US targets Iran central bank

The United States has announced sanctions against Iran’s central bank governor Valiollah Seif for allegedly enabling the transfer of funds to Hezbollah, a Lebanese group that the US considers a terrorist organisation.

These sanctions are a result of Washington’s withdrawal from the Iran nuclear deal earlier this month.

Background

Iran’s nuclear program was first launched in the 1950s, with help from the United States. Iran signed the Nuclear Non-Proliferation Treaty in 1970. Support from the West continued until the Iranian Revolution and the ascent of Ayatollah Khomeini into power in 1979. Iran’s nuclear program has been a source of concern for the international community since then.

During the International Atomic Energy Agency’s (IAEA) investigations in the country, it was revealed that Iran had not declared a number of its nuclear activities and was not in compliance with the Non-Proliferation Treaty. In 2006, the country also refused to suspend its uranium enrichment program. The United Nations consequently imposed a number of sanctions on the nation.

By 2015, Iran had lost billions of dollars due to these sanctions; an estimated $100 billion in oil revenue alone. It had also lost out on Foreign Direct Investment. In July 2015, Iran agreed to sign a nuclear agreement (the Joint Comprehensive Plan of Action or JCPOA) with major powers Britain, China, France, Germany, Russia, and the United States (the P5+1). According to the JCPOA, Iran would limit its nuclear ambitions in return for relief from a number of sanctions for at least 10 years. The IAEA declared that Iran had complied with the terms of the provisional agreement and sanctions were lifted in 2016.

There has been increasing criticism of the deal. US President Trump refused to certify Iran’s compliance with the deal in October 2017. Critics have cited three key defects in the JCPOA. The first is that the JCPOA does not address ballistic missiles. The second has to do with restrictions on the inspection of nuclear sites. The third is the “sunset clause”, which places a time limit of 10 years on the nuclear restrictions, after which they may begin to expire.

Analysis

On May 8th, 2018, President Trump announced that the US would be withdrawing from the “decaying and rotten” nuclear deal. This move was taken against the advice of allies such as France and Germany, whose leaders lobbied for the Trump administration to preserve the deal. Iran has warned that it would not “remain in a deal that has no benefit” and threatened to resume its uranium enrichment projects. 

Days later, the US Treasury announced sanctions against UAE-based individuals and companies that were allegedly part of a financial network smuggling billions of dollars to Iran’s Revolutionary Guards elite Quds Force (IRGC-QF). These parties helped "acquire U.S. dollars to fund the IRGC-QF's malign activities, including to fund and arm its regional proxy groups," according to the treasury

Now, the US Treasury has targeted Iran’s central bank for allegedly helping the IRGC-QF funnel millions of dollars to Hezbollah, a Lebanese militant group which US and Israel consider a terrorist organisation. Central bank governor Valiollah Seif and another official Ali Tarzali have been named “specially designated global terrorists”.

“It is appalling, but not surprising, that Iran’s most senior banking official would conspire with the IRGC-QF to facilitate funding of terror groups like Hizbollah, and it undermines any credibility he could claim in protecting the integrity of the institution as a central bank governor,” said Treasury Secretary Steven Mnuchin. The latest sanctions are expected to cut of Iran’s access to a “critical banking network” and “stifle Iran’s ability to abuse the U.S. and regional financial system.”

Counterpoint

Iran’s foreign ministry responded that the sanctions were “irrational and hostile.” Tehran has claimed that the latest sanctions are an attempt to derail efforts to preserve the deal. The timing of the announcement “clearly demonstrates that the United States of America has failed to achieve its anti-Iran targets with the unilateral withdrawal from the JCPOA,” the foreign ministry spokesperson said.

Analysts have noted that US sanctions could have serious implications on domestic politics, undermining the moderate Rouhani regime and giving anti-West hardliners that favour institutions such as the IRGC substantial leverage. However, Iran has begun working towards ensuring that other signatories of the JCPOA remain committed to the deal. Foreign Minister Mohammad Javad Zarif has already met with his Chinese and Russian counterparts in Beijing and Russia. Both countries reiterated their support for the deal.  

Zarif met with his British, French and German counterparts on 15th May, and the countries issues a joint statement in support of the JCPOA. EU foreign policy Chief Federica Mogherini said that the countries are working on finding a “practical solution” to keep the deal alive. Technical experts have reportedly been asked to explore means to maintain oil supply and to protect European companies doing business in Iran.

Assessment

Our assessment is that by targeting the IRGC, Iran’s premier military organisation, the US has made a strong statement against Tehran. As stated previously, we believe that Trump’s actions have put him in direct odds with the international community and European allies. All other JCPOA signatories have indicated that they will remain a part of the nuclear accord. However, incremental sanctions by the US could endanger the deal.

We feel that long-term sanctions could not only risk an escalation of conflict in the Middle East, they would also allow players such as Russia and China to step up their economic influence in the region. These sanctions could also ultimately hurt India, which is the second largest importer of oil from Iran.