A Steady Squeeze on Tehran

A steady squeeze on Tehran
By Amandeep Sandhu

As the conflict over the British hostages held by Iran plays out, another
conflict is taking place in the boardrooms of banks and oil companies. The United States is leading a quiet charge, focusing

on the Iranian financial and energy sectors.

While the US has had sanctions in place against Iran since the Iranian
revolution in 1979, there is a new, pointed sanctioning aimed at starving Iran of capital. The US is waging a quiet campaign on the Iranian economy by starving it of
capital by pressuring global oil companies and financial institutions.

Oil companies targeted
The US is increasing pressure by targeting the investment of foreign oil
companies in Iran’s oil and gas sector. While the US has objected to
investments in Iran’s energy sector for a long time, it has become
energetically active in countervailing all energy investments in the past few
months.

During the first two days of February, Iran convened a conference in Vienna to offer 17 new oil blocks on the market. In the two weeks leading up to the
conference, US officials intensively lobbied oil and gas companies not to
invest in Iran. Despite these efforts, more than 200 representatives from 59
different non-US international companies attended the conference. [1]

In the week preceding the conference, Anglo-Dutch Shell and Spanish Repsol
co-signed a US$10 billion agreement based on a framework agreed in 2004 for the
development of the South Pars gas field. A US State Department spokesperson
responded by indicating an investigation of Shell. Shell, in turn, reiterated
the legality of the deal under European law while warning investors that it
might face sanctions in the US. [2]

The French company Total SA - which also participated in the Vienna conference
– indicated that although it is listening to the US arguments, the company is
not obliged to respect US law. [3]

In February also, the US ambassador to Spain, Eduardo Aguirre Jr, met with
Repsol executives to warn them about the "delicate situation" about
investing in Iran. While Aguirre did not call for the cancellation of the deal
that Repsol had co-signed with Shell, he did call for a delay until the
financial pressure on the Iranian regime results in a change in regime
behavior. [4]

Brazilian Petrobras along with Repsol began partnering with the National
Iranian Drilling Co in drilling three oil wells in February. The eventual aim
of the project is a $470 million drilling contract. During a meeting with
Petrobras’s president, the US ambassador to Brazil, Clifford Sobel, warned of
complications for Petrobras’s US operations in the Gulf of Mexico if the
company went ahead with the Iran project. [5]

Subsequently, the issue was raised by the United States at the Brazil-US
meeting last Saturday, with President Luiz Inacio Lula da Silva reaffirming Brazil’s right to pursue commercial activities in Iran.

Last month, Daniel Sullivan, the US assistant secretary of state for economic,
energy and business affairs, met with Norwegian Oil Minister Odd Roger Enorksen
to talk about Norwegian investments in Iran. Statoil, the largest Norwegian
company, has held talks with US officials about investments in Iraq. Subsequently, in its filing with the US Securities and Exchange Commission, Statoil
indicated that it could be sanctioned for the 2002 deal in which it received
37% of the South Pars gas license. Since the end of last year, Statoil has
invested $394 million in the project. The Norwegian oil minister, however,
indicated that the decision to invest in Iran is a commercial one to be decided
by the company rather than the Norwegian government. [6]

In January, Malaysia’s SKS Ventures signed a $16 billion agreement to develop
two Iranian gas fields, Golshan and Ferdows. In return, a subsidiary of SKS
offered Iran a $2 billion share in a refinery it is constructing in Malaysia. [7]

Although Tom Lantos, chairman of the US House of Representatives Foreign
Affairs Committee, is pressuring the Bush administration to stop the ongoing
free-trade-agreement talks with Malaysia, the Malaysian government has stood
behind Iran investment.

Lantos is also unrelenting in pressuring the Indian government to cancel the $7
billion Iran-Pakistan-India (IPI) gas-pipeline project. Both US Ambassador to India David Mulford and recently Samuel Bodman, the visiting US secretary of energy, have warned the Indian government about the IPI project.
Subsequently, however, Indian Defense Minister Pranab Mukherjee has indicated
that the pipeline project will proceed.

