New Sanctions Aimed at Nuke Program

The Bush Administration announced new targeted sanctions on elements of Iran's banking and military sectors, as well as some key individuals that the White House believes enable Iran's illicit nuclear programs. Secretary of State Condoleeza Rice and Treasury Secretary Henry Paulson announced the sanctions this morning. Rice explained,

"What this means is that no U.S. citizen or private organization will be allowed to engage in financial transactions with these persons and entities. In addition, any assets that these designees have under U.S. jurisdiction will be immediately frozen."

This Iranian military organizations designated for sanctions are the Iranian Revolutionary Guard Corps (IRGC) and its elite Quds Force. This marks the first time that the United States has specified units of a foreign military as targets of economic action.Secretary Paulson carried a warning for Western financial institutions in his remarks on the sanctions. He cautioned foreign banks and businesses to be sure who they are dealing with when they do business in Iran.

"[I]t is increasingly likely that if you do business in Iran, you are doing business with the IRGC. It is plain and simple: Reputable institutions do not want to be the bankers for this dangerous regime."

In addition to the sanctions, the State Department designated the IRGC and the Quds Force as proliferators of ballistic missile technology. This appears to be a middle-ground compromise with hawks who wanted the organizations designated as terrorist entities. The designation allows the United States to subject foreign firms to the sanctions if they continue to do business with the specified banks, individuals, and the IRGC. American companies and citizens are already barred from doing business with Iran.

This unilateral move by the United States will not go down well in Europe. Germany in particular, with its technological ties to Iran, is likely to be hurt the most by the sanctions. But the Administration had little choice. Iran continues to defy the collective will of the world in pursuing its nuclear program in secret and it must pay a price for that defiance. The danger is that Iran will react by attempting to take economic actions of its own.

Iran could close off the Straits of Hormuz, blocking access to oil terminals in the Persian Gulf as a means of countering U.S. economic pressure. If it did, already high oil prices could move dramatically higher, damaging the world economy and forcing the United States to act militarily to protect the world's access to oil. The last thing the Bush Administration wants is a confrontation with Iran on Iran's terms; and a conflict in the Straits is definitely in Iran's interest. The best case scenario for the Administration is that the sanctions pressure forces European negotiators to take a more serious line with Iran in upcoming talks. But as the world has seen, Iran is in no mood to compromise. This action by the Administration, while necessary, probably will not serve to change the dynamic in this standoff in the short term.