But as the focus on sanctions intensifies, a review of the US’ experiences in enforcing its own longstanding restrictions on trade with Iran suggests it would be difficult to truly quarantine the Iranian economy.

Black market networks have sprouted all over the globe to circumvent the sanctions. A typical embargo-busting scheme was detailed in a plea agreement filed in federal court here on Sept 24, the day before Obama and European allies announced the existence of a previously undisclosed Iranian nuclear enrichment facility near Qum.
In the court filings, a Dutch aviation services company and its owner admitted that they had illegally funnelled American aircraft and electronics components to Iran from 2005 to 2007. Under the scheme, Iranian customers secretly placed orders with the company, which served as a front, buying the parts and having them shipped to the Netherlands, Cyprus and the UAE. The materials were then quietly repackaged and shipped on to the real buyers in Iran.

The Dutch company was eventually caught. But the ease with which it had operated until then illustrates a key hurdle facing the US: Even if diplomatic challenges can be overcome to getting countries with significant economic ties to Iran, like China, to approve sanctions, it is virtually impossible to make an embargo airtight.

“The Iranians have a lot of experience at this point in evading sanctions,” said Michael Jacobson, an intelligence and sanctions specialist at the Washington Institute for Near East Policy. “They are adaptable, learn from mistakes, see where the US cracks down and move elsewhere. And on the part of businesses, there is a lot of willful blindness.”
Secretary of State Hillary Clinton acknowledged last week that existing economic sanctions against Iran were ‘leaky’. But several senior administration officials said the latest revelations of Iran’s secret nuclear efforts had generated unprecedented solidarity behind new measures to pressure Tehran.

Last Thursday, Iranian officials met in Geneva with representatives from the US and other world powers. At that session, the Iranians pledged to give nuclear inspectors access to its clandestine enrichment facility and to ship most of its openly declared uranium outside the country to be further enriched by France or Russia.

While viewed as progress, the meeting drew further attention among diplomats to the role of possible new sanctions. To hold Iran to its pledges, and to prevent it from dragging its feet on the larger objections to its nuclear programme, officials said Iran would need to feel a credible threat of punitive measures.

“If you don’t put yourself in a position where you can act on the pressure track, you’ll be less likely to have the engagement track work,” said a high-ranking administration official, who spoke on condition of anonymity because of the delicacy of the matter. “The key is for the Iranians to see both sides of this.”

Adverse effects feared
To that end, he said, the US is refusing to take any measures off the table, even an embargo of gasoline and other refined fuel to Iran. European countries fear such measures would inflict misery on the Iranian people by creating shortages that would make them angry at the West and drive them into the arms of an unpopular government.
“We’re not going to be in the business of preemptively excluding anything,” the American official said. “The key is not what ought to have an impact on them, but what in their eyes will have the most impact on them.”

For several months, officials said, the administration has been talking with other countries about a list of potential sanctions against Iran. Congress is weighing legislation to expand financial sanctions, while the chairman of the House Foreign Affairs Committee Howard L Berman is pushing a bill that would levy sanctions on foreign companies that export gasoline to Iran.

Existing sanctions have had some real-world consequences. In Tehran, the power goes out regularly, a result of a shortage of electricity generators, which are on the list of prohibited goods because of their potential for military use. That did not happen even a decade ago.

Still, the experience of the US in policing its own unilateral economic sanctions — which were imposed after the 1979 hostage crisis and expanded several times since then — shows that restrictions are more likely to drive up prices of banned foreign goods than to stop them totally from flowing into Iran. The world is full of rogue nations and smugglers skilled at hiding illicit goods in the vast stream of global trade, and other nations may not be as willing as the US to police sanctions rigorously.

The guilty plea by the Dutch avionics company late last month was just the latest in a string of indictments against several hundred such defendants since 2007, when the Bush administration significantly increased efforts to enforce the US’ own trade restrictions with nations like Iran.

In separate cases over the past few months alone, prosecutors have accused defendants of illegally routing fighter jet parts to Iran through Colombia, electronic components through Malaysia and helicopter parts through Singapore. The list goes on, with accused intermediaries based from Ireland to Hong Kong.
Financial sanctions have also been violated. In January, the London bank Lloyds TSB agreed to pay $350 million in fines for hiding the involvement of entities in countries including Iran on wire transfers with US banks over a 12-year period. In 2006, regulators fined the Dutch bank ABN Amro for similar sanctions-busting dealings between 1997 and 2004.

Such enforcement, administration officials say, has persuaded other major European banks that it is not worth the risk of doing business with Iran. But rather than being cut off from access to letters of credit and insurance, Iran has instead turned to smaller financial institutions that are based in Asia and have no business dealings in the US.
That kind of displacement, said Jacobson, the sanctions expert, shows that even strict sanctions, enforced with broad international support, would be unlikely to entirely seal off a country as large and complex as Iran. But, he said, the restrictions have a comparatively modest but nevertheless real benefit: They increase the cost and difficulty for Iranian elites of doing business, providing an incentive for the country’s leaders to negotiate.