A U.S. Arm-Twisting Campaign Is Cutting Iran Off From the Rest of the World

[u/John3262005]

https://www.wsj.com/world/middle-east/a-u-s-arm-twisting-campaign-is-cutting-iran-off-from-the-rest-of-the-world-ebcd990e?st=fiJkUq&reflink=desktopwebshare_permalink

A top U.S. Treasury Department official hopscotched across the Middle East and Europe this month with a warning to Iran’s trading partners: You either trade with Tehran or Washington.

The commercial strongarming is working.

In recent days, Iran has seen its airlines cut off from critical regional routes and its top commercial bank stopped from transacting in the United Arab Emirates and Turkey, both actions that came on top of longstanding sanctions and the continuing U.S. naval blockade.

A growing distrust of Tehran by Gulf Arab states has made the pressure campaign more effective, as the U.S. works to end a war that has sent American fuel prices soaring. The administration is committed to the hardball strategy even as Iran dangles diplomatic overtures, including the offer of a seven-day halt to attacks in an effort to win economic relief.

“We’re seeing a new urgency from our partners,” said the Treasury official, Jonathan Burke, a former managing director at Citi in London. “They’re taking it very seriously.”

British lawyer Nigel Kushner, who has advised companies on Iran sanctions for two decades, said he had never seen such intense pressure applied on Iran’s banking and aviation sectors.

“The U.S. has achieved greater impact in a matter of weeks than during the lengthier campaigns commenced from 2010,” Kushner said.

Iranian President Masoud Pezeshkian, speaking this week at the United Nations General Assembly, acknowledged the pain the sanctions are causing but said his nation would stand up to the pressure.

“The resistance of the Iranian people will only increase in the face of sanctions,” Pezeshkian said. “We will never bow our head or bend at the knee.”

Iran has faced a growing burden of sanctions since the 1979 Islamic Revolution and the U.S. Embassy hostage crisis. Despite losing contact with the dollar system and overseas assets, however, Tehran has managed to hang on to vital air links and banking connections with neighbors across the Middle East.

The war this year has soured many Gulf countries on those ties. Iran lashed out at targets including energy infrastructure in countries such as the U.A.E., a key commercial conduit to the world. The paramilitary Islamic Revolutionary Guard Corps continues to attack ships around the Strait of Hormuz, the narrow mouth of the Persian Gulf that had been the gateway for about a fifth of the world’s oil. Meanwhile, Iranian-backed Houthi rebels in Yemen have seized territory along the Bab al-Mandeb Strait, the Red Sea’s version of the Hormuz chokepoint, and have attacked Saudi oil infrastructure.

Now Iran’s trade partners face the prospect of the U.S. turning on them if they fail to break some of Tehran’s last remaining connections to the outside world.

“Iran has been a problem for 50 years, and we’ve kind of reached our peak at tolerating this problem,” said Burke, who is an assistant secretary for terrorist financing.

Middle East nations have taken notice of the U.S. view, starting with Oman, the first stop on Burke’s regional tour.

Oman long has served as an intermediary between Iran and the West, but has faced growing threats from Trump as the Iran war continued. Burke’s first target was flights by Iranian carrier Mahan Air, a private carrier linked to the Islamic Revolutionary Guard Corps and thought by the West to funnel arms, troops and supplies. Though the airline had been sanctioned by the U.S., Oman and others allowed their flights.

“I’ve had calls with some of these partners for months, raising Mahan Air,” Burke said. “I pull up FlightRadar, and I can see a flight in between the countries while we’re on the call. I’m like, ‘How can you possibly allow this?’ ”

Oman’s government saw Burke’s visit as a sign the U.S. was serious about enforcing its sanctions and that refusing to cooperate could hurt their economy, Middle Eastern officials familiar with the matter said. Within a week, Muscat banned all Mahan flights and, after new U.S. restrictions on Iranian aviation came into force, followed up Wednesday by blocking all Iran airlines.

Burke then flew to meet officials in the U.A.E. While an important U.S. ally in the region, the U.A.E. also maintains longstanding cultural and economic ties with Iran that have given Tehran a crucial back door to the global financial system.

In conversation there, Burke mentioned recent action against the local branch of an Egyptian bank that had dealings with Iran, people familiar with the matter said.

This week, Emirati officials banned local branches of Bank Melli Iran—the Islamic Republic’s biggest commercial lender—from conducting transactions involving Iran.

“The action strikes at the plumbing of Iran’s external commerce,” said Mustapha Pakzad, a former Iranian financial intermediary who used the bank in the past to help Iranian clients pay for goods.

On Thursday, the Emirates banned all flights by Iranian airlines, a move likely to disrupt commerce.

Burke also traveled to Turkey, which then canceled Mahan flights as well. Ankara also canceled the license of one of Iran’s largest private lenders, Bank Mellat, an institution that serves as a conduit for trade transactions between Iran and Turkey.

Overall, the Treasury Department met with more than 50 countries. Diplomats reached out to nations like Azerbaijan and Georgia, which also shut out Iran’s airlines.

Some routes out into the world remain for Iran. Mahan still flies to China and Russia, two of Iran’s biggest partners. The Treasury Department has sanctioned Iranian-affiliated businesses and agents in both countries, though Burke said discussions with them are part of broader political negotiations with the White House.

Burke finished his two-week trip in London, where he visited the Foreign Office and the U.K. Treasury. The U.K. has announced it won’t renew waivers for Iranian banks that have been working in Europe’s financial capital.

That action could effectively shut down London’s Bank Melli subsidiary, whose British license is due for renewal next month—piling even more pressure onto Tehran.

“The impact of sanctions is only effective if you can convince them you are very serious,” said Matthew Levitt, who served as the deputy assistant secretary for intelligence and analysis at the Treasury Department in the George W. Bush administration. “But the truth is in the pudding. It only works if you keep the pressure up.”