Smart Sanctions Can Work on Iran

Smart Sanctions Can Work on Iran

After a fraudulent election and its brutal aftermath, Iranian Supreme Leader Ali Khamenei and his junta must now be persuaded that their pursuit of nuclear weapons will be unbearably costly.

The Obama administration appears poised to implement what Secretary of State Hillary Clinton has called "crippling sanctions" if Iran fails to come to the negotiating table. Sens. Evan Bayh, Joe Lieberman and Jon Kyl, and Howard Berman in the House, have developed sanctions legislation targeting Iran's economic Achilles' heel—the regime's dependence on foreign gasoline imports for up to 40% of its domestic needs. The bill would provide the president with the authority to sanction foreign companies involved in selling refined petroleum to Iran, including insurance and reinsurance companies. With the administration's approval, it would be quickly passed and signed into law.

Existing Treasury Department efforts to persuade financial institutions to stop their Iranian business offer the model. Treasury leverages what bankers, insurers and energy traders all understand—the price of risk.

Treasury relies on "smart sanctions" that focus on actors engaged in dangerous or illicit activity that violates international law norms. Since 2006, it has designated more than 40 Iranian entities involved in supporting the regime's WMD-related and terrorist activities, including state-owned banks.

The 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 complied. 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.

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