Commentary Magazine


Topic: sanctions

What Is the Cost of Inaction?

Western reaction to Russia’s invasion of Ukraine has been muted by concerns about the cost of any response. Germany has always been mercantile in its foreign policy—just remember its efforts to erode Iranian sanctions for the sake of short-term profit, even at the time National Intelligence Estimates agree that Iran was experimenting with nuclear bomb triggers. Germany, too, appears to have been the source of much of the chemical munitions Saddam Hussein used in the 1980s against the Kurds. It should not surprise, therefore, that German chancellor Angela Merkel is reluctant to impose biting sanctions on Russia in response to its aggression, for she rightly points out that Russian President Vladimir Putin would respond by cutting off gas shipments to Central and Eastern Europe.

Putin has leverage over the United States as well: Not only might he nationalize the operations of American companies doing business in Russia, but he also effectively holds U.S. military equipment hostage since much of it is being transshipped across Russia as the U.S. withdraws from Afghanistan.

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Western reaction to Russia’s invasion of Ukraine has been muted by concerns about the cost of any response. Germany has always been mercantile in its foreign policy—just remember its efforts to erode Iranian sanctions for the sake of short-term profit, even at the time National Intelligence Estimates agree that Iran was experimenting with nuclear bomb triggers. Germany, too, appears to have been the source of much of the chemical munitions Saddam Hussein used in the 1980s against the Kurds. It should not surprise, therefore, that German chancellor Angela Merkel is reluctant to impose biting sanctions on Russia in response to its aggression, for she rightly points out that Russian President Vladimir Putin would respond by cutting off gas shipments to Central and Eastern Europe.

Putin has leverage over the United States as well: Not only might he nationalize the operations of American companies doing business in Russia, but he also effectively holds U.S. military equipment hostage since much of it is being transshipped across Russia as the U.S. withdraws from Afghanistan.

While the costs of doing something are high, it’s imperative that policymakers also question the cost of doing nothing. For years, a major argument against significant sanctions on Iran was what the result might be at the gas pump. But the idea that the status quo was and is tenable is nonsense: Should Iran develop nuclear weapons, then it would be in a position through blackmail or otherwise to drive up the price of oil even further. After all, who would stop Iran utilizing conventional forces to disrupt oil flow if Tehran boasted its own nuclear deterrent?

The situation is now similar with regard to Russia. There is no doubt that any response will be expensive. But a more important question is what will the expense be a decade down the line should Putin push into the Baltics or should he conclude that Western officials are so craven and such paper tigers that he can conduct pipeline blackmail anyway? Sometimes inaction may seem like the best of all short-term options, but seldom does it pay off in the long term.

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Do Dictators Care About Economies?

One of the greatest analytical mistakes that diplomats and policymakers can commit is projection: Assuming that adversaries share the same values and concerns that we do. Alas, projection was on full display today in President Obama’s remarks on Ukraine. “The international community will continue to stand together to oppose any violations of Ukrainian sovereignty and territorial integrity, and continued Russian military intervention in Ukraine will only deepen Russia’s diplomatic isolation and exact a greater toll on the Russian economy,” Obama said.

Russia’s economy has been stagnating for years and, prior to the Crimea crisis, Russians mocked Putin as a later-day Leonid Brezhnev. Fixing the anemic economy might have been too great for someone like Putin, but who cares about the economy if he can rally the people by fanning the flames of Russian nationalism? As such, finger wagging that Putin’s actions might undercut the Russian economy are risible.

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One of the greatest analytical mistakes that diplomats and policymakers can commit is projection: Assuming that adversaries share the same values and concerns that we do. Alas, projection was on full display today in President Obama’s remarks on Ukraine. “The international community will continue to stand together to oppose any violations of Ukrainian sovereignty and territorial integrity, and continued Russian military intervention in Ukraine will only deepen Russia’s diplomatic isolation and exact a greater toll on the Russian economy,” Obama said.

Russia’s economy has been stagnating for years and, prior to the Crimea crisis, Russians mocked Putin as a later-day Leonid Brezhnev. Fixing the anemic economy might have been too great for someone like Putin, but who cares about the economy if he can rally the people by fanning the flames of Russian nationalism? As such, finger wagging that Putin’s actions might undercut the Russian economy are risible.

The problem is not just with Obama and Putin, however. For too many years, American policy toward the Middle East has been premised on the idea that Arab leaders cared about the best interest of their countries. But if Arab leaders incorporated a desire for economic growth and trade into their calculations, there would not have been an Arab boycott, nor would states like Egypt, Syria, Iran, and Libya have invested so much money into huge armies, proxy groups, or foreign adventures. Sometimes rather than encourage responsibility, funding development projects only frees up money for regional regimes to dabble in terrorism. Likewise, when the European Union more than doubled aid to Iran during the Khatami era in the hopes of tying the Islamic Republic into the world economy, the Iranian leadership instead decided to invest the hard currency windfall into Iran’s nuclear and ballistic missile programs.

Obama may believe himself a level-headed, practical man and not an ideologue. That’s all well and good. But to assume that Vladimir Putin cares about the economic welfare of his people is naïve. Indeed, it’s long past time to put an end to the notion that dictators and autocrats subordinate practicalities to ideology or give any consideration to their peoples’ well-being. Refusing to recognize reality simply undercuts policy insight and crafts solutions which have no bearing on reality.

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Was Russia’s WTO Membership a Mistake?

A couple of years ago I was having a discussion with a critic of Putin’s Russia–who was expelled for his trouble–who noted with alarm the Russian-owned gas companies dotting American highways. I said I saw that as a good sign: at the very least the economic integration meant Russia had more skin in the game, and would probably be less abusive to Western companies doing business in Russia.

In the broader sense, though, the benefits were potentially endless, in large part because the more that Russian citizens dealt directly with Americans the better for both countries. My interlocutor saw it differently, because America will play by the rules whether Russia does or not. I thought of his warning, and dismissed it, in the debate over Russia’s accession to the World Trade Organization. Russia’s membership in the WTO, I argued repeatedly, was overdue and would benefit American companies, and the increased trade would restrain Putin’s ability to manipulate American policy while boosting American leverage over Russia.

I was sure I was right. I’m not so sure now. But it’s not because Russia doesn’t “deserve” to be in the WTO or that the benefits were a mirage. And it’s not because of the push to “punish” Russia for its invasion of Ukraine–though sanctions are surely appropriate. It’s because the economic integration of Russia has done precisely the opposite of what it was expected to do in one crucial regard: the recent events in Ukraine and the West’s unsteady response indicate Russia’s increased leverage instead. Today’s New York Times story on the Obama administration’s internal debate over Ukraine demonstrates this perfectly.

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A couple of years ago I was having a discussion with a critic of Putin’s Russia–who was expelled for his trouble–who noted with alarm the Russian-owned gas companies dotting American highways. I said I saw that as a good sign: at the very least the economic integration meant Russia had more skin in the game, and would probably be less abusive to Western companies doing business in Russia.

In the broader sense, though, the benefits were potentially endless, in large part because the more that Russian citizens dealt directly with Americans the better for both countries. My interlocutor saw it differently, because America will play by the rules whether Russia does or not. I thought of his warning, and dismissed it, in the debate over Russia’s accession to the World Trade Organization. Russia’s membership in the WTO, I argued repeatedly, was overdue and would benefit American companies, and the increased trade would restrain Putin’s ability to manipulate American policy while boosting American leverage over Russia.

I was sure I was right. I’m not so sure now. But it’s not because Russia doesn’t “deserve” to be in the WTO or that the benefits were a mirage. And it’s not because of the push to “punish” Russia for its invasion of Ukraine–though sanctions are surely appropriate. It’s because the economic integration of Russia has done precisely the opposite of what it was expected to do in one crucial regard: the recent events in Ukraine and the West’s unsteady response indicate Russia’s increased leverage instead. Today’s New York Times story on the Obama administration’s internal debate over Ukraine demonstrates this perfectly.

It reveals that there are two sides in the administration: those who want to swiftly punish Russia and those who want to show extreme caution toward something that could reverberate throughout the economy. That’s why, the Times explains, “Obama has the power to go much further even without new legislation from Congress” but hasn’t done so. And the roster of administration advisors line up pretty much exactly where you’d expect them to on this, with those like Victoria Nuland supporting more aggressive sanctions and Treasury Secretary Jack Lew opposed. The Times continues:

But American businesses are warning against overreaction. Representatives of groups like the U.S. Chamber of Commerce, the National Association of Manufacturers and the United States-Russia Business Council have been holding meetings at the White House or in Congress to share their views.

