November 6, 2018 | Policy Brief

New Treasury Sanctions Target Iran Air

November 6, 2018 | Policy Brief

New Treasury Sanctions Target Iran Air

In its largest ever single-day action against Iran, the U.S. Treasury designated nearly 700 entities, including Iran Air – the national carrier – and 67 of its aircraft. The Obama administration had suspended sanctions on Iran Air as part of the nuclear deal with Iran, thus making the reinstatement of sanctions very likely, especially given that the airline is a key regime asset.

The U.S. withdrawal from the nuclear deal had already proven costly for Iran Air, since it led to the cancellation in May of the airline’s multibillion-dollar deals with industry giants Airbus and Boeing. Iran Air had planned to purchase 200 aircraft from Airbus and Boeing at an estimated price of $35-40 billion.

Treasury’s new designations include 67 planes that belong to Iran Air, of which 50 had been sanctioned prior to the nuclear deal. The list’s 17 new targets consist of three Airbus planes and 14 ATR-72 aircraft delivered to Iran Air between January 2016 and August 2018 as part of deals signed with Western manufacturers.

Treasury did not relist 25 aircraft previously operated by Iran Air. Most of those planes have been either stored or scrapped, but two are still active and operated by Iran Air Tours, a subsidiary of Iran Air that had been under U.S. sanctions prior to 2016 but was not relisted. Also, Treasury did not link Iran Air’s re-designation to its past, active role in airlifting weapons and militias to Syria on behalf of Iran’s Islamic Revolutionary Guard Corps, or IRGC.

As a result of the new designations, Iran Air’s planes may now have problems refueling on international routes, as fuel suppliers may fear being slapped with secondary sanctions. This reportedly happened in Turkey last week, with some flights cancelled and others forced to reduce the number of passengers on board in order to store additional fuel. Such limitations plagued the airline’s operations between 2010 and 2016, when sanctions were lifted.

Secondary sanctions could indeed target all ground service providers, not just fuel companies. All airlines rely on an array of services, without which no commercial airline can operate effectively. For example, general sales agents (GSA) represent airlines in foreign countries and manage their cargo business, facilitating transactions and revenue streams in the process. Last summer, Treasury designated GSAs in Malaysia and Thailand that had served Mahan Air, another sanctioned Iranian carrier.

Iran Air has announced its interest in purchasing new planes from foreign manufacturers that do not require a U.S. license for sales to Iran. Since Treasury’s aviation sanctions apply to all aircraft with at least 10 percent of their parts manufactured in the U.S, virtually all Western planes require a license, but so, increasingly, do aircraft made elsewhere, such as Russian Sukhoi. For that reason, Tehran will more likely pursue a procurement strategy that employs the sort of sanctions evasion schemes it used prior to the nuclear deal.

The re-designation of Iran Air represents an important step forward, but Treasury must take additional steps to ensure the sanctions are effective, since the Mahan Air precedent does not constitute a sufficient deterrent against Iran Air’s GSA. Treasury should now slap secondary sanctions on Europe and Gulf-based service providers for Iran Air, Mahan Air, and other sanctioned carriers.

Issues:

Iran Iran Global Threat Network Iran Sanctions Sanctions and Illicit Finance