September 17, 2012 | Quote

Iran Relies on Neighbors to Beat Sanctions

With its economy in free fall, Iran is turning to its porous borders with Iraq and other countries to skirt increasingly effective global economic sanctions, according to congressional staffers, local journalists and advocates for tough sanctions against Tehran.

Analysts say Iran's government and citizens have become desperate, resorting to “cash transactions” on the black market with neighboring countries — principally Iraq, with which it shares a 910-mile border.

“Iraq is a very hospitable place for Iran,” said Mark Dubowitz, executive director of the Foundation for Defense of Democracies, a Washington think tank that advocates tougher sanctions against Tehran.

Mr. Dubowitz, who heads the foundation's Iran Energy Project and has advised the White House on sanctions policy, said smuggling on the Iran-Iraq border consists most notably of “gas into Iran and oil out.”

A July report from the Congressional Research Service noted that the value of Iran's currency, the rial, has dropped by about 50 percent in the past year and Iran is virtually cut off from the international banking system. It said the Islamic republic increasingly is forced to trade through “barter arrangements,” with many major international firms having left the market and many Iranian firms reported to be closing and laying off workers.

“The signs of economic pressure on Iran are multiplying,” the report said.

As a result, Iran, which sits on massive reserves of crude oil, lacks the capacity to refine petroleum, making it reliant on gasoline imported from other countries.

“Iranians need hard currency,” Mr. Dubowitz said, noting the effectiveness of sanctions imposed by the U.S. and the international community in an effort to force the country to stop its development of nuclear weapons.

Western nations have long suspected that Iran's nuclear program is geared toward building an atomic bomb, and the U.S. and European Union have implemented sanctions against Iran's central bank and oil industry to persuade Tehran to scrap its program. Iran has said repeatedly that its nuclear program is intended only for civilian uses, but it has not cooperated with international inspectors.

“We are starting to see the success of international sanctions,” said Mark D. Wallace, chief executive officer of United Against Nuclear Iran, a New York-based bipartisan advocacy group that has pushed for economic sanctions against Iran.

He said the economic squeeze on Iran has led to “much more secret trading taking place” on its borders with Iraq and Afghanistan.

“Iranians are taking rial by the truckload and exchanging them for hard currency or gold,” he said. “The governments in both Iraq and Afghanistan are turning a blind eye to the porous borders and trade.”

Mr. Wallace, a U.S. ambassador to the United Nations under President George W. Bush, also said it was important to urge Iraq and Afghanistan to clamp down on the illicit trade.

Iraqi Ambassador Jacob Habeeb told The Washington Times in an email that Baghdad already works to control its borders with Iran and other neighbors.

“Certainly, there are no governmental dealings with the Iranian side that involves smuggling of Iranian gas, but there are normal economic and commercial exchanges, particularly through the private sector,” Mr. Habeeb said. “In fact, the Iraqi government and Oil Ministry consider a priority preventing any type of smuggling and illegal activities across the borders as part of its policy to protect the natural resources of the country.”

Iraq's friendly relationship with Iran drew criticism again last week after the New York Times reported that Iraq was allowing Iranian planes carrying military equipment to Syria to fly over its airspace.

Rep. Ileana Ros-Lehtinen, Florida Republican and chairwoman of the House Foreign Affairs Committee, said the reports were “disturbing but not surprising.”

“Iran's use of Iraqi airspace is only a small part of Tehran's expanding influence over Baghdad, and yet nothing has been done to address this alarming situation,” she said. “For months, Iraq has been helping Iran skirt U.S. and international sanctions and increased cooperation on a variety of levels. Yet, despite this clear evidence, the administration has failed to act on this disturbing trend or hold Baghdad accountable.”

Mr. Habeeb said that if the Iranian government seeks to circumvent sanctions, “this is its own business, not ours.”

“While Iraq is interested in having good relationships with the neighbors, including Iran, we are also committed to our relations with the United States and the international community and to maintain the balance in our international relations,” he said.

Among those who disagree with the ambassador is Sharif Behruz, U.S. representative for the Democratic Party of Iranian Kurdistan, which opposes Tehran's regime.

“The U.S. is not pressuring Iraq,” Mr. Behruz said. “Iraq is not willing to condemn Syria.”

Some have suggested that the administration might not want to play hardball with its ally Iraq less than a year after U.S. troops left there. But the administration has taken steps to curtail what it sees as Iraqi cooperation with Iran.

A State Department official said the administration is pursuing efforts to prevent Iran from evading U.S. or international sanctions.

“Were we to find that Iraqi or Afghan individuals or companies are involved in activities that would trigger our sanctions, we would raise them with officials from those countries, who have cooperated with our efforts to curtail such activities,” the official said.

In July, Washington barred Iraq's Elaf Islamic Bank from doing business in the U.S. because it had been helping an Iranian bank conduct millions of dollars in transactions despite the sanctions. The State Department official said there was no evidence that the bank's activities were coordinated with those of Iraqi authorities.

Since March, Iranian banks that have been blacklisted by the European Union also have been barred from using the SWIFT (Society for Worldwide International Financial Transfers) system to transfer money electronically.

A senior Senate staffer who works on Iran issues said the Iranians are getting desperate because “they cannot move money electronically” since the SWIFT system stopped handling their transfers. The staffer said the sanctions have been “incredibly effective” and the country is in “economic shambles.”

“Iran is willing to pay a lot of money for goods,” the staffer said. “They get in a car and hand cash over for goods.”

Mr. Wallace noted that the illicit trade could not occur “without the approval” of Iran's Islamic Revolutionary Guard Corps, the security force that he said is the country's “ruling elite” and controls the Iranian economy.

Last month, a local news agency in the semiautonomous Kurdistan region in northern Iraq reported that Iran was obtaining Chinese anti-riot gear — batons, shields and helmets — by shipping the items to Iraq and then smuggling them across the Kurdistan border into Iran.

The Kurdistan Press Agency reported that the Islamic Revolutionary Guard Corps contracted out the smuggling to Iranian dealers who buy goods in China, have them shipped legally to Iraq and then secretly have them transported across the border. The report could not be verified independently.

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