Middle East Ticker

Europe Looks for Ways to Protect Businesses from Iran Sanctions

By J. Dana Stuster
Tuesday, August 28, 2018, 9:06 AM

Iran Looks to International Court and European Leaders for Help on Sanctions

Iran has taken its case against the reinstatement of U.S. sanctions to the International Court of Justice. Iranian officials began presenting their argument on Monday that U.S. policy is “intended to damage as severely as possible Iran’s economy and Iranian national companies, and therefore inevitably Iranian nationals,” which they say is a violation of the 1955 Treaty of Amity (the treaty remains in force, according to a previous court ruling). U.S. Secretary of State Mike Pompeo has called Iran’s claims “meritless” and “an attempt to interfere with the sovereign rights of the United States,” and said that the United States will continue to defend the sanctions policy.

The court case is unlikely to produce any change in either country’s policy—both the United States and Iran have disregarded ICJ rulings before. But it is just one aspect of an ongoing dispute that has been building momentum since the first round of sanctions went back into effect on August 7. On August 16, Pompeo announced the formation of a new “Iran Action Group” to manage the U.S. campaign to pressure Tehran at the State Department and coordinate with other U.S. government agencies; BuzzFeed notes that Pompeo formed a similar task force at the CIA during his tenure there as director. The sanctions are beginning to take hold—evident in oil prices edging higher and the announcement from French oil company Total that it has officially withdrawn from Iran. U.S. officials also arrested two men accused of spying for Iran on August 9; Reuters reports that Ahmadreza Mohammadi-Doostdar and Majid Ghorbani, one a U.S.-Iranian dual citizen and the other an Iranian citizen living in California, had been surveilling a Jewish student center in Chicago and collecting information on supporters of the Mujahedin-e-Khalq (MEK), an Iranian dissident organization. Additional U.S. sanctions are slated to go into effect in November.

The limits of the U.S. sanctions policy are already starting to show, though. As analysts have warned for months, a unilateral sanctions policy will not have the teeth of the international campaign that compelled Iran to negotiate the Joint Comprehensive Plan of Action. And with the other parties to the agreement trying to maintain the deal now that the United States has withdrawn, many close U.S. allies are actively working against the Trump administration’s sanctions campaign. German Foreign Minister Heiko Maas proposed last week that Europe begin creating financial systems that are not reliant on the United States and U.S. dollars, in order to insulate European foreign and financial policy from decisions in Washington. In an editorial for the German paper Handelsblatt, Maas wrote that “it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent SWIFT system.” The centrality of U.S. currency and financial institutions to global markets and transaction systems like SWIFT have given U.S. sanctions reach and influence that extend far beyond U.S. borders; a parallel system that could operate autonomously from the U.S. policy would be a significant blow to the centrality of United States in international finance and protect foreign companies still eager to trade with countries under U.S. sanctions. China, meanwhile, is already influential enough to go its own way—and that’s what it is doing. Earlier this month, Reuters reported that China had switched over to shipping its oil imports from Iran via Iranian tanker ships, circumventing U.S. sanctions. Iranian officials have said that if they can maintain oil exports to China, the effect of U.S. sanctions will be blunted.

Iranian officials have remained defiant while trying to coordinate ways to circumvent U.S. sanctions with European diplomats. On Monday, an Iranian Revolutionary Guards naval officer told Iranian state media that Iranian forces control the Persian Gulf and that “there is no need for the presence of aliens like the U.S. and the countries whose home is not in here.” Meanwhile, President Hassan Rouhani spoke with French President Emmanuel Macron about maintaining access to European banking networks and transportation and insurance companies. Rouhani is walking a difficult balance between taking a tough line, managing partnerships with European leaders, and keeping his domestic rivals at bay, but the U.S. withdrawal from the JCPOA has left an opening for hardliners in Tehran. Over the weekend, the Iranian parliament impeached Masoud Karbasian, Rouhani’s economy minister. Karbasian is the second Rouhani administration official removed from office in recent weeks; earlier the month, the parliament also ousted the minister of labor and social affairs.

 

Turkey Feud Would End “Instantly” If Pastor Released, Bolton Says

Turkey could end a diplomatic crisis with the United States if it just releases Andrew Brunson, a U.S. citizen being held on charges of involvement in the July 2016 coup attempt, U.S. National Security Advisor John Bolton told Reuters in an interview last week. “Every day that goes by that mistake continues, this crisis could be over instantly if they did the right thing as a NATO ally, part of the West, and release Pastor Brunson without condition,” he said. Bolton’s comments follow a report from the Wall Street Journal that Turkish officials declined a U.S. proposal that would have secured Brunson’s release in exchange for the United States waiving billions of dollars in fines on a Turkish bank for violating U.S. sanctions on Iran. Turkish diplomats previously requested the release of Hakan Atilla, a bank official convicted in the Iran sanctions case, but U.S. officials refused the deal.

