Washington set to magnify maximum pressure on Tehran

Washington set to magnify maximum pressure on Tehran
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The United States is expanding its maximum pressure campaign against Iran. Earlier this month, a senior State Department official announced what he termed a “super maximum economic pressure campaign,” which would advocate new due diligence measures on maritime shipping and punish the storage of Iranian oil. These steps constitute a vital way to prevent Iranian sanctions evasion, which aimed to blunt the impact of Washington’s pressure policy. They also come during a time of intense uncertainty in Iran, as the regime continues to try to cover up the extent of the Coronavirus outbreak in the country.

To be clear, Washington’s sanctions guidance is a response to ongoing Iranian threats. They also remind the international community that even when faced with a public health crisis, Tehran is choosing to spend time and money on illicit activities abroad rather than the welfare of their own people at home. Therefore, the measures are likely to both increase pressure on the regime and highlight its mismanagement of the country, from the economy to the public health system.

Washington’s current maximum pressure strategy relies on compounding economic pressure to get Tehran to come to the negotiating table for a much broader agreement than the 2015 nuclear deal known as the JCPOA. Since leaving that accord in 2018, there have been three main vectors of American pressure: restored penalties once waived by the JCPOA; revoked waivers for previous purchasers of Iranian oil; and persistent designations designed to deter and disrupt Iran’s non-nuclear malign activities at home and abroad.

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While both Iranian officials and select Western outlets have tried to claim that American sanctions are causing a humanitarian crisis, a closer look at the evidence — including trade data — refutes this case. Moreover, U.S measures are carefully calibrated to pressure the regime while limiting the impact on the Iranian population. Not only are humanitarian transactions not subject to sanctions, but the United States has established mechanisms to facilitate the delivery of these goods to Iran. What’s more, the delivery of humanitarian goods from the European Union to Iran has remained relatively steady.

Following the full re-imposition of sanctions in November 2018, the Trump administration focused on two more vectors for pressure on Tehran: greater enforcement of shipping sanctions to impede the illicit oil trade, as well as increased targeting of Tehran’s non-oil trade and non-oil related sectors. Taken together, these measures can make it harder for Iran to fill its coffers.

In a recent address to the Foundation for Defense of Democracies, David Peyman, the U.S. deputy assistant secretary of state for counter threat finance and sanctions, highlighted Iran’s use of ship-to-ship transfers (STS) to bypass sanctions. An STS transfer occurs when one vessel moves its cargo to another vessel that has pulled up alongside it. While there are legitimate reasons why a ship may engage in an STS transfer, including the size of the tanker and regulations at the port in question, Iran, like fellow rogue state North Korea, has used STS transfers to circumvent sanctions.

Most notably, Iran has used STS transfers to supply the Assad regime in Syria with oil and to continue oil sales to China after Washington revoked oil waivers. China has been Iran’s largest and most important pre- and post-sanctions purchaser of Iranian crude. To avoid penalties in case a vessel’s newly acquired cargo is sanctioned, the Trump administration will now urge those who engage in STS transfers to take pictures of the new ship’s crew and captain to give to relevant authorities as a precautionary measure.

Peyman also recommended enhanced scrutiny of ships turning off their automatic identification system (AIS) transponders, which are used to track a ship’s movements. While there can be legitimate reasons for ships to turn off their AIS transponders (such as avoiding pirates, who may be tracking the signals), turning off such systems is often clear evidence of sanctions evasion activity. For example, ships docking in Iranian ports or engaging in STS transfers of Iranian-origin crude turn off their AIS transponders as a way to hide this activity.

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According to Peyman, flag registries should ask to see a ship’s entire AIS history to ensure that it has not docked in Iranian ports or engaged in illicit STS transfers. While many reputable companies review ships’ AIS history to spot red flags, this new guidance will likely put the onus on shipping companies to explain any instances where an AIS transponder has been turned off.

Peyman’s pledge that Washington will target those who store Iranian oil “no matter” the location is another unique and new feature of the Trump administration’s pressure policy.

Under the previous iteration of oil sanctions in 2012, Tehran relied on “floating storage” — keeping its oil on Iranian tankers so that oil fields could continue production, even if at lower rates — while the supply, sale, or transfer of this commodity became subject to penalties.

In 2014, Iran began storing oil in the port of Dalian, China, for sales in violation of sanctions across locations in north Asia. In 2016, after world powers reached the JCPOA nuclear deal, Iranian outlets claimed that the regime was building five oil storage units to keep excess capacity onshore.

With the restoration of sanctions in 2018 and the revocation of oil waivers in 2019, Iranian oil once again found itself in “bonded storage” in Chinese ports. This oil reportedly sat outside the scope of Chinese customs, permitting Tehran and Beijing to take advantage of a gray space in sanctions laws — until now. Under the new guidance from Washington, oil storage units in Iran and China are likely to be subject to sanctions if this behavior persists.

Washington’s updated guidance to industry will signal both its capability and intention to adapt to, and ultimately thwart, Tehran’s ongoing sanctions workarounds. If these recommendations are supplemented with detailed press releases if violations occur, so much the better, as the information can inform businesses about the full scope of Iran’s deceptive practices.

Such a calibrated but flexible pressure policy that continues cross-industry engagement is best suited to use market forces to magnify the impact of U.S. sanctions, as well as evolve alongside Iran’s continued illicit activities, even amid a pandemic.

Behnam Ben Taleblu is a senior fellow covering Iranian political and security issues at the Foundation for Defense of Democracies (@FDD). He frequently briefs Washington audiences on Iran-related issues and has testified before the U.S. Congress and Canadian parliament. Eric B. Lorber is the senior director of the Center on Economic and Financial Power (CEFP) at FDD. Previously, Mr. Lorber served as a senior advisor to the Under Secretary for terrorism and financial intelligence (TFI) at the United States Department of the Treasury.