The US has also issued warnings to China, Japan and Pakistan to desist from
investment in Iran. Japan’s Nippon Oil, the largest oil importer from Iran, has indicated that it will reduce the amount of crude imported from Iran by 15%. [8]

Pressure on banks and divestment
The second point of pressure on Iran is via cutting off Iran from the global financial system by pressuring banks and businesses. Last September,
the US cut off one of largest Iranian banks, Bank Saderat, from access to the US financial system. In January another Iranian bank, Bank Sepah, was designated as helping
proliferation of weapons of mass destruction and was cut off from the US
financial and commercial system.

It is one thing to cut off banks from the US financial system, but this in turn
forces other banks to cut off their connections with Iranian businesses, as
these banks do not want to risk their own access to the US-centered global
financial system. And they have been pushed along by a campaign begun last July
in which US Treasury officials met with more than 40 banks to pressure Iran. Most of these banks have since either completely cut off business with Iran or rolled back their exposure. [9]

In a recent Dubai conference attended by the heads
of Middle East businesses, US Under Secretary for Terrorism and Financial
Intelligence Stuart Levey warned the businesses to worry about the risks of
doing business with Iran. Levey, whom neo-conservative Frank Gaffney praises
for pursuing "Reaganesque economic and financial measures" [10]
against Iran, hailed the cancellation of a planned conference session on doing
business in Iran. [11]

It is not coincidental that Dubai, the Middle East’s petrodollar repository and
Iran’s access point to the global business world in the face of US sanctions
since 1979, was chosen by Levey to warn companies about doing business with Iran.

In his comments in Dubai, Levey highlighted how banks such as

UBS, HBSC, Standard Chartered, Commerzbank and many others have limited their
exposure to Iranian business because these are "business decisions, pure
and simple". [12] But what he conveniently forgot to mention was the $80
million in fines that ABN AMRO had to pay for breaking the sanctions last year.

Another way of starving Iran of capital is by pressuring European countries,
which conduct more trade with Iran than any other region, to cut off export
credits and guarantees. In 2005, Iran received $22.3 billion worth of export
credits and guarantees from member states of the Organization for Economic
Cooperation and Development. [13] As a result of US pressure, France, Germany and Japan have sharply reduced export credits, and others have committed to do the
same in the near future.

Pushed by the Israel lobby, a divestment movement to pressure businesses that
invest in Iran is gathering pace in the United States. Drawing on the
anti-apartheid divestment of the 1980s, the neo-conservative Gaffney-led Center for Security Policy is leading a charge to punish companies doing business
with Iran by depriving them of cash from some of the biggest institutional
investors, such as public pension funds.

The groups aligned with the Israel lobby have been pressuring pension funds
since 2004; however, they only achieved a breakthrough last year. Sarah
Steelman, the treasurer of Missouri, became the first state official to put
into practice "terror-free" investing, for which she was invited to
the 2007 Israel lobby annual meeting as a keynote speaker.

Benjamin Netanyahu, the former Israeli prime minister, recently telephoned
California Governor Arnold Schwarzenegger to press him to divest the state
public retirement fund from companies supposedly investing in terror. [14] The
divestment bill is on its way to becoming law; other states such as Florida, New Jersey, Massachusetts and Ohio are working on similar bills.

Preparing for regime change from below
The campaign of capital starvation is matched by a simultaneous effort to
strengthen domestic opposition forces in Iran. Since last year, a newly created
office of Iranian affairs led by Elizabeth Cheney is financing a large number
of civil-society groups under the Iran Democracy Project that "must
outline activities linked to reform and demonstrate how the proposed approach
would achieve sustainable impact in Iran". [15]

In a repeat of the pattern of the "color" revolutions of the recent
past, the United States is funding a number of civil-society groups via the
National Endowment of Democracy (NED). The US Congress is increasing funding
for the Iran Democracy Project: $66.1 million in 2006; $85 million for 2007;
and $100 million for 2008. [16] During 2008, 75% of the fund will be designated
for the support of civil-society and human-rights projects in Iran.

