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    Greater China
     Jun 30, 2012

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Who will Iran sanctions really cripple?
By Peter Lee

Collective punishment is alive and well in the 21st century. Iran, North Korea, Syria, the Gaza Strip and Cuba labor under stringent economic sanctions imposed by Western leaders too young to remember the miseries that World War II inflicted on the well-being, prosperity, and dignity of their civilian citizenry.

Apparently in an attempt to put a human face on the "crippling" sanctions imposed on Iran for jet-setting Western elites that find the minor personal affronts of the Transportation Safety Administration at US airports unendurable, the Tehran regime invited New York Times pundit-in-chief Nicholas Kristof to undertake a largely untrammeled and unsupervised 1,700-mile


(2,735-kilometer) tour of Iran.

If the regime hoped that Kristof's squishy liberal core would be touched by what he saw, they were undoubtedly disappointed. His humanitarian impulses safely in check, on June 17 Kristof wrote:

"The economy is breaking people's backs," a young woman told me in western Iran.

I regret this suffering, and let's be clear that sanctions are hurting ordinary Iranians more than senior officials.

Yet, with apologies to the many wonderful Iranians who showered me with hospitality, I favor sanctions because I don't see any other way to pressure the regime on the nuclear issue or ease its grip on power. My takeaway is that sanctions are working pretty well. [1]
"Regret" and "apologies" aside, Kristof's message was the same as fellow Times columnist Thomas Friedman's infamous advice to Iraqis terminally discommoded by the US-led invasion:

Well, Suck. On. This.

If Friedman's journalistic lodestar is the cabbie who drives him from the airport, Kristof sets his reportorial compass by the local Apple store.

Of course, in Tehran, it's not the official Apple store. It's the local shop selling smuggled iPads and iPods.

Kristof uses his experience at the store to highlight the sophisticated character of the Iranian urbanite, yearning to be part of the cosmopolite international elite plugged into the Western system - and disenchanted with the obstinate theocracy whose independent foreign policy deprives him or her of unfettered access to these desirable doo-dads.

Undoubtedly, Kristof's heartstrings would also be tugged into further empty expressions of "regret" and "apologies" by reports that American Apple sales clerks, acting on corporate instructions to adhere strictly to the US sanctions regime, are refusing to sell their electronic treasures to Farsi-speaking customers, whether or not they actually intend to send them to relatives inside Iran. [2]

Nevertheless, smuggled Apple products apparently enter Iran in large enough quantities that the premium is only $40 to $60 more than what US consumers pay. [3]

A more striking example of Kristof's neo-liberal tunnel vision occurs as he discusses another outrage inflicted on Iranian youth by the mullahs' refusal to knuckle under to the West:
I chatted with the owner of a store selling Nike, Adidas and Saucony sneakers, hugely prized as status symbols. If a young man wants to find a girlfriend, the shop owner explained, the best bet is to wear Nikes.

But sales have dropped by two-thirds in the last year, he fretted. He added in disgust that some Iranians are in such penury that they attend parties wearing Chinese-made, fake Nikes.
Perhaps Kristof needs reminding that Nikes, both real and fake, are made in China (virtually all Nikes are made in the democratic hot spots of Vietnam, China, and Indonesia).

For that matter, Apple is pretty much a Made in China operation.

Which brings us to the issue of unintended consequences.

Beyond inflicting pain on Iranian citizens and eroding the legitimacy and authority of the Iranian regime, the Western sanctions regime has accelerated both the strategic alliance and the economic integration of the Iranian regime and the People's Republic of China.

As the United States, EU states, and Japan have pursued their program of diplomacy by harassment against Iran, China has exploited the opportunity to scoop up energy and infrastructure projects.

This Chinese "backfilling" has attracted the anger and frustration of the United States for at least a decade - and some serious heartache for the EU, which regards Iran as its natural market and energy source.

But China can do what it wants, it seems. China hasn't signed on to the sanctions regime - beyond the narrow nuclear, weapons of mass destruction and missile-related sanctions passed by the Security Council - and has declined to follow US sanctions guidance or, for that matter, weigh in with any national sanctions of its own.

The Chinese conundrum has been a key headache for US strategy on Iran. Beijing's resistance to playing the sanctions game has undercut US strategy both toward Tehran and Pyongyang.

The US government has made what I believe is disastrous and strategically short-sighted decision in response - politicizing the enforcement powers of the Treasury Department in order to leverage the central US position in the world financial system for narrow geopolitical ends.

The theory is that recalcitrant nations can be coerced into supporting US national sanctions through the threat of cutting off their financial institutions from the world financial system.

The experiment was first tried against China on the issue of North Korea in the matter of a Macao institution, Banco Delta Asia (BDA) during the George W Bush administration.