They are urging policy makers to be sure that any sanctions would actually have an impact on Russian behavior, that the costs not outweigh the benefits and that they be multilateral. “We are working closely with policy makers on both sides of the aisle to safeguard manufacturing employees and manufacturers’ investments around the world,” said Jay Timmons, president of the manufacturers association.

Although the United States does only $40 billion in trade with Russia each year, American businesses argue that the amount understates the real economic ties. Ford, for instance, has two assembly plants in Russia that make cars with material that comes from Europe, so that would not be reflected in import-export figures.

Boeing has sold or leased hundreds of planes in Russia and projects that the republics of the former Soviet Union will need an additional 1,170 planes worth nearly $140 billion over the next 20 years. Moreover, the company has a design center in Moscow, has just announced new manufacturing and training facilities in Russia and depends on Russia for 35 percent of its titanium.

“There’s no doubt that key economic groups, especially energy, don’t want us to act,” said James B. Steinberg, a former deputy secretary of state under Mr. Obama and now dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University.

I’m not suggesting that U.S.-Russia trade suddenly materialized out of nowhere when Russia joined the WTO–of course that’s not the case. But it does raise questions about authoritarian actors joining international institutions that don’t require more sturdy political liberalization (like NATO). I’ve written in the past about “reverse integration,” James Mann’s theory of how China could take advantage of economic integration not to play by international rules but to weaken the threshold for rogue regimes to be granted increased international legitimacy and thus dilute, not enhance, global democracy.

That is not quite the concern here with Putin (or at least not the main concern). Russia’s membership in the WTO doesn’t seem to be de-democratizing economic institutions here or abroad. Rather, Putin has taken advantage of economic integration with the U.S. to dull any American response to his adventuresome foreign policy. Because that response already had virtually no military component, weakening or greatly delaying any financial sanctions would tie both the West’s hands behind its back while he did what he wanted.

There has been some talk of how a more proactive energy policy, in terms of American production and export, could have already put a more effective sanctions infrastructure in place. But it’s also worth pondering if, with the best of intentions, we’ve not only depleted our own sanctions arsenal but bolstered Putin’s.

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The West Has Leverage Over Russia

It’s quite likely, as so many commentators from Bob Gates on down have noted, that there is little likelihood of forcing Russia to disgorge Crimea. But much remains in play in Ukraine: namely will Russia try to annex the eastern portion of the country too and will Russia succeed in putting Viktor Yanukovych back into power? Beyond Ukraine there is also much at stake, as I have previously noted: The world is watching what happens in Ukraine and the less of a price that Russia has to pay for its conquest, the greater the likelihood that other predatory states will be tempted to stage similar power grabs.

The Russians who are most vulnerable to Western retaliation–the infamous oligarchs–are certainly worried about what will happen. As New York Times correspondent Ellen Barry notes from Moscow, “the prospect of losing access to Western finance is a frightening thought for Russian business leaders.”  

And what would truly frighten them would be “any sanctions’ affecting banks. Large Russian corporations have significantly increased foreign borrowing in recent years, and 10 were negotiating loans when the crisis boiled over, said Ben Aris, the editor and publisher of Business New Europe. Financial sanctions could set off a chain reaction of blocked transactions, frozen accounts and bank closings. “

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It’s quite likely, as so many commentators from Bob Gates on down have noted, that there is little likelihood of forcing Russia to disgorge Crimea. But much remains in play in Ukraine: namely will Russia try to annex the eastern portion of the country too and will Russia succeed in putting Viktor Yanukovych back into power? Beyond Ukraine there is also much at stake, as I have previously noted: The world is watching what happens in Ukraine and the less of a price that Russia has to pay for its conquest, the greater the likelihood that other predatory states will be tempted to stage similar power grabs.

The Russians who are most vulnerable to Western retaliation–the infamous oligarchs–are certainly worried about what will happen. As New York Times correspondent Ellen Barry notes from Moscow, “the prospect of losing access to Western finance is a frightening thought for Russian business leaders.”  

And what would truly frighten them would be “any sanctions’ affecting banks. Large Russian corporations have significantly increased foreign borrowing in recent years, and 10 were negotiating loans when the crisis boiled over, said Ben Aris, the editor and publisher of Business New Europe. Financial sanctions could set off a chain reaction of blocked transactions, frozen accounts and bank closings. “

The West has leverage should it choose to use it. So far President Obama has not been aggressive in implementing sanctions, hoping no doubt that Putin can be encouraged to pull out of Crimea on his own. Fat chance. Barring any miraculous chain of heart on the part of the former KGB agent in the Kremlin, it’s time to get tough with precisely the kind of financial sanctions that the Russian elite fears. We need to make clear that Russia will pay a price for transgressing the most basic norms of international conduct.

Putin could, of course, try to retaliate by blocking natural gas shipments to Ukraine and to customers in the rest of Europe, such as Germany. But that would be a costly course for Moscow to adopt: Lost gas shipments means lost revenue and the Russian state is totally dependent on oil and gas revenues. Putin has some leverage; it is true, but the West holds a stronger hand–should it choose to play it.

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Iranian Economy Bouncing Back

When he met with French President Francois Hollande, President Obama threatened to come down “like a ton of bricks” on companies that violate sanctions against Iran. Just how hollow those words are is clear from this IMF report today on the bounceback the Iranian economy has experienced since Obama reached an “interim” deal with the mullahs to lift some sanctions in return for a slowdown in the Iranian nuclear program.

The Wall Street Journal reports that “the fund said it expects the economy to grow by 1% to 2% this year after contracting by a similar amounts over the past two years.”

Not only is growth up, but inflation is down:

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When he met with French President Francois Hollande, President Obama threatened to come down “like a ton of bricks” on companies that violate sanctions against Iran. Just how hollow those words are is clear from this IMF report today on the bounceback the Iranian economy has experienced since Obama reached an “interim” deal with the mullahs to lift some sanctions in return for a slowdown in the Iranian nuclear program.

The Wall Street Journal reports that “the fund said it expects the economy to grow by 1% to 2% this year after contracting by a similar amounts over the past two years.”

Not only is growth up, but inflation is down:

By the end of 2012, the value of the rial plunged, stoked hyperinflation that topped 45% last July. The contracting economy ratcheted up pressure on Tehran, playing a role in Hasan Rouhani’s election as president last year.

But after the interim deal in November, the fund said inflation pressures eased as the rial stabilized. The fund said the inflation rate could fall to 20% by March.

And that’s only the beginning. The interim deal is still brand new. The longer it lasts, the more foreign companies will rush into Iran (such as the delegation of French business leaders who already arrived), the more relief the Iranian economy will experience–and the less pressure the mullahs will feel to actually give up their nuclear program.

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Obama’s Precarious Iran Policy

As American peace efforts toward Iran have meandered along, Western diplomats have been eagerly pointing to the moderate and supposedly promising statements coming from Iranian president Rouhani and Foreign Minister Mohammed Zarif. Amidst the Geneva negotiations between the Iranians and the P5+1 nations, not only has the Obama administration been backing away from using force to halt Iran’s nuclear program, but the president has spoken firmly about his will to stop Congress from implementing further sanctions against Iran. Yet, just as Obama’s clamor for peace with Iran is becoming most frantic, Iran is once again giving every indication that it is clamoring for war.

Writing at Mosaic, Michael Doran, a former security advisor in the Bush administration, makes the case that President Obama is essentially so allergic to the prospect of intervention in the Middle East that it may well have always been his strategy to acquiesce in the face of the Iranian bomb. Doran’s case is as disturbing as it is compelling, for as he points out, if containment rather than prevention had been Obama’s strategy from the outset then he hardly could have expressed this openly. Rather, he would have been at least compelled to publicly adopt the appearance of staunch opposition to a nuclear Iran. Yet, consistently, both in the case of Iran and Syria, Obama has expressed tough words, backed up by the kind of inaction that gives every reason to doubt the sincerity with which those words were offered.

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As American peace efforts toward Iran have meandered along, Western diplomats have been eagerly pointing to the moderate and supposedly promising statements coming from Iranian president Rouhani and Foreign Minister Mohammed Zarif. Amidst the Geneva negotiations between the Iranians and the P5+1 nations, not only has the Obama administration been backing away from using force to halt Iran’s nuclear program, but the president has spoken firmly about his will to stop Congress from implementing further sanctions against Iran. Yet, just as Obama’s clamor for peace with Iran is becoming most frantic, Iran is once again giving every indication that it is clamoring for war.

