White House filling in holes on Iran sanctions

Obama administration announces new sanctions targeting rial exchange, domestic auto-sector, foreign financial institutions.

June 4, 2013 23:33
4 minute read.
Iran currency exchange

Iran sanctions 370. (photo credit: REUTERS/Raheb Homavandi)

WASHINGTON -- The White House on Monday announced a new sanctions package against Iran targeting rial exchange and its domestic auto-sector, marking the third time in three weeks President Barack Obama has used executive power to tighten screws on the Islamic Republic.

In a press release, the Obama administration said it is the first time the rial has been directly targeted by sanctions.

The move, effective July 1, comes just days after the White House announced new actions to constrict Iran's petrochemical industry, shortly after efforts to further isolate Iranian banks and within weeks of the assumption of a new sanctions regimen against Iran's shipping industry and its ability to import precious metals.

Now, in addition to these new measures, the US will impose sanctions on foreign financial institutions that conduct or facilitate significant transactions in the Iranian rial, meant to further weaken a currency that has already lost two-thirds of its dollar value since late 2011 as a result of Western sanctions.

A senior administration official said the low level of the rial was a key vulnerability for the Iranian government.

"The objective is to take aim at the rial and to make it as unusable a currency as possible, which is all part and parcel of our efforts to apply significant financial pressure on the government of Iran," the official, who spoke on condition of anonymity, said on a call with reporters.

The president also approved sanctions against people who do business with Iran's auto sector, which the White House said is a major source of hard cash revenue for Tehran.

While auto manufacturers in Iran will be hit hard, major foreign auto companies are still doing business in Iran, including Mercedes and Volkswagen of Germany, Renault of France and Volvo of Sweden.

Malcolm Hoenlein, the executive vice-chairman of the Conference of Presidents of Major American Jewish Organizations said that Mercedes, Volkswagon and Renault had "cut back significantly, and they've compensated with domestic consumption. They're conscious of what they're doing."

Hoeinlein contended that the passage of new sanctions "just further extends the impact on the use of the rial. But its devaluation has been a steady progression all along."

He said that sanctions on additional sectors could be passed to increase pressure on Iran. "We've pressed for a long time for them to address the central bankers, and for the most part they have."

Hoeinlein added: "The sanctions are good. It's the implementation that's the hard part. And the exemptions, as well."

It was the Obama's ninth executive order against the Iranian regime.

"When it comes down to whether this works or fails, executive orders are going to be more effective than politicized legislation," Anthony Cordesman, an expert at the Center for Strategic and International Studies, told The Jerusalem Post. "There's a tendency to assume you can flip a switch, and that's not the case. They want this to be a matter of cumulative pressure." Cordesman notes that, with South Africa, the country's government never dramatically changed course, but ultimately altered its behavior over time as sanctions slowly increased.

Michael Rubin, a former Pentagon official and current scholar at the American Enterprise Institute, questions the likelihood that sanctions will force the Iranian regime to bend. He notes that one of the few times Iran backed down from its ideological goals was when Ayatollah Khomeini agreed to a ceasefire in the Iran-Iraq War.

"On the radio, [Khomeini] likened his decision to 'drinking a chalice of poison,' but said he had no choice if the Islamic Revolution was to continue," said Rubin. "The question each and every Western diplomat should ask is whether the sanctions package they propose comes anywhere close to forcing the Supreme Leader to drink again from that chalice." "If the answer is no, then the diplomacy remains little more than a parlor game." Sanctions imposed by the United States and European Union halved Iran's oil exports last year, depriving the government of billions of dollars in revenue, increasing already high inflation and hitting the rial's value.

The sanctions have hurt Iran's economy, but there is little evidence they have slowed the nuclear program ahead of a presidential election in Iran next week.

Restrictions on the auto industry, which traditionally employs the most people after the oil and gas sector, also raise fears it is ordinary Iranians that will be most harmed, analysts told Reuters.

US sanctions on Iran have so far included an exception for natural gas exports, which flow to several close US allies, including Turkey.

Reuters contributed to this report.

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