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The final details are still being worked out, but according to Dubowitz and aides informed about the deliberations, the measure is likely to include language designating Iran’s entire energy sector as a zone of “proliferation concern,” which would then require the United States to bar all financial transactions with that sector, per existing law.
Countries would be required to significantly reduce all non-petroleum sales to Iran, much in the way they’ve been made to reduce their oil purchases under the central bank sanctions, with waivers allowed for those countries able to demonstrate significant reductions. The law is also likely to ban the sale of items and materials used in the energy, shipbuilding and other industrial sectors, such as aluminum, steel and coal, entirely. And it would require foreign countries to freeze Iran’s foreign currency reserves, something Dubowitz said has been key to keeping the Iranian economy afloat.
Foreign companies that do not comply would be subject to sanctions, including losing access to the U.S. financial system.
In other words, the new proposal would shift the sanctions regime from one prohibiting certain types of transactions with Iranian entities to one in which, “everything is prohibited unless we say it’s not,” said the aide.
The aide also conceded that such a restrictive sanctions regime could very well disrupt efforts to restart talks with the Iranians over their nuclear program, but argued that any offer of sanctions relief, which hawks fear President Barack Obama will make, would “undermine our own negotiating position.”
Dubowitz, however, said he believes the administration’s diplomatic outreach and the implementation of broad trade sanctions could be complementary. “The administration is certainly looking to ratchet up the pressure,” he said, and is already at work going after Iran’s foreign exchange reserves. He argued that crushing economic sanctions are the only thing that will convince Tehran to negotiate in good faith.
But when it comes to easing sanctions, he said, “You don’t agree to do that unless you’ve received meaningful nuclear concessions.”
Kirk, Menendez and others will also be watching closely to see how the White House comes down on the next round of waivers from the central bank sanctions, due next month. The Obama administration decided to waive sanctions against all of Iran’s leading oil buyers — including allies in Europe, Japan, South Korea, China and India — this summer but needs to decide whether to renew those waivers every 180 days.
The waiver was renewed for Japan and 10 European countries in December, but the status of China, South Korea and India remains up in the air. If they do not receive a waiver, oil buyers in those countries who make their purchases using Iran’s central bank face tough U.S. sanctions, which could ruffle diplomatic feathers.