March 26, 2007

American Sanctions Bite Iran

As the UN Security Council voted to incrementally increase the sanctions on Iran this weekend, the efforts by the US to financially blockade Teheran continued to make a large impact on their own. The Bush administration has systematically locked Iran out of the global banking business, eliminating their ability to invest capital into their infrastructure and to fund terrorism:

More than 40 major international banks and financial institutions have either cut off or cut back business with the Iranian government or private sector as a result of a quiet campaign launched by the Treasury and State departments last September, according to Treasury and State officials.

The financial squeeze has seriously crimped Tehran's ability to finance petroleum industry projects and to pay for imports. It has also limited Iran's use of the international financial system to help fund allies and extremist militias in the Middle East, say U.S. officials and economists who track Iran.

The U.S. campaign, developed by Treasury Secretary Henry M. Paulson Jr. and Secretary of State Condoleezza Rice, emerged in part over U.S. frustration with the small incremental steps the U.N. Security Council was willing to take to contain the Islamic republic's nuclear program and support for extremism, U.S. officials say. The council voted Saturday to impose new sanctions on Tehran, including a ban on Iranian arms sales and a freeze on assets of 28 Iranian individuals and institutions.

The US has targeted the Revolutionary Guard with its attempts at isolating the Iranians. Mahmoud Ahmadinejad has transformed the Guard into an economic powerhouse in Iran, a major defense and civilian contractor even outside of its arms trading. This has made the Guard very loyal to Ahmadinejad, and the sanctions aim to both drive a wedge between the Guard and the president and also to cripple their ability to prop up the current regime.

In this, the US has received a great deal of assistance from a surprising source: Ahmadinejad himself. Global bankers who might otherwise have rejected American pressure to reduce their engagement with Teheran have either dropped their Iranian business or scaled it back sharply. Why? Ahmadinejad has made himself appear like a very risky investment partner, with his rantings about the Holocaust and wild statements about the destruction of Israel. Perhaps even more importantly, Ahmadinejad has undermined confidence in the Iranian stock exchange, comparing it to gambling. That doesn't make for an encouraging investment atmosphere even under the best of circumstances.

All of this results in a currency crunch for Iran. Importers now have to pay up front for their materials, having seen the normal credit environment disappear altogether. Banks will not issue loans or conduct capital investments into the oil infrastructure in Iran, which has now begun to crumble from years of poor maintenance. Iran can no longer generate the revenues of the past, which means that less money can go to radical Islamist terrorists like Hezbollah and Hamas. The situation has become so bad that Iran has worked to keep its name and the names of its banking institutions off of financial transactions in order to shield them from the prying eyes of the US.

The Bush administration has successfully conducted an indirect war on Iranian interests, and it is a progressive war. The effects of these efforts will be cumulative, and the Iranians have not much time left before their economy begins to completely collapse under the weight of them. Oil production accounts for 80% of their exports, and once those facilities start to fail, they will have nothing left with which to bargain -- and it will take years to repair the damage. When they reach that stage, Iranians will find plenty of motivation to shake off the disastrous reign of the mullahcracy, and even the Revolutionary Guard will not find much motivation to protect them.


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Comments (19)

Posted by kenprice [TypeKey Profile Page] | March 26, 2007 6:01 AM

The squeeze on Iranian banks is a good start, but another move with more immediate effect would be to prevent any airline with flights to Iran from flying to the USA. Follow that with preventing flights from any airport any airport allowing flights to Iran from flights to the USA. Isolate the country completely and the Iranians will begin to understand what their crazy leaders are doing.

Posted by sam pender [TypeKey Profile Page] | March 26, 2007 6:29 AM

Next step, have Delta Force board a ship that's actually IN Iranian waters, and see how many Revolutionary Guard survive in the capture attempt.

Posted by Glenmore [TypeKey Profile Page] | March 26, 2007 6:50 AM

Do China's banks have the capacity to make up for this restricted access to international banking resources?

Posted by Sourdough [TypeKey Profile Page] | March 26, 2007 7:18 AM

I believe a naval blockade of Iran by US and British naval vessels wil bring collapse in short order. The kidnaping of British sailors and marines is more than ample justification for the blockade.

