Regensburg, Germany. Economic sanctions intended to persuade Iran to stop its radical nuclear and terrorist programs are being marginalized by robust European trade with Tehran. Europe must reverse this policy or a U.S. led military solution becomes more likely.
The European Union, a 27-nation European trading partnership, is Iran’s best trading partner, accounting for 28 percent of its total trade in 2006 and 40 percent of Iran’s imports. In 2006, EU exports to Iran grew eight percent providing 33.4 percent of the Islamic Republic’s total imports.
Europe is also Iran’s primary importer of energy, lapping up 88 percent of all Iranian energy products. According to the Conflict Securities Advisory Group, a Washington-based consultancy, an estimated 124 publicly-traded European businesses have financial interests in Iran; many of them in Tehran’s energy sector.
Two weeks ago, the US stood alone in proposing new sanctions on more than 20 Iranian major banks and companies. The goal, argued Secretary of State Condoleezza Rice, was to deter Europeans from continuing trade with Iran and encourage them to take a principled stand against Iran’s radicalism.
Tehran often disguises its financial and trade transactions, making it easier for European trading partners to feign ignorance. Stuart Levey, the US under secretary for terrorism and financial intelligence, explains that financial institutions are asked to remove the names of Iranian banks from transactions when processing them in the international financial system. This gives European traders a degree of plausible deniability.
Iranian entities also form front companies in third countries for the sole purpose of exporting dual-use items to Iran. Many of these imports are then turned over to Tehran’s nuclear and missile programs.
The US also charges Iran’s Revolutionary Guard Corps (IRGC) and key individuals like General Rahim Safavi, commander of the IRGC, with proliferating weapons of mass destruction and funding terror groups with income generated from European trade. The Guards, similar to the Chinese Peoples’ Liberation Army, run sprawling financial concerns that trade like business enterprises and put their profits to military use.
The 125,000 member IRGC has grown exponentially under the regime of Iranian President Mahmoud Ahmadinejad. US Treasury Secretary Hank Paulson warned that the IRGC "…is so deeply entrenched in Iran’s economy and commercial enterprises, it is increasingly likely that if you are doing business with Iran, you are doing business with [the Guard]."
IRGC-associated companies are being awarded important government contracts. An IRGC company, for example, manages Tehran’s airport and another company is building Tehran’s metro system.
The Islamic Republic also uses the Guards to train and equip Hezbollah, the world’s largest terrorist organization headquartered in Lebanon. Hezbollah provides proxy military services for Iran such as waging the ongoing war with Israel. Tehran also uses state-run banks to fund terrorist allies. The Iranian bank Saderat has provided hundreds of millions of dollars in banking services to Hezbollah, HAMAS, and the Palestinian Islamic Jihad.
Last week, German foreign minister Frank-Walter Steinmeier claimed that Germany was in sync with the US regarding the Islamic Republic. “If Iran refuses to provide answers [about its nuclear program], we should think about the possibility of European sanctions,” Steinmeier said.
Germany leads the EU in trade with Iran, however, with more than $5.45 billion in goods each year and Germany’s central bank holds Iranian assets worth $9.2 billion. The Germans have argued that stopping trade with Tehran would cause thousands of German workers to lose their jobs.
Germany could show some sincerity by putting the brakes on pending deals with Tehran. German automaker Volkswagen has a big contract to work alongside Iran’s Auto Manufacturing Company and Transrapid, a Munich-based engineering firm, is ready to build a multi-billion dollar magnetic elevated train line for Iran. If these deals were put on hold, the US might believe that Mr. Steinmeier is serious about the Iranian threat.
Many doubt that economic sanctions really work. The United Nations has imposed two sets of sanctions against Iran with little result. In December 2006, the UN imposed trade sanctions on sensitive nuclear materials and technology. Then, in March 2007, it tightened those sanctions by imposing a ban on arms sales and freezing more assets. Now, a third set of sanctions is being considered.
The fact is that Iran can continue to ignore sanctions with little consequence for the regime even though Iran’s economy is stagnating. Consumer prices are rising rapidly, unemployment approaches 30 percent and Tehran’s Ahmadinejad has not redistributed oil profits to the poor as promised. Despite this, the average Iranian is doing better than his neighbors so the level of discontent is insufficient to prompt the overthrow of the radical regime. Thus, Ahmadinejad and his boss, the Ayatollah Ali Khomeini, continue to invest in terrorism, nuclear weapons and ballistic missiles.
For sanctions to be effective, all nations must cooperate. Secretary Rice may coerce more Europeans to join the effort but without the cooperation of China and Russia, additional sanctions will have little impact.
"Why should we make the situation worse, corner it, threatening new sanctions," Russian President Vladimir Putin asks. The Chinese, who are experiencing a 7.5 percent annual rise in petroleum consumption, are opposed to any action that might limit their access to oil.
The Bush administration is pushing sanctions unilaterally and through the UN but, thus far, trade embargoes have failed to stop Iranian aggression. Unfortunately, it is only the people who suffer and their wrath will be directed towards us. If our European allies continue to straddle the economic fence there is little chance that trade sanctions will even get Iran’s attention. The only weapon left in our arsenal to deny the mad mullahs their nuclear and terrorist aspirations may be the military option.