February 24, 2010 | Wall Street Journal

The Case for Gasoline Sanctions on Iran

Are gasoline sanctions against Iran a bad idea? President Barack Obama appears to think so, despite endorsing the idea twice during his election campaign. Although the administration wants to use tougher sanctions to make Tehran stop its uranium enrichment, the White House hasn't pushed refined-petroleum sanctions. The Islamic Republic imports around 40% of its gasoline. Without plentiful petrol, Iranians might grow angry, so the administration worries, and rally around the regime.

Sanctions hitting the energy sector could also be viewed by Tehran as outright war. Supreme Leader Ayatollah Ali Khamenei could counter in Iraq and Afghanistan. And to make these sanctions effective, Washington might need to coerce our European allies, whose companies have the lion's share of the gasoline import and import-related insurance business. (Without insurance, tankers never leave harbor.)

For the administration, targeted financial sanctions against the holdings of the Revolutionary Guard Corps, which the U.S. has already designated a terrorist organization, are a more appealing way to push Iran's rulers to the negotiating table. And it's certainly true that Treasury Undersecretary Stuart Levey's intensifying assault on the ability of Iran's banks and Guards-owned enterprises to access foreign banks and credit markets has scared off foreign companies.

But let's be honest: Gasoline and insurance sanctions are just about all we've really got left in the quiver. The Guard Corps elite, who oversee Iran's nuclear program, are too well protected to be seriously hurt by financial and industrial sanctions. Targeted sanctions have increased the cost of Iranians doing business, but there is little evidence to suggest that sanctions so far have ever moderated the behavior of Iran's rulers.

The administration's “smart-sanctions” approach perpetuates a myth about Iran's politics that has crippled our analysis for years. Mr. Khamenei isn't an economic rationalist. He wasn't waiting for George W. Bush to depart to make peace with the United States. Men who talk about crushing the “enemies of God” won't give up their enriched uranium because transaction costs have increased. The acquisition of the bomb is now probably inseparable from the ruling elite's religious identity.

For sanctions to be a game changer, they have to be crushing. Mr. Khamenei's commitment to developing nukes is probably as strong as was Ayatollah Ruhollah Khomeini's determination to destroy Saddam Hussein in the Iran-Iraq War. The shock that stopped Khomeini-the realization that the conflict was threatening his regime's survival-ought to tell us what kind of shock we need now. Sanctions must complement the only thing that has so far rattled the regime: the pro-democracy Green Movement.

It is no coincidence that President Mahmoud Ahmadinejad signaled a tentative acceptance of the U.N.-brokered deal to ship 80% of Iran's low-grade enriched uranium abroad for further “civilian-use-only” enhancement just after the opposition destabilized the regime. With the opposition now off-balance, Mr. Khamenei has regained some confidence and the deal has vanished.

Gasoline and insurance sanctions tied to the cause of democracy might-just possibly-work. Foreign investment in Iran is rapidly declining. Even without refined-petroleum sanctions, foreign energy companies are reducing their investments and some are leaving the country. Munich Re and Allianz, two giant German insurance and reinsurance companies, recently announced they are terminating their Iranian business ties. Lloyd's of London, the world's leading specialist insurance market, promised to do the same once refined petroleum sanctions legislation is enacted.

The threat of gasoline sanctions also has persuaded BP, Reliance Industries and Glencore-all with deep, longstanding ties to Iran-to terminate direct gasoline sales. Siemens, the giant German industrial concern that was implicated in transferring telecommunication surveillance equipment to Tehran, has closed its headquarters in Iran.

More crucially, Mr. Ahmadinejad has badly mismanaged the economy, and the Iranian people know it. Refined-petroleum sanctions would rock an already shaky system. Iranians who are fed up with theocracy are certainly not going to embrace it if Mr. Obama declares gasoline sanctions the midwife of representative government. The regime has been blaming Washington for almost all of its failures since the revolution. Americans have become more popular in Iran precisely because the regime damns the U.S.

One can sympathize with Democrats who served in the Clinton administration and were beaten black and blue over the civilian damage of U.N.-backed sanctions against Saddam Hussein. Part of the administration's resistance to energy sanctions today springs from this past.

But the widespread revolt by ordinary Iranians since the June 12 presidential elections has changed the entire political dynamic. If sanctions are waged in the name of the Iranian people, we are much more likely to see Western opinion remain solidly behind them. These sentiments will likely be reinforced by prominent Iranian dissidents who've moved from adamant opposition to severe sanctions to hesitant acceptance of the idea (Nobel Prize winner Shireen Ebadi, for instance).

Could Tehran strike out against America because of gasoline sanctions? Possibly. The clerical regime has a bloody terrorist track-record; it has armed our enemies in Iraq and Afghanistan. Which is, of course, why this regime should neither nave nuclear weapons nor be allowed to use the threat of terrorism against us.

But if sanctions are to stop uranium enrichment, the Europeans are key. The Swiss-Dutch energy giants Vitol and Trafigura, the British-Dutch Shell, and the French energy powerhouse Total are big players in the gasoline trade. Most tankers wouldn't enter Iranian waters if British, German and Norwegian insurance companies stopped writing policies. Chinese companies may also think twice in the face of serious sanctions. Despite much ballyhooed press releases, few Chinese energy companies are actually delivering on the investment deals they sign with Iran.

If Mr. Obama were to use his popularity among Europeans decisively, he might get European leaders to assent to gasoline and insurance sanctions. Mr. Levey's actions no doubt helpfully remind Europeans that America can unilaterally make Europe choose between happy commerce with the United States or diminishing trade with Iran.

Since 2003, the French, British and Germans have been in fruitless negotiations with Tehran over uranium enrichment. As the regime cracks down on those in whom the Europeans had hope, its militant religious identity has come to the foreground. This greatly disturbs secular Europeans, who really wanted to believe that Iran had passed beyond Thermidor.

More than any other Western leader, French President Nicolas Sarkozy has eloquently warned about the Iranian threat (and a possible Israeli military strike to counter it). Since June 12 even the Italians, who've quietly conducted a multibillion-dollar trade with Tehran, are talking sanctions. Implementing sanctions in the European Union is a tricky affair given the EU's consensus politics and voting rules, but it's possible if the Germans, French and British are on board.

Messrs. Khamenei and Ahmadinejad have done a decent job of destroying the view that America, not Iran, was the problem. Mr. Obama's willingness to negotiate unconditionally with Tehran has also helped. And there is nothing wrong with the president's offer to talk to Mr. Khamenei about absolutely anything. This drives the supreme leader, who spiritually loathes the U.S. as much as his predecessor, nuts. As with Ronald Reagan and the Soviets, it's good global politics.

Now is the time for Mr. Obama to rally Americans and Europeans to the cause of Iranian democracy. If Mr. Khamenei can manage to crush the opposition, we will have lost an enormous opportunity to bring some normality and hope to the Middle East. Gasoline sanctions may well be too little too late to throttle the regime's nuclear aspirations. But we are fooling ourselves if we believe that what we've done so far will stop the Islamic Republic's quest for the bomb.

Mr. Gerecht, a former Central Intelligence Agency officer, is a senior fellow at the Foundation for Defense of Democracies (FDD). Mr. Dubowitz is the executive director of FDD and heads its Iran Energy Project.

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