Writing at Mosaic, Michael Doran, a former security advisor in the Bush administration, makes the case that President Obama is essentially so allergic to the prospect of intervention in the Middle East that it may well have always been his strategy to acquiesce in the face of the Iranian bomb. Doran’s case is as disturbing as it is compelling, for as he points out, if containment rather than prevention had been Obama’s strategy from the outset then he hardly could have expressed this openly. Rather, he would have been at least compelled to publicly adopt the appearance of staunch opposition to a nuclear Iran. Yet, consistently, both in the case of Iran and Syria, Obama has expressed tough words, backed up by the kind of inaction that gives every reason to doubt the sincerity with which those words were offered.

One might have thought that the Iranians would have seized the opportunity that Obama was presenting them with–to pay lip service to reciprocating his own platitudes for peace, and in return they could rest assured that America would never get serious about intervention. Iran’s previous president, Ahmadinejad, never quite caught on and a series of crippling sanctions were the result of his fierce rhetoric and his refusal to even feign cooperation. It seemed that Rouhani was different in this respect and that he had learned that mild words could easily purchase sanctions relief and enthusiastic engagement from Western governments eager to renew trade relations.

It is, then, a sign of just how unpredictable Iran can be that over the last few days Iran has abruptly resumed the rhetoric of war. On Friday, as has now been widely publicized, Iranian state television ran a documentary featuring simulated footage of an Iranian bombardment of Israel’s cities as well as an air strike on a U.S. naval carrier. This appears to have been coordinated with a series of aggressive statements made by the regime over the weekend. These included an Iranian admiral announcing that Iran has dispatched warships to the north Atlantic, while both Iran’s defense minister and the Iranian Revolutionary Guards’ naval commander spoke of Iran’s ability to strike American forces. And perhaps most significantly of all, the nation’s Supreme Leader Ayatollah Khamenei accused the Americans of being liars in their peace efforts with Iran. Khamenei also spoke mockingly of how he found it “amusing” that the U.S. thought Iran would reduce its military capabilities.

As Doran points out, the so called interim agreement between Iran and the West is designed in such a way so that negotiations can in fact run on indefinitely without reaching the end goal of forcing Iran to relinquish its nuclear capabilities. It is in Iran’s interest to try and keep this interim period open for as long as possible. The next round of talks are due to commence on February 18 and to run for five months. Iran may have decided that with part of the sanctions already lifted, it would be advantageous to delay the start of these negotiations by causing a minor diplomatic crisis. By pursuing a stop-start strategy on these talks, Iran can drag out the period in which it is still permitted to enrich, while sanctions have been scaled down and the threat of further sanctions are being held off, giving it time to cross the threshold of full weapons capabilities.

As the recent statements from the Iranian leaders demonstrate, the Obama administration can talk peace all it likes; the Iranians, however, may still have no interest in reciprocation. What they know full well is that by even threatening war, with a White House that is clearly intimidated by the prospect of military intervention, Tehran can keep America running scared. 

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Politics and the Anti-Sanctions Coalition

With news that support for Iran sanctions may now be showing signs of crumbling among Democrats in the Senate, it’s worth recalling that there have been a host of Jewish and self-titled liberal Zionist groups working tirelessly to make this happen. When UCLA Professor Mark Kleiman recently urged those who “have Jewish sounding names” to lobby their senators against further Iran sanctions, it was because he knew that these calls would seem to carry extra weight and legitimacy if they appeared to be coming from those who are assumed to be pro-Israel.

Several Washington-based lobby groups, claiming to be pro-Israel, have been lending their image of legitimacy to an organized coalition that is working to lobby against Iran sanctions. In joining this group, which also receives its briefings from White House officials, J Street and Americans for Peace Now are putting themselves into coalition with a number of other organizations and individuals who are at best completely indifferent to Israel’s welfare, such as, for instance, the National Iranian American Council.

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With news that support for Iran sanctions may now be showing signs of crumbling among Democrats in the Senate, it’s worth recalling that there have been a host of Jewish and self-titled liberal Zionist groups working tirelessly to make this happen. When UCLA Professor Mark Kleiman recently urged those who “have Jewish sounding names” to lobby their senators against further Iran sanctions, it was because he knew that these calls would seem to carry extra weight and legitimacy if they appeared to be coming from those who are assumed to be pro-Israel.

Several Washington-based lobby groups, claiming to be pro-Israel, have been lending their image of legitimacy to an organized coalition that is working to lobby against Iran sanctions. In joining this group, which also receives its briefings from White House officials, J Street and Americans for Peace Now are putting themselves into coalition with a number of other organizations and individuals who are at best completely indifferent to Israel’s welfare, such as, for instance, the National Iranian American Council.

That said, it is doubtful that these left-wing Jewish groups are being motivated by any explicitly pro-Iranian sentiment. Rather it seems that, in J Street’s case in particular, this action is an expression of shameless partisan loyalty to what is after all a Democrat administration and to the policies generated from the left of the Democratic Party. As recently as July of last year, J Street had been vocally supporting sanctions when the Obama administration was pushing this as an alternative to military action; now that the administration is also setting about dismantling the sanctions J Street has also fallen in line and is advocating precisely the same policy. American’s for Peace Now, hardly to their credit, have been a little more consistent in opposing sanctions against Iran. They even opposed sanctions when the administration thought them a preferable way to encourage Tehran to participate in negotiations over the Iranian nuclear program. 

The coalition was brought together by the Ploughshares Fund, which advocates for a nuclear free world (the irony). Those attempting to justify logically and morally untenable positions often feign sophistication by appealing to the counterintuitive, yet the fact that this effort against sanctions–sanctions that are specifically designed to prevent a nuclear Iran–is being led by people claiming to be against nuclear weapons is simply beyond paradoxical. It was noteworthy at the time that many of those who campaigned against the war in Iraq, claiming they favored non-violent solutions, had previously protested sanctions against Iraq also. Now, with Iran, those who were against the military option are also lining up to try and prevent the sanctions option. Indeed, in an almost Orwellian inversion, some in this coalition have accused the supporters of sanctions of “warmongering.” The question arises, what kind of pressure for preventing the proliferation of the very nuclear weapons that these people claim to oppose would they consider acceptable?

In the case of both of the supposedly pro-Israel groups in question, their participation in this coalition would seem to suggest that whatever it is that they are committed to, it is hardly Israel’s welfare first and foremost. J Street already made clear that it took its marching orders from the Obama administration when it lobbied hard for Chuck Hagel’s nomination to be secretary of defense. Hagel had made a series of infamously anti-Israel and even anti-Jewish comments and had been concerningly ambiguous in his stance on Iran. J Street not only failed to oppose his nomination, they supported it.

American’s for Peace Now may be less slavish to the dictates of the Obama administration, but their consistent opposition to even peaceful measures for preventing Iran from getting the bomb would seem to betray a general hostility to Western interests as well as to the security and survival of Israel in particular. 

When American Jews and friends of Israel look to AIPAC, or the ZOA, or the Emergency Committee for Israel, they may not agree with all of their tactics or even their policies. Yet, they can be sure that these groups are unequivocally pro-Israel. Of J Street and American’s for Peace Now they know no such thing.  

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Khamenei Stays A Step Ahead of the West

Critics of the administration’s nuclear deal with Iran, and proponents of sanctions more generally, have been making a simple argument: any substantial sanctions relief will be difficult to undo if Iran doesn’t comply with the terms of the deal. That means Iran gets a cash infusion with no risk, and a foot in the door of sanctions relief could be enough to throw it wide open, considering the overall lack of appetite in the West for the sanctions regime.

Critics cannot prove what the administration will do after this deal runs its initial course. But they can demonstrate that the other part–the financial windfall Iran’s leaders stand to gain right away–is already taking place. That’s the upshot of yesterday’s Reuters piece on Ayatollah Ali Khamenei’s financial empire and how the nuclear deal is already paying off for him. But first, it’s necessary to refer to the background of this story, which was exposed by Reuters in November.

Khamenei, Reuters revealed, controls an “economic empire” under the organization Setad. Reuters estimated the holdings of the company to be worth nearly $100 billion, but the combination of how Setad makes its money and what that organization enables Khamenei to accomplish are the more important details:

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Critics of the administration’s nuclear deal with Iran, and proponents of sanctions more generally, have been making a simple argument: any substantial sanctions relief will be difficult to undo if Iran doesn’t comply with the terms of the deal. That means Iran gets a cash infusion with no risk, and a foot in the door of sanctions relief could be enough to throw it wide open, considering the overall lack of appetite in the West for the sanctions regime.

Critics cannot prove what the administration will do after this deal runs its initial course. But they can demonstrate that the other part–the financial windfall Iran’s leaders stand to gain right away–is already taking place. That’s the upshot of yesterday’s Reuters piece on Ayatollah Ali Khamenei’s financial empire and how the nuclear deal is already paying off for him. But first, it’s necessary to refer to the background of this story, which was exposed by Reuters in November.

