New Iran Sanctions Present a Serious Long-Term Challenge to the Regime

The Trump administration imposed new sanctions on Iran’s supreme leader, the Supreme Leader’s Office (SLO), and other high-ranking officials on Monday, a response in part to attacks on international shipping and U.S. assets in the Persian Gulf. These new sanctions are not merely symbolic; they are likely to have significant, long-term implications for Iran because they entrench restrictions on Supreme Leader Ali Khamenei’s $200-billion economic empire.

Khamenei and the SLO sit atop a network of holdings that touches all major industries in Iran and will be subject to designation under the new Executive Order (EO) 13876. The Obama administration clearly recognized the significance of the supreme leader’s holdings in 2013 when it designated the Execution of Imam Khomeini’s Order (EIKO), which “oversees a labyrinth of 37 ostensibly private businesses, many of which are front companies” for Iran’s supreme leader and its senior leadership.

The 2015 nuclear deal with Iran provided sanctions relief for EIKO and related entities, a key concession on the part of the United States. This relief comprised a significant step towards reintegrating Iran into the global economy. The Trump administration re-listed EIKO, along with several hundred other entities, last November following the U.S. withdrawal from the nuclear deal.

The Trump administration’s new sanctions single out entities under the supreme leader’s control, including EIKO, and effectively puts companies on notice that they must exercise exceptional caution to avoid transacting with them. This year, the Treasury Department’s Office of Foreign Assets Control (OFAC) also published a new sanctions compliance framework that makes clear that all corporate entities – not only banks and other financial institutions – are responsible for sanctions compliance. As a result, many more companies are going to recognize the secondary sanctions risks they face for doing business with EIKO and its affiliates.

The new sanctions will also have additional staying power because the basis for their imposition is not for Iran’s nuclear activities but a wide range of aggressive and destabilizing behaviors. EO 13876 explains that its sanctions target the “actions of the Government of Iran and Iranian-backed proxies, particularly those taken to destabilize the Middle East, promote international terrorism, and advance Iran’s ballistic missile program, and Iran’s irresponsible and provocative actions in and over international waters, including the targeting of United States military assets and civilian vessels.”

If a successor administration wants to lift these sanctions, it will be obligated to demonstrate that Iran and its proxies have repudiated all these behaviors. In effect, the new designations reinforce a growing sanctions wall, which will it make it more difficult for future administrations to conclude an agreement that only requires Iran to make concessions on the nuclear front.

Finally, the information and statements accompanying the new executive order highlight both Iranian corruption and the reach of Iran’s illicit activities, including those directly involving the supreme leader and the SLO. Over the last year, the administration has presented a steady series of speeches, designations, and guidance that has highlighted the reach of Iranian illicit activity throughout legitimate markets in Europe and Asia. With this action, and likely additional designations in the near future, the administration has put companies on notice of just how careful they need to be to avoid entanglement with Iran’s illicit activities.

Eric Lorber is the senior director of the Center on Economic and Financial Power (CEFP) at the Foundation for Defense of Democracies (FDD), where Matthew Zweig is a senior fellow. Follow Eric on Twitter @ELforeignpolicy. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based nonpartisan research institute focusing on national security and foreign policy.