News : Sanctions

Iran’s Coordinated Evasion of Sanctions

In an article published in Forbes, Addison Wiggins gives a partial account of how Iran has coordinated with other Middle Eastern and Asian countries in order to evade US-led economic sanctions that were in place throughout 2012 and 2013. Those sanctions resulted in billions of dollars of Iranian assets being frozen in US banks, while the Islamic nation was shut out of subsequent conventional sales of oil and natural gas, which must be conducting in American currency through a global payment network called SWIFT.

But this is a requirement only in a fairly loose sense of the world. In fact, there are ways of working around it if a nation is denied access to the international reserve currency, and if one has willing partners in the deception of Western powers. Iran quickly came to understand this, and turn the situation to its advantage.

According to Addison, Turkey was a crucial partner in Iran’s initial sanctions invasion, because it relies on Iranian natural gas for the vast majority of its electricity needs, and would have to turn exclusively to Russia if it accepted the demands of sanctions against Iran. Thus, Turkey, along with other, somewhat less dependent nations, began to conduct oil and gas transactions via direct payments in the form of gold. 

While such direct payments are much more difficult to regulate from abroad, the US caught onto the ploy eventually and expanded its sanctions efforts to include gold transactions. But as of July 2012, the Washington Free Beacon reported that Turkey had paid about 60 tons of gold, valued at roughly three billion dollars, for millions of tons of Iranian crude oil. 

At the same time, far from immediately cutting Iran off from its former supply of foreign capital, the Obama administration granted Turkey a temporary waiver, granting it more time to deal with Iran and attempt to extricate itself from its trade dependency. And even if this had not been the case, by that time Iran had succeeded in acquiring a surplus of valuable resources that it could use to barter with other trading partners, such as Russia and China, thus preserving more of its internal currency and gaining access to foreign goods that would otherwise have been inaccessible under the terms of the sanctions. 

In fact, it appears that Turkey’s gold exports to Iran only stopped for about a month, just ahead of the actual implementation of sanctions on mineral exports to Iran in February 2013. Figures for that month showed that Iran received 120 million dollars in gold from Turkey, according to Reuters. By that time Turkey was also trading with Iran in its local currency, adding an additional step to transactions, in keeping with the new model of sanctions defiance that had been adopted by Iran and its main trading partners.

In Turkey as in Russia, China, and other partner nations, dummy bank accounts were set up for the Iranian government, and deposits were made into them in local currencies, to be wired to Iran or withdrawn and used in purchasing gold, precious minerals, or export goods that were then conveyed back by couriers. 

Addison argues that these effective workarounds of Western-led sanctions only emboldened Iran as it headed towards nuclear negotiations with the P5+1. He quotes Ambassador William Miller as saying that sanctions only made the regime more defiant, in contrast to the popular perception that catastrophic financial consequences had forced Iran to the negotiating table against its will. 

If this is the case, it does of course raise the question of why Iran would have elected to come to that negotiating table at all. This can be answered by saying that the Iranian mullahs may be stubborn, but they aren’t stupid. They know that a sanctions-free Iran is better off than one that has to take the long way around to get paid for its exports to allied countries. But so long as that long way around is accessible, Iran will only try to secure sanctions relief if it means not giving up anything of value to the regime. 

This has been made clear in recent weeks, as nuclear talks have stalled to a greater and greater degree. The Iranian Oil Minister has rejected export limits that were agreed upon as part of the interim deal reached in November. The Supreme Leader has insisted that the nation’s military will only increase its supply of ballistic missiles. And the President has taken the reduction of Iran’s enrichment capability off the table. All of this seems to clearly support Miller’s assertion that the leadership of Iran has become more defiant in the face of renewed or expanded sanctions, not less.

Furthermore, the regional activities of Iranian officials have suggested a keen willingness to continue taking the long way around in transactions with oil trade partners. The month of May saw a variety of meetings between Iran and representatives of other nations, including Armenia, Turkmenistan, and Pakistan. Some of these meetings have been explicitly centered around the prospect of barter-based trade and other financial ties that allow the nation to circumvent economic sanctions while also increasing its regional influence.

Similar efforts have been directed towards larger trading partners, namely Russia and China. Officials from Iran and Russia have engaged in talks to establish a preliminary plan for bartering gas and electricity. And in order to truly facilitate sanctions-defying transactions, the two nations have discussed setting up a joint Iranian-Russian financial firm. Meanwhile, Chinese firms have been identified as selling missile parts to Iran as part of apparent expansions in both economic and military ties between the two countries.

All of this points to two alarming trends. First, while Iran continues to send its representatives to Geneva and Vienna for talks with the negotiators who have it in their power to remove sanctions, the Islamic nation is clearly not setting policies based on the idea that those sanctions will be overturned. This is best explained by assuming that Iran is not willing to sign a deal that it believes the West would also consent to.

Secondly, as these negotiations proceed, Iran and its regional partners are apparently using the time and the limited sanctions relief to secure as broad and tight-knit a series of alliances as possible. This could stand to serve the short-term interests of all of those regional powers, while leaving the United States and Europe helpless to enforce sanctions when they prove to be needed again. At the same time, by helping other nations to financially circumvent Western powers and to get into bed with Russia and China, Iran threatens to drastically expand its influence in the region, as well as its power in standing against the West.

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