Last year, $20 million of allocated funds went to civil-society and
human-rights programs, while the majority - $36.1 million - went to improve
Persian-language media programing into Iran via the Voice of America’s Farsi
service and Radio Farda, the radio channel founded in 2002 aimed at the youth
of Iran. Recently, Radio Farda’s website began a section devoted to "four
non-violent revolutions". [17]

The NED-affiliated International Republican Institute has been providing
training to groups and individuals from Iran outside the country on what could
be called non-violent civil disobedience, but is in fact a preparation for
regime change from inside.

Waiting for regime disorientation

US economic and information pressure is mounting against Iran. While efforts to stop oil companies investing in Iran have produced mixed results,
the increased pressure is making companies hedge their bets. Pressure via the
financial sector has been more effective, since most banks have fallen into
line and increasingly the Iranian government faces trouble financing its energy
projects.

The real role of capital starvation - either via pressure on oil companies or
via financial means - is to disorient the regime in Tehran. A military attack
looks unlikely at this point, though it cannot be discounted.

External military pressure - the encirclement of Iran from Afghanistan, Pakistan, Iraq, the Gulf states and the naval armada in the Persian Gulf - adds to the
potential of regime disorientation in Tehran. If this leads to infighting and
turmoil, into the gap might step the Iranian opposition under training
somewhere in the region.

Notes
1. target="_blank" set=yes>Iran offers 17 new oil blocks to foreign investors,
Islamic Republic News Agency, February 3.

2. <a
href="http://www.marketwatch.com/news/story/shell-reiterates-iran-sanctions-risk/story.aspx?guid=%7BB49E0E12-AF42-4B0C-9F49-0942DED1B7A2%7D"
target="_blank" set=yes>Shell reiterates Iran sanctions risk as pressure
intensify in US, Marketwatch, March 14.
3. <a
href="http://www.washingtonpost.com/wp-dyn/content/article/2007/01/31/AR2007013102166.html"
target="_blank" set=yes>US cautions Europeans to avoid oil, gas deals with Iran,
Washington Post, February 1
4. "EEUU Califica de Muy Delicado el Plan de Inversion
de Repsol y Shell en Iran", February 20, El Mundo.
5. target="_blank" set=yes>Petrobras takes heat from the US over Iran,
PetroleumWorld.com, February 4.
6. <a
href="http://www.dailytimes.com.pk/default.asp?page=2007%5C03%5C30%5Cstory_30-3-2007_pg5_32"
target="_blank" set=yes>Norway opposes US energy sanctions law on Iran, Daily
Times, March 30.

7. set=yes>Iran and Malaysia sign MoU to set up power plant in northwestern Iran,
GasandOil.com, February 13.
8. target="_blank" set=yes>Japan cuts Iran oil imports over nuke crisis, Iran
Focus, March 16.
9. <a
href="http://www.washingtonpost.com/wp-dyn/content/article/2007/03/25/AR2007032501084.html"
target="_blank" set=yes>Iran feels pinch as major banks curtail business,
Washington Post, March 26.
10. target="_blank" set=yes>A tale of three leaders, JewishWorldReview.com,
January 3.
11. target="_blank" set=yes>Prepared remarks of Stuart Levey,
UAE.USEmbassy.gov, March 7.

12. Ibid.
13. set=yes>United States policy toward Iran, US Department of State, March 29.
14. target="_blank" set=yes>Netanyahu lobbying US for Iran disinvestment,
IsraelNationalNews.com, March 13.
15. Iran
democracy program announcement, US Department of State.
16. target="_blank" set=yes>US program is directed at altering Iran’s politics,
International Republican Institute, April 15, 2006, and <a
href="http://www.state.gov/p/us/rm/2007/82374.htm" target="_blank" set=yes>United
States policy toward Iran, US Department of State, March 29, 2007.

17. RadioFarda.com.

Amandeep Sandhu writes on South Asian and Middle Eastern
affairs and is a chancellor fellow at the University of California, Santa Barbara. He can be reached at sandhu@umail.ucsb.edu.

(Copyright 2007 Amandeep Sandhu.)

http://www.atimes.com/atimes/Middle_East/ID05Ak05.html