Posted by Mr Lynn [TypeKey Profile Page] | March 26, 2007 7:23 AM

Glenmore's question is very relevant. China is not about to endanger its oil flow from Iran, and the Chinese probably enjoy seeing America's nose tweaked by the Iranians (and the N. Koreans). So it is reasonable to expect China to step into the breach.

Now if a series of strange accidents were to befall Iran's oil-pumping infrastructure. . .

/Mr Lynn

Posted by sam pender [TypeKey Profile Page] | March 26, 2007 7:25 AM

Blockade. TRULY the most appropriate, non-lethal, and effective means of imposing political will upon the oil-sales-dependent nation.


Posted by Jack Okie [TypeKey Profile Page] | March 26, 2007 7:46 AM

If China's on top of this, they realize their oil flow is endangered by the crumbling of Iran's oil infrastructure. Perhaps thats why we see them making deals with Russia and Venezuela. It also seems pretty basic that we would line up an alternate source for China in the event of a blockade - hence the Saudi announcement a few weeks ago that they could pump an additional 1.5 billion barrels if necessary.

Posted by ajacksonian [TypeKey Profile Page] | March 26, 2007 7:52 AM

Iran has been its own greatest enemy, and while the US sanctions have hurt it, what it has done is give other Nations a hard look at the actual goals of Iran and the non-economic way they are looking to achieve them. The regime, by relying on fantastical beliefs, appears to have little understanding of economics, and *that* has been killing things there faster than anything else can do. The #1 greatest hit that Iran took, after deciding to kill the technocratic education system to localize the skills base for maintaining its economy, was not done by the US but by one of our Allies in one of the quietest moves taken in the Foreign Policy realm.

By being the largest importer of Iranian oil, Japan has dealt it a deadly blow some years ago by refusing to invest in the petro-infrastructure there and warning its friends and trade partners that it will not look kindly upon anyone *else* supporting Iran in this way. Russia's Gazprom looked at the situation a bit over two years ago and recommended to the Russian Government that it have *nothing* to do with maintaining the oil infrastructure. Last year China looked to invest $10 billion, but this year has re-thought that position and no longer intends to help out Iran. While still heralding oil and gas pipeline construction, there is serious doubt on the global market that anything will actually go into those pipelines. The steady hits the oil production has taken in Iran due to this, cannot be attributed directly to the US and decades long sanctions that went nowhere. It can and should be attributed to Japan being unwilling to foster and support a terrorist Nation State looking to gain WMDs. Japan relies *entirely* on oil imports, and being able to step away from Iran is costly to them but they see the cost as worth it.

We forget, in the US, the deep and true value of having good Allies and Friends that help us in this world. A great Nation should have the humility enough to thank its friends for helping and increase those bonds of respect and friendship in that doing. This would make us both stronger together than we are alone. And realize that even the mightiest Nation isn't worth much without those that help us freely and willingly.

Posted by Eg [TypeKey Profile Page] | March 26, 2007 8:10 AM

Oil production accounts for 80% of their exports, and once those facilities start to fail, they will have nothing left with which to bargain -- and it will take years to repair the damage.

Axis-dents do happen.

However, the real formula for Iran is to raise the percentage possibilities of the investment becoming odious above the possibility of the investment becoming profitable. The US does have that capability if we quit playing into the weak hands of certain 'friends an allies'.

Unfortunately the already vested interests of the Euro's, Russian's and Chinese in Iran are so high(certainly into the hundreds of billions, if not in the trillions), they've no real choice but to protect those investments already in place - the US and those allies who support our efforts in Iran, be damned. Just as with Iraq and their hoping to maintain Saddam, now they must maintain the status quo of the Iranian regime. Of course the Mullah's are using this leverage to very great advantage.

Posted by Lew [TypeKey Profile Page] | March 26, 2007 8:52 AM

Financial War; now there's something that fit's modern America! No body bags, no photo-ops, no soldiers and sailors, nothing to pay for and nothing to interupt our next trip to the mall and take the fun out of enjoying our next latte'. We don't even have to pause in our never-ending search for a way to harmlessly pander our way to everlasting socialist nirvana. And we can even convince other countries to help out, with no more expense than a few embarrassing questions at the next press conference.