Khamenei, Reuters revealed, controls an “economic empire” under the organization Setad. Reuters estimated the holdings of the company to be worth nearly $100 billion, but the combination of how Setad makes its money and what that organization enables Khamenei to accomplish are the more important details:

But Setad has empowered him. Through Setad, Khamenei has at his disposal financial resources whose value rivals the holdings of the shah, the Western-backed monarch who was overthrown in 1979.

How Setad came into those assets also mirrors how the deposed monarchy obtained much of its fortune – by confiscating real estate. A six-month Reuters investigation has found that Setad built its empire on the systematic seizure of thousands of properties belonging to ordinary Iranians: members of religious minorities like Vahdat-e-Hagh, who is Baha’i, as well as Shi’ite Muslims, business people and Iranians living abroad.

Setad has amassed a giant portfolio of real estate by claiming in Iranian courts, sometimes falsely, that the properties are abandoned. The organization now holds a court-ordered monopoly on taking property in the name of the supreme leader, and regularly sells the seized properties at auction or seeks to extract payments from the original owners.

The supreme leader also oversaw the creation of a body of legal rulings and executive orders that enabled and safeguarded Setad’s asset acquisitions. “No supervisory organization can question its property,” said Naghi Mahmoudi, an Iranian lawyer who left Iran in 2010 and now lives in Germany.

Land, resources, legal power, money–Setad gave Khamenei unparalleled access to it in Iran. Setad invests, as would be expected, in Iran’s energy industry. The Treasury Department wasn’t fooled, and specifically targeted Setad and dozens of companies it is believed to oversee as part of an attempt to close off financial escape hatches that enabled the Iranian leadership to get around sanctions.

Now, as Reuters reports, some of those escape hatches have been reopened:

Khamenei controls a massive business empire known as Setad that has invested in Iran’s petrochemical industry, which is now permitted to resume exports. Under a six-month deal between Iran and world powers, Tehran has promised to scale back its nuclear development program in exchange for the suspension of certain economic sanctions, including curbs on the export of petrochemicals.

On Monday, the day the suspension of the restrictions took effect, the U.S. Treasury Department published a list of 14 Iranian petrochemical companies that previously had been sanctioned but are now permitted to do business abroad. The list includes three firms that the department said last year are controlled by Setad – Ghaed Bassir Petrochemical Products Co, Marjan Petrochemical Co and Sadaf Petrochemical Assaluyeh Co.

The Treasury Department responded to this latest report by saying Iran’s leaders won’t gain much from petrochemical exports during the next six months, probably not more than $1 billion. But that’s not nothing, and it also misses the point of the story: the Iranian leadership appears to be a step ahead of its Western counterparts on this score. And who knows what they’ll be able to work out given six months’ time.

And it’s what makes press briefings like today’s from Jay Carney so troubling. As the Washington Examiner reports, Carney was asked about the latest comments from the Iranian foreign minister that they “did not agree to dismantle anything.” Carney called it “spin.” Perhaps, but that means, according to Carney, the Iranians are lying about their obligations. So what makes this administration think Iran’s government can be trusted to fulfill obligations it says don’t exist? Meanwhile, as the two sides argue in public over what they actually agreed to, the sanctions relief remains in place.

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Leverage Always Matters on Iran

Gary Sick, a Carter administration National Security Council aide, took to the pages of USA Today this past week to argue that the congressional bill to increase sanctions should Iran not negotiate in good faith or reach a deal is counterproductive. Sick wrote:

This misguided bill threatens to derail the negotiations and sabotage progress. Our negotiators do not want or need this extra sanctions threat. They already have a strong hand, and new sanctions will almost certainly be seen by Iran as evidence of bad faith.

Sick is wrong. Leverage matters. It always has. And no one should know that more than one Gary Sick. Sick bases his authority on his service during the Iran hostage crisis. Indeed, he begins his essay, “Thirty-five years ago, when the Iranian revolution overthrew the shah and our diplomats were taken hostage, I was in the White House. Many of those taken prisoner remain personal friends of mine.”

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Gary Sick, a Carter administration National Security Council aide, took to the pages of USA Today this past week to argue that the congressional bill to increase sanctions should Iran not negotiate in good faith or reach a deal is counterproductive. Sick wrote:

This misguided bill threatens to derail the negotiations and sabotage progress. Our negotiators do not want or need this extra sanctions threat. They already have a strong hand, and new sanctions will almost certainly be seen by Iran as evidence of bad faith.

Sick is wrong. Leverage matters. It always has. And no one should know that more than one Gary Sick. Sick bases his authority on his service during the Iran hostage crisis. Indeed, he begins his essay, “Thirty-five years ago, when the Iranian revolution overthrew the shah and our diplomats were taken hostage, I was in the White House. Many of those taken prisoner remain personal friends of mine.”

The hostage crisis, of course, figures heavily in my new book, Dancing with the Devil, a history of U.S. diplomacy with rogue regimes. The hostages were seized on November 4, 1979, after Zbigniew Brzezinski, Carter’s national security advisor, publicly shook hands with Iranian Prime Minister Mehdi Bazargan, enraging Iranian hardliners surrounding revolutionary leader Ayatollah Ruhollah Khomeini. I detail the episode here.

What is less known but has become apparent based on the Persian (Farsi)-language writings of the hostage takers is that the Iranian students who took the embassy did not initially plan to stage more than a symbolic sit-in lasting perhaps 48 hours. But, on November 6, 1979, a press report appeared citing an anonymous official who leaked word from the emergency meeting that occurred at the White House that there would be “no change in the status quo—no military alert, no movement of forces, no resort to military contingency plans.” The leaker, according to other members of Carter’s Iran team, was likely Gary Sick, who often talked to the press. Perhaps Sick, or the White House if the leak was authorized, believed that taking the threat of something worse to come off the table would enable diplomacy. But by removing the threat of force, it forfeited its leverage. The hostage takers learned that they had nothing to fear, and so a short hiccup transformed into a 444-day crisis that defined the Carter presidency. In effect, Sick counsels Obama and the Congress to make the same mistake twice.

The State Department seldom conducts lessons-learned exercises, but if it did, it would find that leverage always matters. Reducing leverage does not win agreements; it hampers them. While Sick reads good faith into Iranian actions, past and present, Rouhani’s own words belie that notion. Diplomacy should be a strategy of first resort, but diplomacy involves more than talking: it is the culmination of an elaborate game of three-dimensional chess as both sides maneuver for position and build up the leverage to achieve the best results for their country. Alas, that seems to be a notion Iranian leaders understand well, but it represents a blind spot for Sick and his fellow travelers, one that has cost the United States dearly over the years.

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What the U.S.-Israel Dispute Is Really About

Usually when the source of U.S.-Israel tensions is revealed to be a simple misunderstanding, the two sides can again breathe easy. But this week’s argument over Iran sanctions relief may have the opposite effect. Commentators on both sides appear to be missing the real significance of the tiff over the dollar value of the sanctions relief sought by President Obama. In yesterday’s edition of the New York Times, a story on sanctions relief contained this:

For his part, Mr. Kerry has questioned publicly whether Mr. Netanyahu is aware of all the details in the agreement. And in some cases, Israeli officials appear to have distorted what Iran would get in return.

At a briefing with international journalists on Wednesday, Yuval Steinitz, Israel’s minister of strategic affairs, said the deal would directly erase $15 billion to $20 billion of what he estimated was the $100 billion the current sanctions are costing Iran annually, and lead to relief of up to $40 billion because of indirect effects. The State Department immediately debunked those numbers, noting the sanctions relief would be for only six months, not a year. And the Americans put the figure at under $10 billion. But Israeli leaders have continued to cite the higher estimates.

The media watchdog CAMERA called attention to the editorialized nature of the reporting–accusations that Israelis “appear to have distorted” the deal instead of simply disagreeing with the estimates. They also note that the reporters say the State Department “debunked” Israel’s numbers, which is manifestly untrue. The State Department denied the Israelis were correct, but Steinitz simply appears to be correctly calculating the sanctions relief were it to be extended to a year, instead of the six months the Obama administration claims. And that’s why this disagreement is more than just a math problem.

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Usually when the source of U.S.-Israel tensions is revealed to be a simple misunderstanding, the two sides can again breathe easy. But this week’s argument over Iran sanctions relief may have the opposite effect. Commentators on both sides appear to be missing the real significance of the tiff over the dollar value of the sanctions relief sought by President Obama. In yesterday’s edition of the New York Times, a story on sanctions relief contained this:

For his part, Mr. Kerry has questioned publicly whether Mr. Netanyahu is aware of all the details in the agreement. And in some cases, Israeli officials appear to have distorted what Iran would get in return.

