"In my home there are few publications that we actually get hard copies of, but [Arms Control Today] is one and it's the only one my husband and I fight over who gets to read it first."
Treasury Tightens Sanctions Net on Iran
While U.S. and European diplomats pursue a fourth round of UN sanctions on Iran, the Bush administration and Congress are moving forward with a parallel strategy of using U.S. financial clout to tighten the noose on the Iranian economy. The Department of the Treasury July 8 and Aug. 12 froze the U.S. assets of 13 individuals and organizations with connections to Iran's nuclear and missile programs. Meanwhile, European energy giants Total and StatoilHydro announced they would hold off from future investment in Iran's oil and gas sectors, apparently in response to growing pressure from sanctions.
The Security Council has imposed three sets of sanctions because of Tehran's failure to halt its uranium-enrichment-related activities and its construction of a heavy-water reactor. A uranium-enrichment program can be used to enrich uranium to low levels for use in nuclear power reactors or to high levels for use in nuclear weapons. A heavy-water reactor can produce plutonium, which also can be used for peaceful or military purposes.
Sanctions appear to be taking their toll on Iran's economy, according to an International Monetary Fund (IMF) report released Aug. 14. It finds that UN, U.S., and EU sanctions are choking foreign investment and hurting the profitability of Iranian banks.
The Treasury Department July 8 sanctioned four individuals and four organizations for connections to Iran's nuclear and missile programs. Dawood Agha-Jani, Moshen Hojati, Mehrdada Akhlaghi Ketabachi, and Naser Maleki were named for their connections to subsidiary organizations either of the Atomic Energy Organization of Iran (AEOI) or the Aerospace Industries Organization (AIO). The AEOI oversees Iran's gas centrifuge-based uranium-enrichment program. The UN Security Council and the U.S. government maintain that the AIO oversees Iran's ballistic and cruise missile programs.
The Treasury Department also froze the U.S. assets of the Ammunition and Metallurgy Industries Group (AMIG), Parchin Chemical Industries, Shahid Sattari Industries, and Seventh of Tir. The U.S. government claims Shahid Sattari Industries is "an entity...owned or controlled by" the AIO. The other three organizations were sanctioned for connections to Iran's Defense Industries Organization (DIO). The Department of State sanctioned DIO in 2007 "for engaging or attempting to engage in activities or transactions that materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery."
On Aug. 12, the Treasury Department sanctioned four organizations-the Esfahan Nuclear Fuel Research and Production Center (NFRPC), the Joza Industrial company, the Nuclear Research Center for Agriculture and Medicine, and the Safety Equipment Procurement Company (SEP Co.)-as well as Jabber Ibn Hayan, an AEOI employee. The Nuclear Research Center for Agriculture and Medicine was sanctioned as a subsidiary of the AEOI. The Treasury Department maintains that the NFRPC is "AEOI's center for the development of nuclear fuel, involved in enrichment-related activities." UN Security Council Resolution 1747, which imposed a second round of sanctions on Iran, identifies the NFRPC as a "part" of the AEOI. SEP Co. and Joza Industrial were identified by Security Council Resolution 1803 as "front companies" for the AIO.
All the individuals and organizations sanctioned by the Treasury Department have been named previously in Security Council Resolution 1737, 1747, or 1803. (See ACT, April 2008. )
Such sanctions are imposed under Executive Order 13382, which President George W. Bush signed in June 2005. The order gives the Treasury and State Departments the authority to freeze the U.S. assets of foreign entities suspected of supplying or supporting the development of unconventional arms and ballistic or cruise missiles. It is not clear what U.S. assets, if any, the designated individuals and organizations hold. The Treasury Department maintains that it does not disclose such information. (See ACT, July/August 2007. )
Energy Companies Curtail Investment in South Pars
Asian and European corporations have faced scrutiny from many sectors, including such pro-Israel groups as the American Israel Public Affairs Committee, to curtail investment in Iran's oil and gas industries. U.S. state legislatures have also been lobbied to mandate divestment of public funds from companies with $20 million or more invested in Iran's oil and gas sectors. Nearly a dozen U.S. states have passed such laws. (See ACT, July/August 2008. )
Iran holds the world's second-largest natural gas reserves in the world. The country is currently involved in a massive project to develop its liquefied natural gas reserves at South Pars along with Asian and European energy companies. The South Pars field is estimated to contain about 47 percent of Iran's total gas resources, according to the U.S. Energy Information Administration.
In July, French energy group Total announced that it would curtail its involvement in the South Pars project. Total CEO Christophe de Margerie cited the "political risk" of continued investment in Iran. Royal Dutch Shell and Spain's Repsol pulled out of the South Pars project in 2007.
Norwegian oil group StatoilHydro similarly announced Aug. 1 it would make no new investments in Iran's energy sectors, although it would fulfill existing contracts. CEO Helge Lund said StatoilHydro was "attentive" to United States and EU regulations, although current EU sanctions do not target StatoilHydro's activities.
StatoilHydro signed an agreement in October 2002 to develop three phases of the South Pars natural gas field. In testimony to the House Foreign Affairs Committee July 9, Undersecretary of State for Political Affairs William Burns suggested that the Norwegian company's investment in South Pars might fall "within the purview" of the Iran Sanctions Act of 2006. The Iran Sanctions Act requires the president to sanction companies with investments of $20 million or more in Iran's energy sector. Such sanctions might include denial of U.S. bank loans and restrictions on the importation of goods produced by the sanctioned company. (See ACT, May 2004. )
Other energy corporations, however, continue to invest in the project. Malaysian oil company Petronas announced to news media in July that it was "capable and able" to complete the project. Chinese oil company Sinopec has not shied away from a $2 billion agreement to develop an oil field at Yadavaran is western Iran. India and Iran are also moving forward with plans to construct a $7.5 billion liquefied natural gas pipeline.
Congress Moves Closer to Additional Sanctions
The Senate, meanwhile, may consider two pieces of legislation that would expand economic sanctions and, in the case of one bill, make it easier for U.S. states to divest from companies tied to Iran.
The Senate Banking Committee July 17 approved 19-2 a bill sponsored by Sen. Chris Dodd (D-Conn.) that would provide safe harbor for fund managers who authorize divestment from companies with $20 million or more invested in Iran's energy sector. It would also ban the importation of all Iranian products and commodities, except for informational materials such as news reports. Current policy still allows the United States to import small gifts, certain foods, and carpets from Iran. The bill bans U.S. exports in turn, although exceptions are made for agricultural products, food, medical supplies, commercial aircraft parts, and informational materials.
The Senate may also vote on another Iran sanctions bill, the Iran Sanctions Act of 2008, approved by the Senate Finance Committee June 18. The bill, sponsored by Sen. Max Baucus (D-Mont.), is also notable for a provision that would block the passage of a nuclear cooperation agreement with Russia known as a 123 agreement, after the relevant section of the Atomic Energy Act of 1954. Similar legislation seeking to punish the Kremlin for its ongoing nuclear and military cooperation with Iran was adopted by the House of Representatives in 2007. (See ACT, November 2007. )