Tehran Builds a Financial Buffer Ready for Nuclear Talks to Fail

The Obama administration's treatment of Iran and its nuclear program shows little rhyme or reason. Tuesday, Dec. 21, just a month before the world powers resumed talks with Iran in Istanbul on its nuclear program, Stuart Levey, Under Secretary for Terrorism and Financial Intelligence and the United States Treasury's point man on Iran sanctions, said: "It's clear that our policy is going to be to continue to impose pressure on Iran so long as it defies its international obligations [on the nuclear issue]."
He thereupon unveiled new sanctions on Ansar Bank and Mehr Bank, which handle most of the Iranian Revolutionary Guards' (IRGC) business transactions, and Moallem Insurance, the company which insures most of the Iranian Shipping Company IRISL's vessels. Those ships carry IRGC weapons consignments to and from Iran, bring raw materials to the Guards industrial empire and export its products to provide the IRGC with one of its main sources of revenue.
According to DEBKA-Net-Weekly's Iranian sources, most of the sanctions imposed this year by the UN Security Council, the US and Europe have been ineffective. The only penalties causing the Islamic Republic real financial pain and redounding on the regime are the ban on the sale of petroleum products, oil distillates and gas and the assault on its crude export trade. The Obama administration's campaign to persuade the world's major energy companies to cut off ties with Iran has paid off, slashing Iran's oil sales by about 15 percent and its gas exports by a fifth.
Tehran has therefore suffered a steep decline in its primary sources of revenue and a slowdown in the flow of tens of billions of dollars to the regime's coffers.

Recruiting ex-pats' bank accounts and hawala

In all other cases, Iran has proved exceptionally inventive in beating sanctions or blunting their impact in four ways:

1. Circumventing and overcoming foreign sanctions has been proclaimed a national mission, a patriotic duty binding on every citizen and organization of the Islamic Republic no less than serving the nuclear program. Very little is heard in the West about the special divisions devoted exclusively to this task established in every government department, public institution, bank, investment fund, factory, educational institution and good works and charitable societies.
The Iranian Revolutionary Guards (IRGC) and its multiple intelligence arms have been recruited to the national effort as well as tens of thousands of ex-pat Iranians in North and South America, Africa, the Middle East and Asia. Many hold local or dual nationality and have been pressed into service to manage the regime's bank accounts, order raw materials and products and arrange insurance transactions, posing as private businessmen.
Western governments have no way of putting a stop to this ruse, any more than they can combat the vast hawala networks which operate across the Middle East, North Africa and the Far East and transfer huge sums of money to al Qaeda and Taliban through a system operating by word of honor.
The IRGC used to be the primary Iranian user of hawala for its financial transactions. In late 2009, when the regime in Tehran saw the Obama administration was serious about enforcing sanctions on its international banking and economic activities, hawala became the Iranian economy's channel of choice for dodging international sanctions.

Tehran braces for Istanbul talks to fail and more sanctions

2. For some years, IRGC has been running an extensive, smooth-running smuggling operation among most of the Persian Gulf countries and ports. This, too, has been turned to use as a convenient network for bypassing sanctions.
3. Iran has powerful accomplices in the sanctions-busting business. Not only are the Central Asian and Far Eastern Muslim countries like Pakistan and Turkey willing to pitch in, but also China and India – and even Moscow, which voted for UN sanctions, turns a blind eye to deals going through Russian financial institutions.
With three major world economies like China, Turkey and India behind Iran, the impact of Western sanctions is bound to be stunted. When President Barack Obama applied in person to Indian Prime Minister Manmohan Singh to persuade him to back sanctions, he was sharply rebuffed. New Delhi warned Washington that keeping up the pressure on this issue would adversely affect bilateral relations.
4. The regime in Tehran began fighting the painful international sanctions on fuel by slashing subsidies and introducing a savage austerity program.
The announcement by President Mahmud Ahmadinejad Saturday, December 18, was preceded by the posting of armed policemen and security personnel in and out of uniform at key points around the capital and other big cities, generating an atmosphere of impending war.
They were out in force to prevent a wave of burglaries and looting expected to be sparked by extreme shortages of basic items, like bread, gas and medicines, as a result of soaring prices.
(Details of the Iranian austerity measures appeared in debkafile Monday, Dec. 20 and are summarized in HOT POINTS below.)
Iranian rulers hope these measures will provide $20 billion p.a. to replenish their empty coffers and cover roughly half of the revenue shortfall incurred by the economy today as a result of energy sanctions.
This is a clear sign that Tehran has no expectation of the talks with the world powers which resume next month in Istanbul of producing an accord. Iran is therefore building a broad financial buffer to cushion the economy against spiraling losses in the future.