Will Obama Follow Through on Iran Sanctions?

After enacting comprehensive energy sanctions on companies that do business with Iran, and encouraging 31 other countries to follow suit, last Thursday the United States announced penalties against only a single firm for violating them.

The U.S. Department of State named the Naftiran Intertrade Co. (NICO), an Iranian energy-trading company based in Lausanne, Switzerland, for violating the Iran Sanctions Act, a 1996 law which prohibits investments of $20 million or more in the Iranian energy sector. The move could result in U.S. penalties against the firm and is intended to make it more difficult for foreign energy companies to do business with NICO. According to the State Department, NICO has raised hundreds of millions of dollars in financing for the Iranian energy industry.

NICO is also heavily involved in numerous joint ventures and investments outside of Iran – including a consortium developing Azerbaijan's Shakh-Deniz oilfield with Norway's Statoil, BP, Russia's Lukoil, France's Total, the State Oil Company of Azerbaijan, and Turkey's National Oil and Gas Company. The Iranian Oil Company, a subsidiary of NICO, is a partner in a 50-50 joint venture with BP in the Rhum natural gas project off the coast of Scotland. These deals give Iran influence over foreign energy resources and possible access to technology and expertise otherwise blocked by U.S. and EU sanctions.

As international sanctions have begun to bite, an increasing number of companies have ended their energy trade with Iran. The State Department announced that four European multinational firms have committed to halting investments in Iran's energy sector: Total, Statoil, ENI, and Royal Dutch Shell. Sanctions czar Robert Einhorn has also touted the $50 to $60 billion in Iranian energy projects international companies have frozen due to the threat of sanctions.

Yet many European and Asian companies continue to make deals with Iran, including Chinese companies (like CNPC, CNOOC, and Sinopec) and Swiss companies (like Elektrizitäts-Gesellschaft Laufenburg and Ceresola TLS, which last week FDD revealed had sold €1 billion of tunneling and heavy earth-moving equipment to Iran). Although the confirmation order lists the deal as a project for a metro line, obtaining this equipment is also a top priority for Iran's nuclear program. Tehran needs it to hide nuclear installations deep underground, as it did with its enrichment facilities in Qom and Natanz.

Scores of German engineering companies belonging to the German Engineering Federation are also among Iran's most active partners, and the federation has long lobbied against the sort of sanctions that now prohibit European companies from investing in Iran's energy projects and providing technology or technical assistance.

Since July 1, when President Obama signed the Comprehensive Iran Sanctions Accountability and Divestment Act into law to provide more teeth to the Iran Sanctions Act, his administration has taken important diplomatic steps to squeeze the Iranian regime by enforcing energy sanctions. The law gave Obama until October 1 to submit to Congress a list of companies he believes are in violation of Iran sanctions.

The Foundation for Defense of Democracies' Iran Energy Project (which, for the sake of full disclosure, I direct) has released two reports that identify more than 20 foreign companies with ongoing projects in Iran, making the case that they warrant further investigation under both the Iran Sanctions Act and the Comprehensive Act.

The U.S. should certainly continue to pursue sanctions against companies like NICO, and other Iranian-government controlled entities in Europe.

But it should also go after the many foreign energy firms that are violating U.S. law. If the Obama administration opts for only symbolic and selective measures, it could collapse our Iran policy, making it likely to require more drastic measures to prevent Iran from acquiring nuclear weapons.

Observers in Tehran, Beijing, Moscow and elsewhere are watching. Will President Obama enforce the comprehensive sanctions he worked so hard to pass?
Mark Dubowitz is executive director of the Foundation for Defense of Democracies and head of its Iran Energy Project.