After months of fruitless efforts to engage the regime in Tehran, and a raging Washington debate about "targeted" versus "broad-based" sanctions, or "smart sanctions" vs. "crippling sanctions," Barack Obama's administration has finally moved to punish Iran for failing to come clean about its suspicious nuclear program. The U.S. Treasury Department announced Wednesday that it has designated the four subsidiaries of a major engineering and construction firm, as well as the firm's commander, Islamic Revolutionary Guard Corps (IRGC) Gen. Rostam Qasemi.
So it seems the Obama administration is carrying out its threat to target Iran's leaders, but not enact broad sanctions on the country that could harm its population, right?
Not so fast. The firm in question, Gharargah Sazandegi-ye Khatam al-Anbia, or Ghorb, which was first designated by the Treasury Department in 2007 because of its role in supporting the proliferation of weapons of mass destruction (WMD) and terrorism, is a major player in the Iranian economy, including in its energy sector. In 2006, Ghorb received more than $7 billion in contracts including, as reported by International Oil Daily, a $2 billion contract to oversee the development of the South Pars gas project and a $1.3 billion no-bid contract for a gas pipeline running from a Persian Gulf port near South Pars to the border with Pakistan.
These designations will give further pause to the international companies partnering with Ghorb and its affiliates, including in the energy sector, now that the Treasury Department has put them on notice that their business, in the words of sanctions chief Stuart Levey, "ultimately benefits the IRGC and its dangerous activities."
Treasury relies on these "smart sanctions" that focus on actors engaged in dangerous or illicit activity that violates international law norms. Since 2006, under Levey's guidance, it has designated more than 40 Iranian entities involved in supporting the regime's WMD-related and terrorist activities, including state-owned banks.
The more than 80 foreign financial institutions that terminated or reduced their business with Iran over the past three years were not legally bound to comply with U.S. sanctions. But after Treasury revealed Iran's extensive use of deceptive financial practices and front companies, foreign bankers did so anyway. The benefits of their Iranian business were outweighed by the costs of being linked to bad actors, as well as the real risk of losing access to U.S. financial markets.
Treasury's move against Ghorb and its subsidiaries is a good start. To have any meaningful impact on the activities of the Revolutionary Guards, targeted sanctions must focus on the Guards' leaders and other front companies active in Iran's energy sector, which is the lifeblood of the regime. Oil alone provides about 80 percent of Iran's export earnings and half of government revenue. Given the dominance of the Revolutionary Guards in the country's energy sector, Asian and European companies might find it difficult, as a result of Treasury's actions, to do business in the energy sector without transacting with designated entities.
The U.S. Congress also is moving aggressively against Iran's energy sector and the Revolutionary Guards by targeting what some have called Iran's economic "Achilles' heel" -- the regime's need to import, by some estimates, between 30 to 40 percent of its gasoline from foreign companies. In December, the House of Representatives passed the Iran Refined Petroleum Sanctions Act by a 412-12 vote; in January, the Senate unanimously passed an even more comprehensive companion bill. The two bills now go to conference committee, where they will be reconciled for a final vote and sent to Obama for his approval.
The legislation would extend the 1996 Iran and Libya Sanctions Act to provide the president with the authority to sanction foreign companies involved in selling refined petroleum to Iran or helping Iran improve its domestic refinery capacity. The House version of the legislation also would require the administration to report to Congress every six months on international companies doing business with the Revolutionary Guards and their affiliates involved in this trade.