February 20, 2013 | Bloomberg

Is Iran Creating a Health Crisis to Evade Sanctions?

February 20, 2013 | Bloomberg

Is Iran Creating a Health Crisis to Evade Sanctions?

Unless Iran abandons its quest for nuclear weapons, there is one certainty in Washington’s policy toward the Islamic Republic: more sanctions. It is also inevitable that the more these economic measures hurt average Iranians, the more controversial they will become, especially in Europe.

The U.S. and its allies, then, would do well to pre- emptively undermine efforts by Iran to play up a false humanitarian crisis in order to weaken the global commitment to sanctions. Victory in the economic war demands winning the public-relations war, as well.

We can debate whether the sanctions, which have cut Iranian oil exports in half, have thwarted Supreme Leader Ayatollah Ali Khamenei’s aspirations. That discussion is, however, largely irrelevant. President Barack Obama is using sanctions for the same reason President George W. Bush did: They are the only nonmilitary means of coercing a regime in Tehran that will break any agreement and evade all kinds of inspections.

Sanctions would be even more critical after an American or Israeli pre-emptive strike on Iran’s nuclear facilities. Whatever the damage done, Americans and Europeans won’t want it repaired. Officials in Washington are thus committed to ever- more crippling sanctions.

This is why we should be alarmed by recent claims from the Iranian government and well-meaning Western nongovernmental groups that U.S.-led pressure is causing shortages of medicines, powdered milk and other vital supplies.

Medical Imports

We do not believe the claims that sanctions are threatening civilian lives. The clerical regime can use its oil sales to import all that is required to avert a humanitarian crisis. There are no sanctions against food or medicine imports to Iran. The Islamic Republic’s growing medical problems have much more to do with the regime’s spending preferences and corruption than with sanctions.

Still, the U.S. needs to be honest and forthcoming about what it is doing so it can also be clear about the means necessary to keep sick Iranians from dying. The Obama administration and Congress intend to make sanctions sufficiently crippling to force Khamenei to make a fundamental choice — his regime or his bomb — before the nuclear program reaches “breakout” point, at which a bomb can be made quickly and covertly. The U.S. and its European allies want the Iranian ruling elite — which has weathered vicious internecine strife, a devastating war with Iraq, and more than three decades of ever-worsening public living standards — to fear the political fallout from an economic collapse.

Given the regime’s nuclear progress, new sanctions need to paralyze quickly. A recent report by the Project on U.S.-Middle East Nonproliferation Strategy offers a mid-2014 date for when Tehran could reach the “critical capability” to produce enough weapons-grade uranium (or a sufficient amount of separated plutonium from the Arak heavy-water reactor) to build a bomb before it could “reasonably be expected to be detected” by the International Atomic Energy Agency or Western intelligence services. The Iranians may get there even faster if they succeed in operating the advanced centrifuges recently introduced into its known facilities or enhances its plutonium reprocessing, as it recently announced. Worse, better centrifuges are easier to conceal as they require smaller cascades and labs.

Against this threat, we are left with a somewhat clumsy weapon. There is simply no such thing as a “smart sanction” that punishes the Iranian elite and spares the common man. Iran has a deeply socialized economy, and the Revolutionary Guard Corps, the praetorians who oversee the nuclear program, is invested in virtually every economic sector, especially in energy. It’s impossible to hurt the guards, or Khamenei, without shocking the entire economy.

Regime Control

The regime’s control of the Iranian economy was the basis for sanctions that Obama signed into law last month, which create a much more robust framework for a U.S.-enforced de facto trade embargo on Iran. They target foreign companies that do business with the guards or with Iranian entities that are part of the government, or are acting as its agents or instruments. Unless foreign companies are selling humanitarian goods, or receive limited exceptions related to oil purchases, they will need to find a “pure” private business partner in the Islamic Republic, without connections to the guards or the government. In strategic sectors of Iran’s economy, that is all but impossible.

