New US sanctions on Iran spell trouble for EU’s Instex and are not easily reversible

The US Treasury announced the penalties against Iran’s Central Bank for 'funding IRGC, Qods Force, Hezbollah and the Houthis'

Powered by automated translation

Newly imposed US sanctions on the Central Bank of Iran (CBI) and its National Development Fund (NDF) on Friday spell trouble for Europe's trade channel Instex with Tehran, and potentially target humanitarian goods, experts told The National.

US President Donald Trump announced the measures from the White House calling them the “highest sanctions ever imposed on a country.”

The sanctions are in direct response to the attacks on two Saudi oil facilities last Saturday, which the US administration has accused Iran of carrying out.

By opting for new sanctions and not a military response, Mr Trump said his restraint “shows strength.”

“It’s all set to go but I’m not looking to do that if I can,” he added.

In its announcement, the Treasury’s Office of Foreign Assets Control (OFAC) said the new sanctions on CBI and NDF fall “under its counterterrorism authority, Executive Order (E.O.) 13224.”

It accused the bank of providing billions of dollars to the Islamic Revolutionary Guards Corps (IRGC), its Qods Force (IRGC-QF), the Lebanese militant group Hezbollah, and Yemen’s Houthis.

US Treasury Secretary Steven Mnuchin linked the new measures to the attack on the Aramco facilities.

“Iran’s brazen attack against Saudi Arabia is unacceptable.  Treasury’s action targets a crucial funding mechanism that the Iranian regime uses to support its terrorist network,” he said.

But experts and former officials in Washington saw varying impact for the sanctions, and adverse impact on the Iranian people.

Brian O’Toole, a non-resident senior fellow at the Atlantic Council and a former OFAC senior advisor, explained that the measures are not entirely new but would undermine European mechanisms for trade with Iran.

"CBI has been subject to US sanctions for a while, including under the National Defense Authorization Act (NDAA), in that sense this is not new," Mr O'Toole told The National. 

The move serves two purposes, he argued.

The first, “to cut off actions above board facilitating transactions to Hezbollah and IRGC” and secondly to negate “any exemptions under OFAC for humanitarian goods since the CBI holds the funds for those imports.”

In doing that, Mr O’Toole said, “foreign transactions through Instex for example, are also no longer safe from secondary sanctions. They are functionally dead.”

“Essentially the Trump administration is responding by harming the Iranian people and undermining the EU,” he said.

Behnam Ben Taleblu of the Foundation for Defense of Democracies pointed out that the new sanctions, being under the counterterrorism list, make it more likely that they will stay in place regardless of which party controls the White House.

"By using counterterrorism authorities to go after Iran's central bank, it means to relieve those sanctions, any administration will have to cite evidence that Iran's central bank isn't involved in funding terror," Mr Taleblu told The National.

“The impact will be lasting. These penalties will require Iran’s central bank to prove it is not funding terror if it wants sanctions relief…a high-bar for a premier terror-funding institution in Iran.”

He called the CBI “a fundamental player in Iran’s terror and foreign policy apparatus” arguing that the new measures “will make it harder for Iran to mask its malign activities using the formal financial system.”

But Richard Nephew, a non-resident senior fellow at the Brookings Institution, did not foresee a deeper economic impact for the sanctions.

"In terms of practical impact, it will only curtail currently licensed transactions, including humanitarian ones, unless they amend the affected licenses," Mr Nephew told The National.

He said the US will “also need to deal with the Iraq and natural gas purchase issue” with Iran.

US Secretary of State Mike Pompeo welcomed the new sanctions, as a price for “attacking other nations and disrupting the global economy.” “The regime in Tehran must be held accountable through diplomatic isolation and economic pressure,” he said.