US weighs easing Iran sanctions, freeing frozen assets

The Obama administration, in the wake of a promising first round of nuclear diplomacy with Iran, is weighing a proposal to ease the pain of sanctions on Tehran by offering it access to billions of dollars in frozen funds if the Iranian government takes specific steps to curb its nuclear programme.

Such a plan, under which the United States could free up Iran’s frozen overseas assets in installments, would avoid the political and diplomatic risks of repealing the sanctions, which had been agreed to by a diverse coalition of countries, the official said. It would also give president Obama the flexibility to respond to Iranian offers that emerge from the negotiations without unraveling the global sanctions regime the administration has spent years cobbling together. The US official likened the plan, which is still being debated inside the White House and the State Department, to opening and closing a financial spigot.

While the two days of talks in Geneva this week did not produce a breakthrough, Iranian officials were more candid and substantive than in previous diplomatic encounters, officials said, particularly in direct negotiations between Iranian diplomats and the senior American representative, Wendy R Sherman. Now, though, the administration faces a complex calculation on the future of the sanctions, which have been crucial in bringing the Iranians back to the bargaining table. Administration officials said they would urge the Senate to hold off on voting on a new bill to strangle Iran’s oil exports further until after the next round of talks on Nov 7.

That may be a tough case to make to lawmakers, given that Iran did not pledge to freeze its enrichment of uranium and offered no plan, publicly at least, to dismantle facilities, which State Department officials cited as a justification for holding off on a sanctions vote before the first meeting. Several senators issued statements saying the sanctions should go ahead.

Still, the positive tone of the talks — a senior American diplomat who took part characterized them as “intense, detailed, straightforward, candid conversations” — has prompted new thinking in Washington about how to ease the pressure on Tehran, if not immediately, then down the road, if the Iranians make real concessions.

The proposal on freeing up funds has been championed by Mark Dubowitz, executive director of the Foundation for Defense of Democracies, a public policy institute known for its hawkish views on Iran. “My biggest concern is that if the administration takes out a brick from the sanctions regime, you won’t be able to put it back together,” Mr. Dubowitz said. He called the plan “a way to provide nonsanctions financial relief to give the administration flexibility during the negotiations.”

If Iran refused to make concessions, the United States, he said, could pair its offer to free Iranian money with a new sanction that would immediately freeze all of its foreign exchange reserves by cutting off from the American financial system any bank that gives Iran use of those funds.

A Senate Republican aide said the proposal was preferable to an earlier offer by the West — rejected by Iran — to lift a ban on trading in gold if Iran agreed to shut down its Fordo enrichment facility, which is built in a mountain near Qum. “We thought that was a bad idea because it replenishes Iran’s coffers,” said the aide, who spoke on the condition of anonymity because of the delicacy of the subject. “In this case, the administration could come to Congress and ask, ‘Is closing Fordo worth $1 billion?’ ”

Sky-high inflation

While the proposal is tailored and flexible, sceptics say it might not satisfy the Iranians, whose goal is to get out from under all the sanctions that have devastated their currency, cut their oil exports in half, and left their economy with sky-high inflation and unemployment. “The Iranians are looking for fundamental sanctions relief,” said Ray Takeyh, an expert on Iran at the Council on Foreign Relations. “I’m not sure whether they’d accept phased access to their own money.”

Given Iran’s refusal to halt its illicit nuclear and ballistic missile programs,” said Senator Mark S Kirk, an Illinois Republican and Iran hawk, “the Senate should immediately move forward with a new round of economic sanctions targeting all remaining Iranian government revenue and reserves.” With the Senate on recess in the aftermath of the government shutdown, however, Congressional aides said they now expected that the sanctions bill would not emerge from the committee and be ready for a floor vote until the eve of the next round of talks in Geneva.

That could allow the administration to use the specter of new sanctions as a prod to the Iranians to present more concrete proposals then. “It’s always nice to go into these negotiations with some coercive leverage,” Takeyh said, “because the Iranians have their own leverage: They’re not stopping enrichment.”

“Congress has been a very significant partner in putting that sanctions regime and architecture in place,” a senior administration official told reporters in Geneva on Wednesday. “None of us want to undo it before we know we have some results that answer our concerns.” Despite the inconclusive nature of this week’s talks, former administration officials urged Congress to wait another few weeks to give diplomacy a chance. Prematurely imposing punitive measures, they say, could provoke a backlash from Iran’s hard-liners, who for now are backing President Hassan Rouhani’s diplomatic overture.

“While additional sanctions may well prove necessary, we should hold off for now,” said Robert Einhorn, a former State Department official who helped devise the sanctions. “We should remember that the existing sanctions are already having a devastating impact and provide substantial incentive for the Iranians to show the necessary flexibility.”

There was no immediate reaction to the idea from the Israeli government, which views an Iran with a nuclear bomb as a threat to Israel’s existence. An official in the office of Prime Minister Benjamin Netanyahu refused to comment on Friday, saying that the reported proposal had not yet been articulated as official American policy. But Netanyahu has fervently pressed the case in recent weeks that there should be no premature easing of the economic pressure on Iran, arguing that it would be a “historic mistake” to do so when the sanctions are so close to achieving their goal.

Giora Eiland, a former Israeli national security adviser, said, “It was expected that the Americans would try to be forthcoming toward the Iranians, not only to create a good atmosphere, but also because the Americans realize that Rouhani has political constraints. He too comes in for criticism for being overly moderate, so he has to be given some achievements.”

Still, he said in an interview with Israel Radio, the steps being considered were “more than showing good will and changing the atmosphere and symbolic — this helps the Iranian economy. Doing this even before the Iranians have promised anything, or done anything, seems to me to be very problematic American overzealousness.” He added, “Israel doesn’t like it, but it doesn’t seem that anyone is listening to us.”