The feud over Brunson, a pastor who lived abroad in Turkey for 23 years and is one of several Americans being held by Turkey on weak evidence, has prompted the Trump administration to impose tariffs on Turkish steel and aluminum and sanction several Turkish officials. U.S. Treasury Secretary Steven Mnuchin has said that more sanctions may be forthcoming. Though it is unclear what effect these measures have had, they come amid a monetary crisis in Turkey that has seen the value of the lira plummet in recent months. President Recep Tayyip Erdogan has called the measures a form of economic warfare, which dovetails with his administration’s claims that the crisis is actually a foreign plot. The heated rhetoric has even incited violence: On August 20, in the early morning, two Turkish men fired six shots at the U.S. embassy. No one was hurt, but one of the men confessed to police that the attack had been politically motivated. “We talked about the dollar crisis, about the U.S. threats against Turkey and about the recent statements of U.S. president. Then we got angry and decided to shoot at the U.S. embassy under the influence of alcohol,” he reportedly said.

In addition to the economic crisis, Turkey is also scrambling to reach a diplomatic arrangement to prevent a fresh offensive by the Assad regime in Syria’s northwest Idlib province, one of the few rebel strongholds in the country. “A military solution here would be a disaster, not just for the Idlib region, but a disaster in terms of Syria’s future,” Turkish Foreign Minister Mevlut Cavusoglu said at a press conference in Moscow last Friday. Cavusoglu also warned of the potential displacement of more refugees. “Where will some 3.5 million civilians go to?” he asked. Turkish diplomats will meet with Syrian, Iranian, and Russian officials for further talks on September 7 in Tabriz, Iran.

 

Saudi King Hits Brakes on Crown Prince’s Faltering Reforms

After three years of managing much of Saudi Arabia’s foreign policy and domestic reforms, the kingdom’s ambitious crown prince, Mohammed bin Salman (MBS), has reportedly had his wings clipped by his father, King Salman, according to reporting by Reuters. In recent months, the king has walked back MBS’ backing for the Trump administration’s Israeli-Palestinian peace plan, and now reportedly canceled plans to take Saudi Aramco, the state oil giant, public. The initial public offering was supposed to be a cornerstone of MBS’ Saudi Vision 2030, a social and economic reform plan that would transition the Saudi economy away from its reliance on oil and toward a more diversified and sustainable future. But now those plans are apparently being curtailed—at least while King Salman remains on the throne. "The king is obsessed with the idea of how history will judge him,” one anonymous Saudi insider told Reuters. “Will he be the king who sold Aramco, who sold Palestine?”

The biggest news in recent days is the collapse of the Aramco IPO. Plans have been postponed indefinitely for months, but it now appears that they may effectively be canceled. Saudi Energy Minister Khalid al Falih claimed this week that a listing is still being planned, and in preparation, the Saudi government has changed Aramco’s perpetual exclusive rights to extract oil and gas in Saudi Arabia to a 40-year exclusive contract with the potential for extension. Falih told the Financial Times that the change in Aramco’s contract was “one of several important steps undertaken to prepare Saudi Aramco for being listed,” and that the IPO will occur “when conditions are optimum, at a time of its choosing.” But that time will not occur anytime soon, and Saudi Arabia is now seeking $11 billion in bank loans to supplement its sovereign wealth fund in place of the money it hoped to raise from the IPO. Writing for Bloomberg, Karen Young of the Arab Gulf States Institute in Washington warns that might not address the real problem: the government’s oil-driven, centralized approach to investment, which is leading to capital flight. “For private-sector growth to take place, capital needs to feel safe, and investors need legal guarantees to protect them. But this has not happened,” she writes. “Instead, the business cycle continues to be fueled by government project-spending tied to oil revenues.”

Other aspects of MBS’ plans for the kingdom are facing similar challenges of his own making. Some of the social policies he has overseen, including a reduced role for the country’s religious police and greater rights for women, are truly beneficial and long overdue. But progress made by the lifting of the ban on women driving was undermined when the government intimidated Saudi women’s rights activists to prevent them from talking to journalists. Now, a court is considering the death penalty for another woman activist, Israa al-Ghomgham, who is on trial for “participating in protests, chanting slogans hostile to the regime, attempting to inflame public opinion and filming protests and publishing on social media.” And then there’s MBS’ foreign policy, which has seen Riyadh pick needless fights with Qatar and now Canada and continue a grinding stalemate in Yemen. Just days after a Saudi airstrike killed 40 children in Dahyan, U.N. officials said more airstrikes, these in Hodeidah, killed another 26 children and four women. Though Secretary of Defense James Mattis has previously defended the high civilian death toll from the Saudi air campaign, he reportedly has authorized U.S. officials to take a tougher line with the Saudi military and threatened to reduce U.S. logistical and intelligence cooperation with Saudi operations. Lt. Gen. Jeffrey Harrigan, the outgoing air component commander for Central Command, told the New York Times that Saudi Arabia needs to thoroughly investigate the strikes and be more honest about what has occurred. “Clearly, we’re concerned about civilian casualties, and they know about our concern,” he said. “The key here is to take appropriate action.”