At a briefing with international journalists on Wednesday, Yuval Steinitz, Israel’s minister of strategic affairs, said the deal would directly erase $15 billion to $20 billion of what he estimated was the $100 billion the current sanctions are costing Iran annually, and lead to relief of up to $40 billion because of indirect effects. The State Department immediately debunked those numbers, noting the sanctions relief would be for only six months, not a year. And the Americans put the figure at under $10 billion. But Israeli leaders have continued to cite the higher estimates.

The media watchdog CAMERA called attention to the editorialized nature of the reporting–accusations that Israelis “appear to have distorted” the deal instead of simply disagreeing with the estimates. They also note that the reporters say the State Department “debunked” Israel’s numbers, which is manifestly untrue. The State Department denied the Israelis were correct, but Steinitz simply appears to be correctly calculating the sanctions relief were it to be extended to a year, instead of the six months the Obama administration claims. And that’s why this disagreement is more than just a math problem.

As the Times notes, American officials are alarmed by the fact that Israeli Prime Minister Benjamin Netanyahu “has often raised the specter of an Israeli strike on Iran’s nuclear facilities even if a deal is signed,” yet they fail to make the connection. American officials are pushing back because they think Israel is moving up the date at which a military strike on Iran’s nuclear facilities would be prudent. The Israelis are wary of this deal because they think it does the exact same thing. That is, the Israelis aren’t seeking to move up the timing of a strike; they worry that the Americans are in the process of doing that.

The Times mentions the divergence of opinion between the U.S. and Israel on what would constitute Iran crossing a red line. (Though, it must be said, Obama has squandered any credibility on “red lines” anyway.) Neither side appears to believe Iran is at that point right now, so the American side is wondering what’s wrong with this proposed nuclear deal. Later in the article, we get something of an answer:

The reason appears to be that Iran would agree to convert some of its medium-enriched uranium — fuel enriched to 20 percent purity, or near bomb grade — into an oxide form that is on the way to becoming reactor fuel. But that process can be easily reversed, notes Olli Heinonen, the former chief inspector of the International Atomic Energy Agency. Mr. Netanyahu’s camp and some Israeli analysts say the Israeli leader’s unstinting opposition is both substantive and political. He truly believes that a deal lifting sanctions without fully halting enrichment and dismantling centrifuges is a terrible mistake. But he has also staked his premiership on fighting the Iranian nuclear threat, and the change in approach by his closest allies leaves him a bit rudderless.

If the process can be “easily reversed,” then the deal would enable Iran to play for time while enjoying the billions of dollars in sanctions relief they would get for something they want anyway: diplomatic delay. So the deal would need real teeth, which it doesn’t appear to have. What’s more, Steinitz’s estimates show the credibility gap the Obama administration is dealing with after its Syria fiasco.

As Jonathan wrote two weeks ago, Iran sanctions don’t have a simple power switch. It takes time to get sanctions in place, often over the opposition of our European allies and usually over the objections of President Obama himself. Obama, in fact, has been a consistent obstacle to sanctions during his presidency. It is reasonable to doubt not only that Obama could crank the sanctions back to where they need to be after a six-month interlude, but that he would even want to. Ramping sanctions back up would also mean the deal failed; it’s reasonable to doubt, as well, that Obama would ever admit it.

So Steinitz’s gripe is not with the dollar figures, but the overall process. It’s an indication that the Israelis don’t believe the Obama administration would hold Iran to account if they didn’t abide by the terms of the deal. That, in turn, would make this the beginning of the end of the non-military effort to stop Iran from getting the bomb. Whether Steinitz is right about that remains to be seen, but those who focus on whether he’s right about the exact dollar figure are missing the point.

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Iran Wants Sanctions Relief, Not Compromise

When the State Department agreed to let the Taliban open an office in Doha, Qatar in order to facilitate negotiations, senior American diplomats were unaware that they had already lost. After all, while the State Department—and some in the Pentagon—believed that they could facilitate talks with the Taliban if they allowed the Taliban an office overseas, what the Taliban leadership wanted all along was an office from which they could better connect to the international financial system, both to collect donations and launder cash. Once they got what they wanted, they had no reason to negotiate in good faith, and American diplomats were left twiddling their thumbs.

To the State Department’s credit, they are consistent. When it comes to the most recent Iranian diplomatic offensive, Secretary of State John Kerry appears ready to offer everything the Islamic Republic wants before the second round of negotiations, which are meant to address the concerns of the international community with regard to Iran’s nuclear program and its violation of its nuclear Non-Proliferation Treaty safeguards’ agreement.

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When the State Department agreed to let the Taliban open an office in Doha, Qatar in order to facilitate negotiations, senior American diplomats were unaware that they had already lost. After all, while the State Department—and some in the Pentagon—believed that they could facilitate talks with the Taliban if they allowed the Taliban an office overseas, what the Taliban leadership wanted all along was an office from which they could better connect to the international financial system, both to collect donations and launder cash. Once they got what they wanted, they had no reason to negotiate in good faith, and American diplomats were left twiddling their thumbs.

To the State Department’s credit, they are consistent. When it comes to the most recent Iranian diplomatic offensive, Secretary of State John Kerry appears ready to offer everything the Islamic Republic wants before the second round of negotiations, which are meant to address the concerns of the international community with regard to Iran’s nuclear program and its violation of its nuclear Non-Proliferation Treaty safeguards’ agreement.

The American Enterprise Institute’s Amir Touraj and Will Fulton translated several excerpts from this weekend’s Friday prayers in Iran. Within the Islamic Republic, the Friday prayer sermon basically serves as a weekly State-of-the-union address, and as such reflects the will of the supreme leader. Here’s what the Friday prayer leaders had to say:

  • Qom Friday Prayer Leader Ayatollah Hashem Hosseini Bushehri: “We seek the removal of all of the enemy’s oppressive sanctions. However, a problem would not be created if the enemies did not reach an agreement, because our nation relies on God.”  
  • Mashhad Friday Prayer Leader Ayatollah Ahmad Alamolhoda: “Per the commands of the Supreme Leader, the country’s officials must utilize all diplomatic capacities to reduce sanctions. Iranian policy makers have fortunately been successful in this field. The US Secretary of State claims that Iran was not willing to sign an agreement in the Geneva negotiations, but this means that Iran will not sell its dignity to the foreigner. Our duty is not to sell our right to America’s greed or surrender against them. Just as we took this revolution to victory by adhering to the conduct of [third Shi’a] Imam Hossein, persevered against the enemy’s advanced equipment during the Eight Years of Sacred Defense [Iran-Iraq War], and took them to the ground, we must now annihilate them today.”

There really is very little fear of what might occur should negotiations collapse, for no one takes seriously President Obama or Secretary of State John Kerry’s notion that war is the alternative to successful diplomacy. Hence, Iranian Defense Minister Hossein Dehghan said, “American and Zionist regime military threats against Iran these days are a joke…. Do not take these threats too seriously.” 

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The Right Response to an Iranian Nuclear Freeze

It is widely rumored that French objections prevented agreement on what would have been a bad deal with Iran at the Geneva talks this weekend. If so, I join my colleagues who have already written on the subject in a heart-felt Vive la France!

But the negotiations, while interrupted, have not ended. They are due to resume November 20. The question is what offer the P5+1 (i.e., the U.S., Russia, China, Britain, France, and Germany) will put on the table next time.

This time around, the U.S. was apparently dangling the carrot of giving the mullahs access to tens of billions of dollars in Iranian funds frozen in Western banks and lifting some existing sanctions. Iran, its economy rapidly deteriorating, desperately needs access to those reserves. In return, however, Iran was apparently not willing to give up its supposed “right” to enrich uranium–i.e., its ability to maintain breakout capacity to make a nuclear weapon on short notice. Nor, if the leaks are to be believed, was Iran willing to stop construction on a new plutonium heavy-water reactor at Arak, which gives it another path to the bomb.

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It is widely rumored that French objections prevented agreement on what would have been a bad deal with Iran at the Geneva talks this weekend. If so, I join my colleagues who have already written on the subject in a heart-felt Vive la France!

But the negotiations, while interrupted, have not ended. They are due to resume November 20. The question is what offer the P5+1 (i.e., the U.S., Russia, China, Britain, France, and Germany) will put on the table next time.

This time around, the U.S. was apparently dangling the carrot of giving the mullahs access to tens of billions of dollars in Iranian funds frozen in Western banks and lifting some existing sanctions. Iran, its economy rapidly deteriorating, desperately needs access to those reserves. In return, however, Iran was apparently not willing to give up its supposed “right” to enrich uranium–i.e., its ability to maintain breakout capacity to make a nuclear weapon on short notice. Nor, if the leaks are to be believed, was Iran willing to stop construction on a new plutonium heavy-water reactor at Arak, which gives it another path to the bomb.

