Iranians protest daily against the regime’s ineptitude, corruption and foreign adventurism. The currency is collapsing. In 1979, just before the Islamic revolution, Iran’s official exchange rate was 70 rial to the dollar. Today’s official rate, 42,000 to 1, is only available to those with regime connections. Most Iranians have to accept less favorable terms on the black market.

The rial experienced several waves of devaluation, including during the last ramp-up in U.S. sanctions. The black-market rate per dollar went from around 11,000 in early 2011 to close to 37,000 in 2013, immediately before the June election of President Hassan Rouhani. The latest deterioration signals a worse crisis. It was triggered by Mr. Trump’s decision in October to decertify the Joint Comprehensive Plan of Action, or JCPOA, indicating his intention to reimpose sanctions. The black-market rate has settled at 63,500, a nearly 40% loss of value since October. It dipped to 70,000 in the 24 hours after Mr. Trump announced on May 8 America’s official withdrawal from the nuclear deal. The regime is so desperate to avoid further collapse, it is taking extreme measures like criminalizing private currency trading and severely restricting the amount of currency Iranian travelers can take out of the country.

With the impending reimposition of sanctions, the pressure on Tehran is growing every day. Any bank that lets Iran draw on its foreign-held reserves will face total cutoff from the U.S. financial system. Trade and investment in major Iranian economic sectors will grind to a halt. Insurers will walk away from Iran-related projects. Importers of Iranian oil will reduce their purchases. Providing Iran with precious metals, which the regime might use in place of cash, will be off-limits, too. Already major European energy, insurance and shipping companies have signaled their intention to cut ties with the Islamic Republic unless their governments can negotiate sanctions waivers.

Mr. Pompeo made clear Monday that’s unlikely—and also that the administration will tighten the screws further, targeting every aspect of the regime’s finances.

What are the options? The Treasury Department has the authority to target companies owned or controlled by the Islamic Revolutionary Guard Corps and Iran’s defense industry. These represent around 20% of total market capitalization of the Tehran Stock Exchange. The Treasury could impose sanctions on Supreme Leader Ayatollah Ali Khamenei’s $200 billion corporate conglomerate, including the charitable trusts, or bonyads, where regime officials stash their money. Mr. Trump could use his executive powers to target companies of which the IRGC owns a minority share, vastly expanding Treasury’s list. He could broaden sanctions to cover Iran’s mining, construction and engineering industries, and any other sector of strategic importance.

Another top target will be Hezbollah, Iran’s largest terrorist proxy. The administration should cut off Hezbollah’s companies and bankers, especially in Lebanon, from the international financial system, while cracking down on the group’s fundraising, recruitment, narcotics trafficking and other transnational criminal activities.

America’s new strategy also presents European leaders with a choice: Either help curb all of Iran’s malign activities in exchange for major American economic and diplomatic concessions, or cast their lots with the repressive theocracy responsible for a 2012 terror attack in Bulgaria, and for the bloodshed in Syria that created a refugee crisis in Europe.

The Europeans have several important roles to play in a maximum-pressure strategy. The Swift financial-messaging service, based in Brussels, would disconnect the Central Bank of Iran, as well as other designated Iranian banks. The European Central Bank would stop clearing euro-based Iranian transactions through its Target2 settlement system, whose bylaws explicitly forbid activity with banks engaged in illicit financing schemes. Central banks in European countries would stop trying to evade U.S. oil sanctions by making direct payments to Iran’s central bank. Europe would designate the IRGC and Hezbollah in their entirety as terror groups.

The Europeans could refuse to do these things if they want to play hardball and undermine the U.S. strategy. But Mr. Trump would have options to respond. American law authorizes him to impose sanctions on Swift and its directors if they refuse to disconnect Iranian banks. The president could use his executive powers to put on the sanctions list board members and senior officials at the ECB, European Investment Bank and national central banks.

That sort of showdown may seem appealing to some Europeans. But the democratic ties that bind America with Europe are far stronger than any commercial relationship between Europe and the Islamic Republic.

