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The Thirty-Year War

Iran policy goes from failure to failure.

Dec 12, 2011, Vol. 17, No. 13 • By LEE SMITH
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The more immediate concern is that sanctions driving up oil costs might create a windfall for Iran. The question, says Mark Dubowitz, executive director of the Foundation for Defense of Democracies (FDD), “is how do you design a package that targets the price of oil but leaves the physical supply alone? Otherwise Ali Khamenei will enjoy an astonishing windfall by selling his oil at sharply higher prices.” The answer is to wean your allies off of Iranian oil as quickly as possible and leave Tehran with only those customers who will ignore sanctions anyway, namely China. If Beijing is Iran’s only buyer, it will have leverage to extract discounts from Tehran, which might cost the regime tens of billions of dollars in revenue. 

Significant discounts are also possible even if India keeps buying Iranian oil along with Turkey, South Africa, Pakistan, and Sri Lanka, Iran’s other major buyers. FDD’s confidential report on the “Oil Market Impact of Sanctions Against the Central Bank of Iran” provided a detailed economic model that informed the Kirk-Menendez sanctions amendment, which won unanimous Senate consent for consideration on the new Defense authorization bill. Senators Mark Kirk (R-Ill.) and Robert Menendez (D-NJ) wrote separate amendments, with Kirk’s the more draconian of the two, levying secondary sanctions on anyone who did business with the Central Bank of Iran. 

Administration officials feared that Kirk’s effort would alarm allies and oil markets and requested that the two draft a compromise. The Kirk-Menendez amendment leaves plenty of room for those accustomed to working with the Central Bank of Iran to take their business elsewhere. It imposes sanctions on “foreign financial institutions, including central banks, engaged in petroleum related transactions with the Central Bank of Iran after 180 days with 180-day special exemptions tied to the availability of non-Iranian oil on the market and a country’s significant reduction in purchases of Iranian oil.”

The point of sanctions like the Kirk-Menendez amendment, says Dubowitz, “is to bring your allies on board as quickly as possible without spooking oil markets and to give the administration flexibility to manage two of the most sensitive elements of the global financial system​—​oil markets and central banks.”

To get the White House to buy in, the amendment provided a number of waivers for the president. For instance, the timeline allows the president to decide “whether the price and supply of petroleum and petroleum products from non-Iranian suppliers is sufficient to allow purchasers to significantly reduce their purchases from Iran.”

Nonetheless, the administration came out against the amendment, with Treasury Secretary Timothy Geithner arguing that it would force the international community to choose between doing business with us or with the Islamic Republic. “I think that choice is pretty easy for them,” Menendez countered. “We shouldn’t be leading from behind, we should be leading forward.”

The clock is ticking on the Iranian nuclear weapons program, said Menendez. “The published reports say we have about a year. Now when are we going to start our sanctions regime robustly, six months before the clock has been achieved? Before they get a nuclear weapon?”

Over the last 30 years the price for stopping Iran has risen steadily. What would have come relatively cheaply in November 1979 will likely cost the United States, its allies, and interests, dearly. The Obama administration may not be on board, but at least U.S. lawmakers recognized last week that the international community can’t afford an Iranian nuclear weapon.

Lee Smith is a senior editor at The Weekly Standard.

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