The fact that Iran was not willing to take what the French foreign minister called a “sucker’s deal” shows just how committed it is to the nuclear program and how hard it will be to achieve meaningful results in these talks.

The debate now in Washington is what to do about further sanctions. Many voices in and out of Congress argue for enacting even tougher sanctions on Iranian finances that would effectively collapse the value of Iran’s currency. That certainly makes more sense than prematurely lifting existing sanctions. But Washington doesn’t have to do either.

If Iran is serious about a nuclear freeze, then the appropriate response is not a dismantlement of sanctions–that should only occur if Iran renounces its “right” of enrichment and begins to dismantle its nuclear program. The appropriate response to Iran verifiably stopping work on building a nuclear weapon should be the U.S. and its allies stopping to work on enacting further sanctions.

The threat of more sanctions being enacted by Congress should serve as an effective cudgel to win minimal concessions from the Iranians, assuming they are serious about getting a deal. And delaying the enactment of these additional sanctions costs little–whereas giving Iran access to frozen assets and partially lifting existing sanctions is a gift of inestimable valuable to the Islamic Republic. Such a concession, which would be hard to reverse, should be traded only for something more substantial than a temporary pause in the Iranian nuclear program.

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Reconciling the Past in the Iran Deal

There are many glaring omissions in the Iran deal currently being discussed. It is hard not to conclude that President Obama, Vice President Biden, and Secretary of State John Kerry have simply thrown in the towel. One of the missing elements, however, involves not the present but the past. The sanctions on Iran did not appear overnight. They resulted from a multi-year process in which Iranian authorities were caught violating their Nuclear Non-Proliferation Treaty safeguards agreement. After years of stonewalling with the International Atomic Energy Agency (IAEA) as the Iranians refused to come clean on elements that inspections exposed or on issues about which the regime lied, the IAEA referred the Iranian case to the United Nations Security Council.

This initiated a new multi-year process that ultimately resulted in several unanimous or near-unanimous Security Council resolutions calling on Iran to cease enriching uranium. Never mind that Obama has shown himself to be the ultimate unilateralist, shredding 15 years of prior multilateral diplomatic agreements. Obama is so disinterested in national security and the issues which worry people with regard to Iran that he appears not to demand that Iran come clean about the past.

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There are many glaring omissions in the Iran deal currently being discussed. It is hard not to conclude that President Obama, Vice President Biden, and Secretary of State John Kerry have simply thrown in the towel. One of the missing elements, however, involves not the present but the past. The sanctions on Iran did not appear overnight. They resulted from a multi-year process in which Iranian authorities were caught violating their Nuclear Non-Proliferation Treaty safeguards agreement. After years of stonewalling with the International Atomic Energy Agency (IAEA) as the Iranians refused to come clean on elements that inspections exposed or on issues about which the regime lied, the IAEA referred the Iranian case to the United Nations Security Council.

This initiated a new multi-year process that ultimately resulted in several unanimous or near-unanimous Security Council resolutions calling on Iran to cease enriching uranium. Never mind that Obama has shown himself to be the ultimate unilateralist, shredding 15 years of prior multilateral diplomatic agreements. Obama is so disinterested in national security and the issues which worry people with regard to Iran that he appears not to demand that Iran come clean about the past.

If Iran’s intentions are peaceful and if the West is willing to give Tehran a blank slate upon which to start anew, then the very least the Islamic Republic should do is come clean about its past work on nuclear-weapons triggers, its enrichment beyond 20 percent, its work with uranium metal, and what it is doing with plutonium at Arak. It should also come clean with regard to the origins of equipment not produced indigenously, as well as elaborate upon nuclear sites and laboratories which today remain undeclared and therefore outside the purview of the reported agreement. If there is any discrepancy between what Iran then declares and what the West knows through other sources, not only should Kerry’s deal be void, but Iran should come to understand what the meaning of crippling sanctions really is.

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Iraq Surpasses Iran in Oil Exports to China

My American Enterprise Institute colleague Derek Scissors points out to me that, according to China’s General Administration of Customs, Iraq has surpassed Iran as a source of crude oil exports to China in the first three quarters of 2013. That is both good and bad news. Good news because, despite all those who said sanctions would not work on Iran and that China would fill the gap left behind by Western companies, it seems both that China has decided to look elsewhere and that Iranian capacity to fulfill demand has declined. Earlier this year, the Iranian Statistics Agency announced that the Iranian economy had retracted 5.4 percent; the Islamic Republic is certainly feeling the bite of sanctions and decades of its own mismanagement. No wonder Tehran wants quick relief in response to a diplomatic charm offensive.

The United States no longer gets much oil from the Middle East—the markets are fungible, but Middle Eastern oil largely supplies China, India, and Europe. China and India, and to some extent Europe, are essentially free-riders benefiting from decades of American security investment. That Iraqi oil exports are increasing is good news for Iraq, and would be better news if Iraq would invest more of that income in its economy and not simply use it to pay the salaries of a bloated bureaucracy that is an order of magnitude too large.

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My American Enterprise Institute colleague Derek Scissors points out to me that, according to China’s General Administration of Customs, Iraq has surpassed Iran as a source of crude oil exports to China in the first three quarters of 2013. That is both good and bad news. Good news because, despite all those who said sanctions would not work on Iran and that China would fill the gap left behind by Western companies, it seems both that China has decided to look elsewhere and that Iranian capacity to fulfill demand has declined. Earlier this year, the Iranian Statistics Agency announced that the Iranian economy had retracted 5.4 percent; the Islamic Republic is certainly feeling the bite of sanctions and decades of its own mismanagement. No wonder Tehran wants quick relief in response to a diplomatic charm offensive.

The United States no longer gets much oil from the Middle East—the markets are fungible, but Middle Eastern oil largely supplies China, India, and Europe. China and India, and to some extent Europe, are essentially free-riders benefiting from decades of American security investment. That Iraqi oil exports are increasing is good news for Iraq, and would be better news if Iraq would invest more of that income in its economy and not simply use it to pay the salaries of a bloated bureaucracy that is an order of magnitude too large.

Still, while Chinese investors are ubiquitous in southern Iraq and increasingly in Iraqi Kurdistan, it is a shame that after so much investment in blood and treasure, too many American investors continue to give Iraq a wide berth. President Obama has long looked at Iraq as original sin and rushed to wash his hands of it. Sure, there were diplomatic pronouncements and agreements about continuing relationships, but Obama has done little if anything to fulfill those agreements. In effect, because of disagreements about Saddam’s ouster more than a decade ago, Obama decided to forgo a lasting relationship with Iraq, even though the Iraqis want one to balance out Iran, Russia, and China. That China has become a primary beneficiary of the Iraq War wasn’t inevitable, but simply the result of White House disinterest if not disdain.

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Do Sanctions Hurt Sick Iranians?

Several pundits and advocacy groups have bought the notion hook, line, and sinker that sanctions are hurting sick Iranians. The problem is that it is not true. Just ask the Iranians: According to Mohammad Reza Naderi, deputy head of Iran’s Customs Administration, 30 tons of medicine have passed through Iran’s main Imam Khomeini International Airport (IKIA) on a daily basis. Between March 21 and September 10 of this year, he said that almost 7,000 tons of medicine worth more than $500 million cleared Iranian customs at IKIA alone. Yearly, medical imports have increased by nine percent.

Saddam Hussein’s government once claimed that international sanctions had killed 500,000 Iraqi children. That figure entered the mainstream debate and became a mantra. The only problem was it was not true. Certainly, after Iraq’s liberation, it quickly became apparent that 500,000 Iraqi children had not died.

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Several pundits and advocacy groups have bought the notion hook, line, and sinker that sanctions are hurting sick Iranians. The problem is that it is not true. Just ask the Iranians: According to Mohammad Reza Naderi, deputy head of Iran’s Customs Administration, 30 tons of medicine have passed through Iran’s main Imam Khomeini International Airport (IKIA) on a daily basis. Between March 21 and September 10 of this year, he said that almost 7,000 tons of medicine worth more than $500 million cleared Iranian customs at IKIA alone. Yearly, medical imports have increased by nine percent.

Saddam Hussein’s government once claimed that international sanctions had killed 500,000 Iraqi children. That figure entered the mainstream debate and became a mantra. The only problem was it was not true. Certainly, after Iraq’s liberation, it quickly became apparent that 500,000 Iraqi children had not died.