Just last week, German Chancellor Angela Merkel and French President Emmanuel Macron ruled out any trade war with the U.S. over Iran. Other European leaders should follow their lead. Mr. Pompeo has opened the door for renewed trans-Atlantic dialogue. Brussels may be slow to warm up to America’s new, no-holds-barred financial war on the Iranian regime. But European banks and businesses ought to keep one thing in mind: In a Battle rial, anything goes.

Mr. Dubowitz is chief executive and Mr. Goldberg a senior adviser at the Foundation for Defense of Democracies.

US and EU head for showdown over shutting Iran off from finance

May 17, 2018

Washington sanctions put Swift payments network in spotlight

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Swift reopened links with Iran following the pasage of the Iran nuclear deal in 2015 © Reuters

Sam Fleming in Washington, Philip Stafford in London and Jim Brunsden in Brussels 

The US and EU are heading for a showdown over how to handle one of the linchpins of the global financial system following Donald Trump’s decision to re-impose sanctions on Iran.

The US has declared its determination to sever Iranian banks and the Tehran central bank from foreign financial institutions as it increases sanctions in the coming months. Part of doing so will probably involve ensuring the Belgium-based Swift network, whose financial messaging system facilitates cross-border payments, cuts off the Iranian banking system as it did before the Joint Comprehensive Plan of Action in 2015.

Swift, which sent more than 7bn messages last year, severed links with Iran in 2012 after the US pressured the EU to impose sanctions. Following the passage of the Iran nuclear deal in 2015, Swift reopened links.

The question now is whether the EU will co-operate with any US requests for those connections to be severed again and whether Swift will find itself caught in the crossfire of a transatlantic dispute over sanctions, analysts say.

Richard Nephew, a scholar at Columbia University’s Center on Global Energy Policy, said: “I absolutely see this as a flashpoint between both sides. Swift has maintained it will only do what it is instructed to do from Brussels and there is no indication that the EU will bend on this point for the Trump administration.”

Fighting the Americans on Swift is a powerful if high-risk option for the Europeans

The US pushed for years to get the Swift sanctions imposed back in 2012, so obtaining a deal could be even more difficult this time round given the fractious relations between the US and EU.

In a statement, Brussels-based Swift said US Treasury guidance suggested a ban would not come into effect until early November. “As there has been no related change to EU legislation we will naturally be consulting with and seeking clarification from both EU and US authorities. Our mission remains to be a global and neutral service provider to the financial industry,” it added.

Swift connects more than 11,000 banks around the world and sent an average 28m messages a day in 2017. According to one person briefed on the discussions, the UK, France and Germany may try to negotiate carve-outs for their institutions and payments systems most likely to be affected by sanctions, and would also include provisions for Swift.

Elizabeth Rosenberg, a senior fellow at the Center for a New American Security and a former US Treasury adviser on Iran and North Korea sanctions from 2009 to 2013, said there were routes open to the US should it not get EU co-operation on Swift.

One idea that has been discussed in the past would be for the US Treasury to target the entire board of Swift. But Ms Rosenberg said this would be a poor idea given the 25-strong board comprised senior executives from a range of member institutions including major western banks. “The US could not be more clear that they are going after Swift,” she added.

“Fighting the Americans on Swift is a powerful if high-risk option for the Europeans,” said Behnam Ben Taleblu, a research fellow who focuses on Iran at the Foundation for Defense of Democracies. “America must clearly convey its intention to enforce sanctions and work to prevent Europe from contesting any of these penalties come November. The open question is what is Swift’s tolerance for risk, and what side of the Atlantic will it follow. Legally they have to follow Brussels, but America has huge economic power in this situation.”

The US Treasury declined to comment. But its recent guidelines suggest that US sanctions on the provision of specialised financial messaging services to the Central Bank of Iran and Iranian financial institutions will be re-imposed after a 180-day wind-down period ending on November 4 2018.

Other financial infrastructure providers could also garner attention, especially international central securities depositories Euroclear and Clearstream, owned by Deutsche Börse. The utilities are where both the asset and cash meet and are swapped, and the deal is treated as final.

In 2013 Clearstream agreed to pay $152m to settle allegations by Washington that its settlement business may have violated US sanctions on Iran. Its subsequent policy has been not to engage directly with Iran or Iranian-owned entities.

Euroclear said it would abide by all laws applicable to it and said it would need to analyse the scope of any sanctions.

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