In 2007, BDA was cut off from the US financial system on some extremely dubious charges concerning its purported role as a nexus for North Korea's alleged efforts to launder the notorious "Supernote" counterfeits.

The fact that BDA sent all of its cash deposits to that distinguished imperial institution, Hong Kong & Shanghai Bank, for inspection and no counterfeits had been detected for years was an evidentiary speed bump that the US Treasury Department's newly politicized Financial Crimes Enforcement Network or FinCEN easily ignored.

One of the architects of the policy, David Asher, declared in congressional testimony that the purpose of the policy was "to kill the chicken in order to scare the monkeys", the chicken being BDA and the monkeys being the People's Bank of China, an important conduit for North Korea's international financial transactions..

It appears that China received a genuine scare from the BDA case, but dodged the FinCen bullet when North Korea fortuitously detonated an atomic bomb and the US hardline against Pyongyang collapsed in a fog of proliferation-related anxiety.

The BDA case also collapsed in humiliation and disarray for the United States (despite the solicitous efforts of the many US foreign policy journalists to protect it from the embarrassment that honest and accurate reporting would have inflicted) as the (relative) grown-ups led by former secretary of state Condoleezza Rice regained control of the Bush foreign policy apparatus from vice president Dick Cheney, former UN ambassador John Bolton and the cowboys.

When President Barack Obama took office, the commitment to financial coercion was not abandoned; it was improved and upgraded.

Stuart Levey, who had directed the weaponization of FinCEN under Bush, was the second-highest Bush official retained by Obama (after former defense secretary Robert Gates).

In true Obama fashion, the financial sanction process was carefully formalized and legalized.

Instead of financial sanctions implemented in secret star chamber proceedings on trumped-up charges under US domestic financial regulations by a cabal of ideologues enjoying privileged authority within the executive branch thanks to the support of the White House, the Obama administration went to congress and acquired the color of law for coercion against nations that flouted US calls for financial sanctions.

Obama also enjoyed the immense advantage of not being George W Bush.

Instead of the Bush approach to foreign policy - which took as its point of departure unilateral, untransparent US decision-making and action, followed by ruthless testicle-twisting to obtain the compliance of reluctant allies - Obama's foreign affairs team solicited and obtained the buy-in of previously uncooperative governments in the European Union and Asia.

As a result, the sanctions regime against Iran, as Kristoff reported, is remarkably robust and effective.

But just as China was the monkey-or 400-pound gorilla-in the room on North Korean sanctions under the Bush administration, it plays a similar role in Iran sanctions today.

The key headache for the United States is how to keep China from either exploiting Iranian opportunities to the detriment of loyal sanctioners, or alleviating Iranian misery to the extent that the regime can escape the threat of an economic, subversion, and sedition-fueled "Iranian summer" of regime change.

The primary weapon in the hands of the United States is a section of the 2012 Defense Appropriations Act that gives the executive branch authority to sever banks that transact energy business with Iran from the US financial system - unless their home countries obtain a precious six-month waiver from the US government.

A decrease of 20% is enough to get the waiver. Presumably this is the number that the US came up after conferring with Saudi Arabia, the Gulf emirates, and Iraq to determine how much shortfall they could realistically make up. The grinding economic crisis has actually been a blessing in disguise; despite taking a considerable amount of Iranian energy out of the supply equation, prices have actually dropped instead of risen in an environment of slackening demand.

Iran has suffered a double whammy as its absolute volume of exports has dropped, and oil prices have sagged at the same time, delivering the "crippling" economic blow that sanctions advocates have always yearned for.

The EU, for whom economic suicide has apparently become a way of life, went the whole hog and banned Iranian energy imports entirely despite the reliance of weak sisters Greece, Italy, and Spain on Iranian imports.

Strategic allies such as South Korea and Japan heeded the call to cut imports.

South Africa, India, and Malaysia responded less enthusiastically, but reduced imports enough to gain the waiver.

In its unbridled and perhaps unnecessary enthusiasm, the EU sanctions will also forbid European insurers, who currently cover 95% of crude shipments, to cover Iranian cargoes, thus creating no small inconvenience for the compliant nations that have cut their imports by 20% but still somehow have to get the other 80% safely to their shores. 

Continued 1 2  

China and Russia flex muscle at the West (Jun 6, '12)

A dragon dance in the Negev
(Feb 1, '12)

North Korea goes a-schmoozing

2. Syria puts double whammy on Turkey

3. Stimulus fix to the death

4. Loose cannons and stormy skies

5. Assad forces world powers to think again

6. Notes on starvation

7. India's gangster nation

8. O brother, where art thou?

9. Beijing laces up the foreign-policy gloves

10. Why Palestinian refugees can't be ignored

(24 hours to 11:59pm ET, Jun 28, 2012)


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