Sanctions are no silver bullet, but pressure and coercion are part of any comprehensive strategy. Not surprisingly, dictators do not like sanctions because they make their job more difficult. Dictators will try any number of strategies to mitigate sanctions’ impact, such as cultivating American academics and analysts. Perhaps it’s time to step back and ask why the press so readily and uncritically accepts the sob-stories put out by dictatorial regimes—especially when the import figures put out by Iranian customs show the truth to be far different than the regimes’ claims.

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Turkey Augments Iran Trade

It’s hard to believe that anyone—outside the White House—takes President Obama seriously anymore. It’s crystal clear that foreign leaders think that the U.S. president is a paper tiger. Enemies calculate that the former senator leading a team of former senators is heavy on rhetoric but light on action. And friends, too, understand that at best Obama is a nice prop around which to take a photo, but when push comes to shove they need not listen to him.

Put aside Obama’s willful abandonment of his Syria chemical weapons red line, an “I told you so moment” for hardliners from Pyongyang to Tehran to Caracas and perhaps Buenos Aires, who are likely now chastising any handwringing moderates who worried what crossing Washington might have cost. Friends, too, are getting in on the game. In just a couple weeks, Obama will be hosting Turkish Prime Minister Recep Tayyip Erdoğan at the White House, never mind that Erdoğan snubbed the U.S. request that he cancel a planned trip to the Gaza Strip to meet with Hamas leaders, a group which Erdoğan has long supported.

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It’s hard to believe that anyone—outside the White House—takes President Obama seriously anymore. It’s crystal clear that foreign leaders think that the U.S. president is a paper tiger. Enemies calculate that the former senator leading a team of former senators is heavy on rhetoric but light on action. And friends, too, understand that at best Obama is a nice prop around which to take a photo, but when push comes to shove they need not listen to him.

Put aside Obama’s willful abandonment of his Syria chemical weapons red line, an “I told you so moment” for hardliners from Pyongyang to Tehran to Caracas and perhaps Buenos Aires, who are likely now chastising any handwringing moderates who worried what crossing Washington might have cost. Friends, too, are getting in on the game. In just a couple weeks, Obama will be hosting Turkish Prime Minister Recep Tayyip Erdoğan at the White House, never mind that Erdoğan snubbed the U.S. request that he cancel a planned trip to the Gaza Strip to meet with Hamas leaders, a group which Erdoğan has long supported.

Key to Obama’s strategy on Iran is to simultaneously reach out to Iran and sanction the Islamic Republic’s nuclear program, never mind that the most effective sanctions for which Obama now takes credit were passed against his objection. Turkey has long been the biggest leak in the sanctions regime, helping Iran bypass restrictions by exchanging gold (and ships) for oil. Despite this, Obama has consistently issued Turkey waivers, despite the fact that such waivers are only meant for governments making good-faith efforts to extricate themselves from dependence on Iranian crude.

While Turkish gold transfers to Iran declined slightly in January—something to which proponents in the White House of business-as-usual could point—the latest reports from Turkey suggest that the gold trade is again thriving. Reports Hürriyet Daily News:

Turkey’s gold exports Iran has rose more than twofold through March during a time its overall gold trade receded, suggesting the two countries’ trade of gold for natural gas has been continuing increasingly after a one-month halt in January. Turkey exported almost $381 million worth of gold to Iran in March, Turkish Statistics Institute (TÜİK) data showed, while the overall Turkish gold exports declined by 15 percent to $467.6 million. The exports to Iran and United Arab Emirates (UAE) have undertaken 92 percent of the country’s overall exports.

Erdoğan is visiting the White House later this month, a visit that Turks interpret as Obama endorsement of Turkey’s policies. Perhaps it is time for Congress to stand up where the White House won’t and offer the Turkish leader some pointed criticism so that he understands just what damage he does to the Middle East with his tacit support for terrorist groups and Iranian proliferation. Obama may shirk his responsibility to restore American credibility, but that is no reason for Marco Rubio, Rand Paul, Hillary Clinton, and other potential candidates for president in 2016 to do so.

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The Problem with Iran Sanctions

In Today’s National Post, Sara Akrami and Saeed Ghasseminejad highlight the challenge of Western sanctions policy–those in charge in Tehran are still largely getting away with murder:

Iran’s continuing progress toward a nuclear bomb should have made it clear to the West that the current sanctions regime simply isn’t going to cut it. When it comes to the nuclear program there are two important decision makers: the Iranian Revolutionary Guard Corps (IRGC) and Ayatollah Ali Khamenei, Iran’s Supreme Leader. While there has been some progress in targeting the IRGC with sanctions, Khamenei himself has yet to receive much attention from the international community.

Akrami and Ghasseminejad are right: sanctions must be much broader and more aggressive if the West is to make a dent in Iran’s nuclear posture before it is too late (and there isn’t much time left).

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In Today’s National Post, Sara Akrami and Saeed Ghasseminejad highlight the challenge of Western sanctions policy–those in charge in Tehran are still largely getting away with murder:

Iran’s continuing progress toward a nuclear bomb should have made it clear to the West that the current sanctions regime simply isn’t going to cut it. When it comes to the nuclear program there are two important decision makers: the Iranian Revolutionary Guard Corps (IRGC) and Ayatollah Ali Khamenei, Iran’s Supreme Leader. While there has been some progress in targeting the IRGC with sanctions, Khamenei himself has yet to receive much attention from the international community.

Akrami and Ghasseminejad are right: sanctions must be much broader and more aggressive if the West is to make a dent in Iran’s nuclear posture before it is too late (and there isn’t much time left).

But the problem with the sanctions regime is much broader. It is not just a question of whether sanctions will convince the regime in Tehran to change its cost-benefit analysis on the nuclear program. After all, so far all the signs go in the opposite direction, since Iran, despite the pain that sanctions have inflicted on its economy, is still defiantly marching on. It is not just a question of adding new measures to the already sweeping set of restrictions on Iran’s economy, its procurement networks and its financial institutions.

The problem with sanctions is that, even assuming they are the right tool to bring Iran’s nuclear quest to a halt, their main failure starts with poor implementation. Let’s face it, despite hundreds of designations, executive orders, European Union Council decisions, and other Western governments’ measures against Iranian companies, individuals and even entire sectors of Iran’s economy, Iran is going about its business as if nothing much happened.

Take Mahan Air.

The U.S. Department of Treasury sanctioned Mahan Air shortly after Iran’s plot to assassinate the Saudi ambassador to Washington in October 2011. It sanctioned all its fleet for having transported Revolutionary Guards troops to Syria to aid Syria’s attempts to suffocate the two-year old popular uprising. The U.S. Department of Commerce has further restricted a number of entities linked to Mahan Air that procure for the company overseas. The U.S. government briefly succeeded in blocking delivery of several Boeing 747 planes to Mahan Air back in 2008. But success was short lived (here is one, no longer impounded as of February 2009).

As headlined at the time of sanctioning the airline, “your ticket with Mahan Air is cancelled.”

Or is it?

The Norwegian ambassador to Iran did not seem particularly enthused with American sanctions. He recently met with Mahan Air’s CEO, Hamid Arabnejad. The Business Year gave Arabnejad a glowing interview in January. Mahan Air launched a new China route days before being sanctioned in September 2011. Your ticket may be cancelled, but they are still flying there and adding destinations.

What about spare parts–an ongoing sore point in U.S.-Iranian relations since the Islamic Revolution? Well, if the Department of Commerce feels compelled to slap restrictions on Iranian companies trying to buy American-made spare parts for their planes thirty-something years after sanctions on airplane spare parts were introduced, that says something about how effective sanctions have been. All of Mahan Air’s companies in Europe that are under restrictions seem to be still fully active. Some of Mahan’s operations in Germany are not even mentioned in U.S. sanctions’ lists–a sign that Iranian middlemen are still way ahead of the game.

And this is just a relatively small private airline with connections to the Revolutionary Guards. Just imagine then, how many hundreds of other tricks Iranian procurement agents are pulling out of their hats to keep their regime’s business afloat.

If sanctions are to make any dent in Iran’s nuclear procurement, Western governments must rethink both their policy and its implementation. It is not enough to put a few companies on the black list–sanctions must be sweeping to the point of a total economic embargo. And it is not enough to put rules in the law book–unless sanctions are truly enforced, Iran will continue to elude restrictions.

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Iran Increases Uranium Enrichment, Oil Exports Despite Sanctions

As Chuck Hagel gets grilled in the Senate Armed Services Committee about his views on Iran and Israel, it is sobering to reflect on new evidence of how little effect sanctions are having on the Iranian nuclear program.