Damn, I think we've found it!

Posted by M. Simon [TypeKey Profile Page] | March 26, 2007 3:04 PM

Track Back:

Squeezing Iran

The Washington Post reports: Iran Feels Pinch As Major Banks Curtail Business.

More than 40 major international banks and financial institutions have either cut off or cut back business with the Iranian government or private sector as a result of a quiet campaign launched by the Treasury and State departments last September, according to Treasury and State officials.

Posted by conservative democrat [TypeKey Profile Page] | March 26, 2007 7:31 PM

Its great that the sanctions are working Ed, but like Iraq in the 90's, the mullahs will eat like kings, and the civilians will go without medical care and food. Maybe then they will rise up and overthrow the mullahs, unless their too weak from hunger, think about it.

Posted by Lew [TypeKey Profile Page] | March 26, 2007 9:11 PM

Excellent CD! And since we can't look good starving women and babies on Al Jazeera, what we really need is a deal where we can all get together and funnel money through the U.N. directly to the people in exchange for something like oil maybe. Bet the French and the Russians would even jump on that bandwagon with us.

Or.......maybe not?

Like Sadaam, the Mullahs of Iran have the power to hoard all the food for themselves while their people starve on TV. Or alternatively, they could also choose any of a wide range of other less despicable options that wouldn't cost anyone their lives or fortunes. Its up to them! They have the power to choose! And therefore, as a logical consequence, they are RESPONSIBLE for their choices!

Posted by Joshua [TypeKey Profile Page] | March 26, 2007 10:28 PM

No doubt, Ahmadinejad will claim this only goes to show how the world banking system is controlled by the dirty Joooooooooz.

Posted by Ray [TypeKey Profile Page] | March 26, 2007 10:35 PM

Using the Google satellite map feature, I am able to count people and automobiles in the west parking lot of the Eiffle Tower. I tried looking at the Straight of Hormuz, but this location does not allow high resolution pictures.

The U.S. most certainly knows exactly where everyone was when the 15 British marines were captured. No doubt, Iran has also been shown these photos.

This may explain why Iran is now backing down. From now on, when the Iranians make some stupid move, we should just say, "It is just those stupid Iranians".

Posted by SwabJockey05 [TypeKey Profile Page] | March 27, 2007 3:11 AM

Yes the US gov worked a "deal" with google so YOU cannot see the ships in the gulf/Hormuz.

But don't worry, the Mullahs will have plenty of high resolution photos of ship movement courtesy of the Russians, French and/or Chinese

To call the Iranians "stupid" would be a big mistake.

Posted by Ray [TypeKey Profile Page] | March 27, 2007 8:40 AM


When you gain a little experience working with the map feature, you will learn that areas of little interest (such as agricultural areas) do not have the high resolution photos available. This is the same way they handle the photos in critical areas like the Straights of Hormuz, they simply do not provide them.

And yes Swabby, the Iranians are stupid. On any long term basis, their actions will spell disaster for themselves and their regime. They will have their assets frozen. They will suffer travel restrictions. They will not have access to technology and goods that growing countries depend on. They will not have access to good universities (they have none).

The list is endless. They are a very backward country and their people are oppressed. Their current actions will hasten their demise.

Posted by SwabJockey05 [TypeKey Profile Page] | March 27, 2007 4:01 PM


You may be right. All the pitfalls you listed could indeed occur. I don’t want to argue with you over it because you could be 100% correct.

But then again, the Dhimmicrats could force a surrender in Iraq with immediate withdrawl...who knows what the resulting slaughter and chaos could lead to. How do you know the U.S. efforts you listed (assets frozen for example) wouldn’t be looked at again? How do you know the US will keep the pressure on? And for how long? What if the Mullahs manage to postpone your predicted disintegration until after ’08. Do you think a Pres Obama may change the calculus or current policy outcomes in that region?

My granddaddy used to say: “Young swabbie, don’t underestimate your enemy…he may not be as stupid as you’d like him to be…”

Posted by Ray [TypeKey Profile Page] | March 27, 2007 9:37 PM


You also may be right. We are set on a dangerous path. Not much good can come from it.