Trump administration considering new sanctions on Iran’s financial sector

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The Trump administration is considering fresh sanctions to sever Iran’s economy from the outside world except in limited circumstances, by targeting more than a dozen banks and labeling the entire financial sector off-limits, three people familiar with the matter said.

The move would effectively leave Iran -- which has seen its economy crushed by the loss of oil sales and most other trade thanks to existing American restrictions -- isolated from the global financial system, slashing the few remaining legal linkages it has and making it more dependent on informal or illicit trade.

The proposed sanctions would have two objectives, according to the people, who asked not to be identified discussing internal deliberations: close one of the few remaining financial loopholes allowing Iran’s government to earn revenue, and stymie Democrat Joe Biden’s promise to re-enter a 2015 nuclear deal if he wins the presidency in November.

The proposal is still under review and hasn’t been sent to President Donald Trump.

Under the plan, the administration would designate the Iranian financial sector under Executive Order 13902, which Trump signed in January to clamp down on mining, construction and other industries. That would not only affect banks, but also remittance processors, money-changers and the informal transfer system used frequently in the Muslim world known as hawala.

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Then the administration would blacklist roughly 14 banks in Iran that have so far escaped some US restrictions, under authorities designed to punish entities associated with terrorism, ballistic-missile development and human-rights abuses.

The sanctions under consideration initially got a chilly reception from several Trump officials for fear they could complicate the provision of international humanitarian assistance to Iran, which has been hard hit by the COVID-19 outbreak and existing US sanctions. But they’ve since gained more support amid a broad push from hardliners inside and outside the administration and a belief that it would be possible to mitigate the humanitarian costs, chiefly through so-called comfort letters from the Treasury Department, the people said.

A spokesperson from the Treasury Department declined to comment, as did press officials from the National Security Council and the State Department.

Iran has continued to do business with several countries including China and the United Arab Emirates, with total non-oil foreign trade reaching $24.6 billion in March-August, according to the country’s customs administration.

The country has drawn additional US anger for sending gasoline and fuel additives to Venezuela, another US adversary, in exchange for gold. In August, the US seized the cargoes of four vessels carrying 1.1 million barrels of Iranian gasoline ostensibly headed for Venezuela. Another three tankers carrying hundreds of thousands of barrels of Iranian fuel were headed for Venezuela on Monday, ship-tracking data compiled by Bloomberg show.

Mark Dubowitz, the chief executive of the Foundation for Defense of Democracies, who has closely advised the Trump administration on Iran policy, floated the idea in an August 25 editorial in the Wall Street Journal, arguing that protections already exist for humanitarian aid. Republican Senators Ted Cruz and Tom Cotton, who have helped push Trump to take some of the harshest actions against Iran so far, are also in favor.

“It has a major chilling effect on any financial entities considering doing business with Iran,” Dubowitz said in an interview. “This action would turn Iran’s financial sector radioactive.”

The move has an additional goal: embed sanctions on Iran now so that if Biden wins the election he will find it much harder to re-enter the Joint Comprehensive Plan of Action, or JCPOA. The JCPOA in 2015 gave Iran sanctions relief in exchange for limits on its nuclear program. Trump left the pact in 2018 and has reimposed a raft of sanctions, but Biden has said he would look to re-enter some sort of deal if he wins.

In a September 13 CNN editorial, Biden said he would re-enter the agreement provided Iran also returned to compliance. He called the Trump administration’s “maximum pressure” campaign against Iran a failure and said the nation is closer to a nuclear weapon now than it was when Trump came to office -- despite a series of sanctions that choked its oil exports and other sectors, along with individuals.

Advocates for the new sanctions argue that the measures would be difficult to unwind because a Biden administration would need to show that Iran was no longer doing work connected to missile proliferation or terrorism. The sanctions would also add to reluctance from companies looking to weigh the risks of doing business with Iran against any potential gains.

Critics of the hardline approach say Iran is already so heavily sanctioned that one more set of restrictions won’t make much difference. Indeed, the administration introduces new sanctions against Iran on a near daily basis, including Thursday, when the Treasury Department designated two Iranian judges under the Countering America’s Adversaries Through Sanctions Act.

Despite all those moves, the Iranian regime has so far remained defiant and refused to meet with Trump officials. The US has also grown increasingly isolated at the United Nations Security Council, where 13 of 14 other countries on the panel -- including several US allies -- have rejected its bid to reimpose, or snap back, restrictions targeting Iran’s nuclear program.

“I’m very skeptical that there’s anything they could do at this stage that would change perceptions,” said Jarrett Blanc, a senior fellow at the Carnegie Endowment for International Peace and a former State Department coordinator for Iran nuclear implementation under President Barack Obama. “If Joe Biden believes that it’s in the US national interest to return to the JCPOA and the sanctions posture that implies, he’ll do it.”

Blanc said the remaining Iranian banks are still important for humanitarian operations and the amount of unsanctioned trade taking place is too small to make much of a difference to Iran’s economy.

The new proposal has also been taken up by Republican lawmakers who believe the best way to get them passed is by appealing directly to Trump. In a September 17 letter, Cruz, Cotton and four other senators urged Trump to impose the sanctions and cut the banks off from the SWIFT financial messaging system. A group of 57 Congressmen followed with a near identical letter on Thursday.

“Iran’s desperate economic circumstances provide a critical opportunity for the United States to force the regime to abandon its malign activities and return to the negotiating table on your terms,” both letters said.

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