Middle East

US gets serious on Iran sanctions

PJ Crowley (file)
Image caption US State Department spokesperson PJ Crowley says its no more "business as usual"

For banks, oil companies and other big businesses around the world, from India to Japan, Russia and Germany, the US now has a clear message: you're either with us or with Iran.

Doing business with both is no longer possible, at least in theory.

"This cannot be business as usual and we recognise that there is going to have to be a lot of due diligence," said State Department spokesperson PJ Crowley in a BBC interview.

The unilateral US sanctions passed by Congress and signed into law by President Barack Obama on 1 July go further than the fourth round of UN sanctions against Iran approved by the Security Council in June.

Washington will now penalise companies that invest more than $20m (£12.5m) in any project that significantly "contributes to the enhancement of Iran's ability to develop petroleum resources".

The export of refined petroleum products to Iran is also a target, and sanctions build on past UN and US designations of entities.

Those companies found guilty could find themselves shut out of the US financial system.

The US treasury department's sanctions tsar, Stuart Levy, told the BBC this wasn't US bullying because companies had a choice about whether "they'll do business in Iran or with the United States, and for example get US government contracts".

The new law will in fact require that American and foreign businesses that seek contracts with the United States government certify that they do not engage in prohibited business with Iran.

Presidential waiver

The sanctions legislation goes further than US unilateral sanctions have done in the past because it curbs the ability American presidents had under previous legislation to waive the sanctions on "national security grounds" - in other words, when they felt it tied their hands in the conduct of foreign diplomacy and could upset allies.

In the end, no foreign company was ever sanctioned under the 1996 Iran sanctions act, but this will now likely change.

Image caption US sanctions are designed to strike Iran's vital energy sector

Instead of a blanket waiver, the president will now only be able to waive sanctions on companies for 12 months on a case-by-case basis and as long as he certifies to Congress that the country where the company is based is co-operating in multilateral efforts to isolate Iran.

"This waiver has the name-and-shame effect and a political cost for the White House," said Howard Berman, a Democrat who chairs the House Foreign Affairs committee, and one of the lawmakers leading the effort to pass the legislation.

Major banks in Japan and Germany, oil companies in India and companies elsewhere are scrutinising the law to determine the impact it will have on their business.

The EU has now also introduced similar tough unilateral measures.

Indian concern

A few days after the US sanctions became law, India's Foreign Secretary Nirupama Rao said his country was worried that "unilateral sanctions recently imposed by individual countries [could] have a direct and adverse impact on Indian companies and, more importantly, on our energy security."

It's this kind of reaction from allies and even rivals, like China, that has in the past stopped the US from enforcing the sanction regime too assiduously.

In fact, a New York Times analysis in March found that billions of US taxpayers' money had been spent in Iran, including $15bn (£9.5bn) paid to companies that defied American sanctions by making large investments that helped Iran develop its oil and gas reserves.

But Robert Einhorn, the state department co-ordinator for Iran sanctions, said the US would "aggressively prosecute" anyone in violation of US laws.

Enforcement of the law will require significant negotiations between the US and foreign governments, on a technical but also diplomatic level.

Foreign firms who are found in violation of the sanctions will be given some time to unwind their Iran business before the US takes punitive action and before any diplomatic row erupts.

Chinese 'responsibilities'

China's business ties with Iran are also a source of concern to the US because Beijing may try to fill the vacuum left behind by companies that pull out from Iran.

"If China wants to do business around the world it will also have to protect its own reputation, and if you acquire a reputation as a country that is willing to skirt and evade international responsibilities that will have a long-term impact," said Mr Crowley, the state department spokesperson.

"We understand [the Chinese] have their financial concerns but their international responsibilities are clear," he added.

In theory that is true, but in practice, as with all sanctions against any country, the loopholes are there, as are the companies that might be willing to pay the cost of losing access to the US financial system.

And while the use of the presidential waiver is now more limited, it's still an option.

If Russia offers to help in other ways to further the multinational effort to isolate Iran, Russian oil companies could still find a waiver or two coming their way.

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