By Tyler Cullis, Responsible Statecraft: There is a danger in small ideas. Band-aid solutions have a means of papering over broader challenges and exacerbating the problems for which resolution is sought.
So it has proven with Iran time and again — nowhere more egregiously than in the assorted attempts to ensure Iran’s access to humanitarian goods.
First, in an effort to ensure that Iran received the economic benefit of its nuclear bargain under the Joint Comprehensive Plan of Action (JCPOA) — the nuclear deal between Iran, the United States, and other major world powers — Europe agreed to set up a special purpose vehicle to facilitate trade to and from Iran, including Iranian oil exports. Quickly, however, this promise — as provided in a September 2018 Joint Ministerial Statement — devolved into mere agreement to create a vehicle by which Iran could retain access to humanitarian-related goods in the face of American sanctions. That vehicle, known as INSTEX — the acronym for Instrument in Support of Trade Exchanges — has yet to realize even these much-circumscribed aims, failing in its meager efforts to create a channel by which Iran can trade in humanitarian goods.
Europe thus started with the promise of delivering on the quid pro quo that underlie the nuclear accord with Iran and ended with a vehicle whose limited purpose is ensuring that Iran can access basic humanitarian goods while it suffers the chokehold of U.S. sanctions. Faced with the strategic challenge of an America threatening to impose punitive sanctions on European actors that maintained commercial ties with Iran consistent with Europe’s political commitments under the JCPOA, Europe weltered. To paper over these failures, Europe elected to create a vehicle whose purpose would be facilitating trade with Iran that was non-sanctionable under U.S. law. In other words, Europe — in a test of its policy independence from the United States — chose to forge a solution to an uncertain problem.
The effect of this has been devastating, to the say the least: Iran, long perceiving itself as having suffered repeatedly at the hands of the West, must now endure the added humiliation of accepting access to basic humanitarian goods as the price for the long-term restraints placed on its nuclear program under the JCPOA. Far from its promised re-integration into world markets as a result of the nuclear agreement, Iran has found itself in a far worse position than was the case prior to its agreement to the JCPOA, as the U.S. has doubled down on its sanctions and has erected an effective unilateral blockade of Iran. Instead of building trust and confidence between Iran and the United States, Trump’s actions since the JCPOA have only served to reinforce the unceasing enmity between the two countries. Having failed to defy the United States and support trade with Iran consistent with its obligations under the JCPOA, Europe, in turn, has only provided fodder for those in Iran keen on turning the country into a hermit kingdom.
Now, the Trump administration — itself faced with growing public concern over the effect of U.S. sanctions on the Iranian people — is touting a humanitarian channel put in place through coordinated efforts with the Swiss government to ensure the Iranian people’s access to humanitarian goods. However, a discerning look at this channel indicates that the net effect may well cause further distress to Iran’s access to humanitarian items.
The so-called “humanitarian mechanism” — which was borne out of a desire to placate public concern over the effects of U.S. sanctions on the Iranian people — sought to institute a system whereby foreign banks could receive written assurance from the U.S. government that they would not be sanctioned for facilitating trade in humanitarian goods on the condition that they conduct enhanced due diligence with respect to Iranian counterparties and submit routine reports to the U.S. government regarding any transactions conducted.
Rather than broadening the scope of permissible trade with Iran, the mechanism only would support trade that remained non-sanctionable under current U.S. law. Even in the absence of written assurance from the U.S. government, there would be no lawful grounds to impose sanctions on parties facilitating humanitarian trade with Iran provided that due diligence was conducted adequate enough to ensure the absence of sanctioned parties in the trade. All the so-called “humanitarian mechanism” appeared to do was map onto current humanitarian exceptions the requirement that foreign parties provide reports to the U.S. government on their activities with respect to Iran, including reports on their Iranian counterparties and Iranian customer bases.
Not surprisingly, the mechanism has been an utter failure. The problems started from the get-go, as foreign banks realized that their local regulators prevented the sharing of customer information to the U.S. government that would be required under the mechanism and the Trump administration failed to undertake any pro-active efforts to promote the mechanism through official or unofficial channels. Indeed, by all reports, it was only the dedicated efforts of the Swiss government to ensure that Swiss medical exporters had access to a financial channel by which to receive payment for their exports to Iran that led to the first —and, thus far, only — realization of the mechanism.
A few weeks ago, the Trump administration announced that initial transactions have been made through the Swiss channel. Review of these transactions indicates that, in their push to stymie ongoing criticism of their apparent disregard for the humanitarian consequences of their sanctions, the Trump administration set up a “humanitarian channel” that is not just too limited in scope to have meaningful impact on Iran’s ability to access basic humanitarian goods, but that threatens to push out those few remaining banks that continue to facilitate trade in humanitarian goods with Iran. The reason is obvious: If the U.S. government provides written assurance to certain banks that they will not be sanctioned for engaging in non-sanctionable trade with Iran, then other banks will be reluctant to facilitate such trade absent the written assurance. But, because such written assurance is barred for many foreign banks due to data-sharing laws in their local jurisdictions and because such written assurance appears to have only been provided to Swiss bank(s) at this time, those foreign banks that have facilitated trade in humanitarian goods with Iran up until this point are inclined to bow out due to the increased risks brought about by the humanitarian mechanism. The fear is a sensible one: the U.S. government is likely to look skeptically at banks that do not make use of the humanitarian mechanism, irrespective of whether the mechanism is required as a matter of U.S. law or not.
In its efforts to resolve a problem of its own making (or, at least, appear to be doing so), the Trump administration may have exacerbated Iran’s difficulties accessing basic humanitarian items by forcing parties out of the market entirely. Instead of broadening the scope of permissible activities and providing public guidance ameliorating any latent risks associated with facilitating trade in humanitarian goods with Iran, the Trump administration only complicated one of the few remaining areas of non-sanctionable trade with Iran. Meanwhile, the Trump administration is considering identifying Iran’s entire financial sector as a sector of Iran’s economy subject to sanctions under Executive Order 13902 — a move that would effectively nullify the humanitarian mechanism altogether and render all trade in humanitarian goods sanctionable as a matter of U.S. law. Few should expect the Trump administration to have pondered these consequences.
Small ideas such as these, needless to say, do nothing about the broader issue of U.S. sanctions effectively denying an entire generation of Iranians the economic opportunities to lead fulfilling lives or eroding the limited opportunities for the U.S. and Iran to avoid a broader conflict and resolve their long-standing areas of dispute. Instead, these ideas merely round the edges all the while ignoring the enormity of the challenges collectively posed before us.
Tyler Cullis is Counsel at Ferrari & Associates, P.C., where he specializes in the practice of U.S. economic sanctions and export controls. His writings on U.S. sanctions and foreign policy have been published in the New York Times, the Washington Post, CNN, and Foreign Affairs, and he is a frequent commentator on U.S. sanctions developments, including in the Wall Street Journal, the Financial Times, and the Washington Post.