Iran has just notified the IAEA that it is stepping up uranium enrichment at its Natanz facility, which would allow it to accelerate the timeline for acquiring a nuclear weapon. Meanwhile, Reuters reports that Iran’s oil exports have been rebounding since the imposition of European Union sanctions last July. Iran’s crude oil exports in December hit 1.4 million barrels a day–still down from 2011 levels of 2.2 million barrels a day but higher than last summer. This is evidence that, thanks to strong demand in China, India and other nations, Iran is managing to weather oil sanctions.

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As Chuck Hagel gets grilled in the Senate Armed Services Committee about his views on Iran and Israel, it is sobering to reflect on new evidence of how little effect sanctions are having on the Iranian nuclear program.

Iran has just notified the IAEA that it is stepping up uranium enrichment at its Natanz facility, which would allow it to accelerate the timeline for acquiring a nuclear weapon. Meanwhile, Reuters reports that Iran’s oil exports have been rebounding since the imposition of European Union sanctions last July. Iran’s crude oil exports in December hit 1.4 million barrels a day–still down from 2011 levels of 2.2 million barrels a day but higher than last summer. This is evidence that, thanks to strong demand in China, India and other nations, Iran is managing to weather oil sanctions.

All of which means it is more imperative than ever that the United States have leadership dedicated to stopping the Iranian nuclear program by any means necessary. Hagel will not have an easy time convincing the Senate–or the world–that as secretary of defense he would be the right kind of leader. He has made amply clear his belief that bombing Iran is a greater danger than Iran acquiring The Bomb. But only if Iran fears military action, which could result in the downfall of its Islamist regime, will it contemplate a peaceful deal that would force it to give up its cherished goal of becoming a nuclear power.

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Are Hagel and Obama “Soul Mates” on Defense Policy?

On January 10, 2007, then-Senator Barack Obama explained his opposition to the Iraq surge of additional troops by making a prediction: “I am not persuaded that 20,000 additional troops in Iraq is going to solve the sectarian violence there. In fact, I think it will do the reverse.” It was an early indication of Obama’s poor judgment and instinct to substitute ideological stubbornness for serious analysis. As we soon found out, Obama was just about as wrong as could be. I say “just about,” because Obama’s error was, surprisingly, eclipsed the very next day by the one man who turned out to be more mistaken than Obama, by saying the surge was “the most dangerous foreign policy blunder in this country since Vietnam, if it’s carried out.”

That man, of course, was Chuck Hagel. Obama and Hagel would develop a friendship, and repeat this pattern. They would travel to Iraq together, where Hagel was dismissive and suspicious of the military’s top brass. Obama would take office and do the same. Hagel would speak out against tough Iran sanctions, and Obama would work against them from the White House, opposing several iterations of them and finally watering them down when he couldn’t prevent sanctions from passing Congress. Hagel would loudly criticize even the contemplation of military action against Iran, and Obama would have his secretary of defense deliver a similar message to Israel. It is this pattern that has led Hagel’s critics to express concern about his nomination to be secretary of defense. Many worry Obama shares Hagel’s views; Obama’s defenders assure us he does not. The Washington Post’s Bob Woodward says the critics are right, and relays a conversation Obama and Hagel had at the beginning of Obama’s first term:

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On January 10, 2007, then-Senator Barack Obama explained his opposition to the Iraq surge of additional troops by making a prediction: “I am not persuaded that 20,000 additional troops in Iraq is going to solve the sectarian violence there. In fact, I think it will do the reverse.” It was an early indication of Obama’s poor judgment and instinct to substitute ideological stubbornness for serious analysis. As we soon found out, Obama was just about as wrong as could be. I say “just about,” because Obama’s error was, surprisingly, eclipsed the very next day by the one man who turned out to be more mistaken than Obama, by saying the surge was “the most dangerous foreign policy blunder in this country since Vietnam, if it’s carried out.”

That man, of course, was Chuck Hagel. Obama and Hagel would develop a friendship, and repeat this pattern. They would travel to Iraq together, where Hagel was dismissive and suspicious of the military’s top brass. Obama would take office and do the same. Hagel would speak out against tough Iran sanctions, and Obama would work against them from the White House, opposing several iterations of them and finally watering them down when he couldn’t prevent sanctions from passing Congress. Hagel would loudly criticize even the contemplation of military action against Iran, and Obama would have his secretary of defense deliver a similar message to Israel. It is this pattern that has led Hagel’s critics to express concern about his nomination to be secretary of defense. Many worry Obama shares Hagel’s views; Obama’s defenders assure us he does not. The Washington Post’s Bob Woodward says the critics are right, and relays a conversation Obama and Hagel had at the beginning of Obama’s first term:

According to an account that Hagel later gave, and is reported here for the first time, he told Obama: “We are at a time where there is a new world order. We don’t control it. You must question everything, every assumption, everything they” — the military and diplomats — “tell you. Any assumption 10 years old is out of date. You need to question our role. You need to question the military. You need to question what are we using the military for….

Obama did not say much but listened. At the time, Hagel considered Obama a “loner,” inclined to keep a distance and his own counsel. But Hagel’s comments help explain why Obama nominated his former Senate colleague to be his next secretary of defense. The two share similar views and philosophies as the Obama administration attempts to define the role of the United States in the transition to a post-superpower world.

Hagel’s foreign policy insight isn’t exactly stellar, to say the least. But it impressed Obama because, according to Woodward, it mirrors his own. Now it’s true that Hagel has been going around Capitol Hill claiming to support whatever policies Obama also says he supports and whatever policies he’ll need to support to ensure successful confirmation. But it is just silly to try and pretend that Obama doesn’t have a record and history of agreeing with Hagel on many of these issues.

Yesterday’s other Hagel revelation, if you can call it that, was what he said at a 2009 J Street conference. J Street had been refusing to release the video of Hagel’s speech, but it turned out that the prepared text was online the whole time at Hagel’s old think tank, as Yair Rosenberg discovered. J Street’s refusal to release the video suggested there might be some offensive content in it. That doesn’t appear to be the case. Instead, it just seems to have been a case of J Street being J Street–secretive, bizarrely defensive, reminiscent of when J Street claimed it was not funded by George Soros when in fact it was greatly funded by George Soros.

In the speech, Hagel offers an endorsement of an obnoxious Thomas Friedman column and seems to hold by the discredited “linkage” theory of the Israeli-Palestinian conflict. He also called the attempt to isolate Syria’s Bashar al-Assad “bewildering.” It is neither a well-informed nor wise speech text, but it doesn’t seem to contain any real surprises either. Nor is it a surprise, however, to read Woodward refer to Hagel as Obama’s “soul mate” on defense policy. And that is precisely what worries his critics the most.

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Germany Helps Companies Evade Iran Sanctions

Michael Spaney from Europe’s “Stop the Bomb” campaign has sent out a press release detailing the latest activity of the German-Iranian Chamber of Commerce, which today is hosting a seminar in Hamburg to encourage German firms to do business in Iran and tutor German investors on how to evade sanctions:

The seminar offers advice on “application processes” to “goods inspections” in the “oil, gas and petrochemical sector” – that means in the energy sector which is under EU sanctions. Thus, the Chamber of Commerce focuses on business as usual where EU sanctions are supposed to unfold their impact. The German-Iranian Chamber of Commerce is one of the main lobby groups for maintaining the relationship with the regime in Tehran. The chamber offers ongoing monitoring of business in Iran, helping Iranian companies in the establishment of offices in Germany and in investments, and provides comprehensive support to German companies in their business with Iran.

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Michael Spaney from Europe’s “Stop the Bomb” campaign has sent out a press release detailing the latest activity of the German-Iranian Chamber of Commerce, which today is hosting a seminar in Hamburg to encourage German firms to do business in Iran and tutor German investors on how to evade sanctions:

The seminar offers advice on “application processes” to “goods inspections” in the “oil, gas and petrochemical sector” – that means in the energy sector which is under EU sanctions. Thus, the Chamber of Commerce focuses on business as usual where EU sanctions are supposed to unfold their impact. The German-Iranian Chamber of Commerce is one of the main lobby groups for maintaining the relationship with the regime in Tehran. The chamber offers ongoing monitoring of business in Iran, helping Iranian companies in the establishment of offices in Germany and in investments, and provides comprehensive support to German companies in their business with Iran.

Despite the opposition of President Obama—and his defense secretary nominee Chuck Hagel—it has been the U.S. and European unilateral sanctions toward Iran’s central bank and energy sector that have proven most effective. And contrary to the insistence of some Iran experts and anti-sanctions activists, China hasn’t simply filled the gap. How unfortunate that the weak link in sanctions meant to avoid military action against Iran is coming from Germany. Perhaps detecting President Obama’s own lackluster commitment to preventing Iranian nuclear breakout, Germany figures now is as good a time as any to make a quick buck.

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