Officials in Washington are also tightening their financial embargo by targeting Iranian foreign-exchange reserves held in euro-denominated assets in overseas banks. Congress is teeing up legislation designed to persuade the European Central Bank to shut down access to its euro-bank payment system for any financial institution that helps Iran use or transfer its euro assets. This is possible because such euro transfers are processed through the ECB’s Target2 interbank payment system. The ECB’s guidelines bar access to Target2 for those engaged in “money laundering and the financing of terrorism, proliferation-sensitive nuclear activities, and the development of nuclear weapons delivery systems.” This language describes the Iranian regime to the letter.

What would all these new measures add up to? Most likely, the collapse of Iran’s currency over the next 18 months. If, so the Obama administration has to prepare now for the inevitable fallout.

Bill Clinton’s administration wasn’t prepared with Iraq. American-led UN sanctions may well have been decisive in dissuading Saddam Hussein in the 1990s from continuing his weapons-of-mass-destruction programs. But in the public- relations war, the U.S. got hammered, in large part because humanitarian trade was savagely abused by the Iraqi regime and the White House failed to counter the criticism from Europe and elsewhere that sanctions were causing a humanitarian disaster — remember the claims that U.S. efforts were killing thousands of Iraqi babies each month?

Trade Partners

Similar criticism of Washington’s handling of Iran is already percolating in Europe and among global health groups. For now, even France’s socialist president, Francois Hollande, is admirably standing by the sanctions effort. But as the measures bite deeper into the Iranian economy, and if the regime improves its public relations, anti-sanctions sentiment could grow rapidly in Germany, Iran’s top trade partner in Europe, and in Scandinavia, where humanitarian concerns often overlap with commerce. In Europe and the U.S., where many in foreign-policy circles have already conceded the bomb to Iran, sanctions may soon seem gratuitous, cruel and counterproductive.

Obama rarely uses his bully pulpit to explain why a nuclear weapon in Khamenei’s hands would endanger not just the political balance of the Middle East but global peace as well, and why crippling sanctions are the regime’s choice, not America’s. Most important, the administration — especially the State Department — hasn’t been energetic in pre-empting the bad press about medical-supply shortfalls.

It’s true that while American and European sanctions explicitly exempt humanitarian goods, they have complicated some financial transactions for nervous foreign bankers who service Iranian health-care importers and Western suppliers. But Iran has billions of dollars in local-currency accounts in Turkey and in Asian countries, such as Japan, India and South Korea, which import Iranian oil. That money cannot be repatriated in hard currencies; it can be used to buy all the medical supplies and food the Iranian people need. Japan has a world-class pharmaceuticals industry; India has a large generic drug industry. South Korea and Japan make sophisticated medical equipment.

Iran can also import Western-manufactured drugs and equipment without restriction through countries with these local-currency accounts. That wouldn’t require the transfer of funds from foreign bankers to Iranian banks.

With an eye to the hearts-and-minds battle in the Western and Persian-language news media, the Obama administration should focus on digging out Iranian humanitarian corruption. Congress has empowered the White House to sanction Iranians for human- rights abuses if they misuse funds for food, medicine and medical equipment. This has been an egregious problem in Iran; there have been several scandals reported in the state- controlled press, and President Mahmoud Ahmadinejad fired the health minister in December.

Between its inaction on Syria and the nominations of John Kerry as secretary of state and Chuck Hagel as defense secretary, the Obama administration has made clear it has little interest in new military interventions abroad. Economic warfare is bound to grow in appeal. Yes, sanctions hurt the average person as much as, or more than, they hurt a cruel regime, but the downside for risk-averse Westerners is less than the possibility of protracted conflict abroad. Americans and Europeans would do well to become more adept at waging it.

Reuel Marc Gerecht, a former officer in the Central Intelligence Agency’s clandestine service, is a senior fellow at the Foundation for Defense of Democracies. Mark Dubowitz is the foundation’s executive director and leads its projects on sanctions and nonproliferation. The opinions expressed are their own.

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