UN Iran Sanctions and the National Sanctions Deal

[edited this post for clarity on 6/10/10--CH]

My basic thesis on the UNSC Iran sanctions (which just passed) was that China agreed with the Obama administration to support UN sanctions on the understanding that harsher national sanctions which would disrupt China's ordinary dealings with Iran might be passed by Congress, but would not be implemented by the Obama administration (through the exercise of the President's power to grant waivers to "cooperating countries" i.e. nations like China that voted in favor of the UN sanctions).

It looks like the Russians, at least, have that understanding.

As soon as the UN sanctions passed, Novosti carried this news article:

Russia threatens payback if Iran sanctions affect its interests

MOSCOW, June 9 (RIA Novosti) - The Russian Foreign Ministry warned on Wednesday of retaliatory measures if new sanctions against Iran affected Russian companies or individuals.

The United Nations Security Council approved on Wednesday a new package of economic sanctions against Iran over its nuclear program.

"We cannot possibly ignore signals reaching us about the intention of some of our partners...to start considering additional, tougher restrictive measures against Iran than those provided for under the UN Security Council resolution," the ministry said in a statement.

"Such decisions, if they affect Russian legal entities or individuals, are fraught with retaliatory measures."

To make sure the message got across, Novosti also gave over some of its prime front page web space to an all caps slug of type declaring:

RUSSIAN FOREIGN MINISTRY WARNS OF RETALIATORY MEASURES IF IRAN SANCTIONS APPLIED AGAINST RUSSIAN COMPANIES, INDIVIDUALS

Time Magazine Cites Yours Truly on China Iran Analysis...

...I think

In a May 26 article What Did China Get for Backing Iran Sanctions?, Time Magazine's Tony Karon, presumably obeying the commandment "thou shalt not name the competing publication or its fruits in thine own journalism", refers to the opinion of "analyst Peter Lee" without referring either to Asia Times or my article there entitled China plays lap-dog in sanctions ploy.

But I do assume he's referring to me because Karon's article provides a concise summary of my argument that China joined the Iran sanctions regime at the opportune moment so that the Obama administration might find it necessary to dilute national as well as UN sanctions in order to sustain a global united front on Iran measures.

Karon goes a step further to state:

Chinese analysts also claim that, in the course of a protracted series of negotiations with Washington, their government also won undertakings from Washington to exempt Chinese companies from any U.S. unilateral sanctions that punish third-country business partners with the Islamic Republic.

Maybe he got that from somewhere else. I didn't go that far.

In the Asia Times piece I opined that the details of the US-China UN resolution negotiations as leaked were intended to communicate China's belief that a shared understanding was reached concerning the overall scope of sanctions, including U.S. national measures.

However I didn't say that this point had been explicitly made by somebody on the Chinese side.

What I said was:

The source lays out the principles underlying China's agreement to the sanctions process, with the apparent intention that these painstakingly-negotiated conditions should be binding on the US as well as China.

These should be understood as a signal that China is asserting that the US must observe these principles not only for the drafting of the UN sanctions but in the execution of American national sanctions.

In any case, I still think my argument is sound, and I appreciate the recognition. Thanks!

China Plays a Skillful Hand on Iran Sanctions

China has welcomed the inference that it abhors further sanctions on Iran.

Therefore, China's willingness not only to join the UN sanctions team, but also to acquiesce in the rushed release of the draft sanctions resolution in order to squelch the Iran-Turkey-Brazil nuclear fuel swap agreement--a diplomatic advance that, in the minds of the three parties, at least, provided ample justification for postponing the sanctions discussions at the UN Security Council--is cause for some puzzled head-scratching.

I tackle the problem in an Asia Times article with the rather saucy title, China plays lapdog in sanctions ploy.

Actually the article is a rather sober piece of seeking-truth-from-facts Kremlinology based on a painstaking parsing of several important articles in the semi-official Chinese local and English language press.

I conclude that China decided that the main risk to its orderly dealings with Iran was runaway U.S. national sanctions targeting the Chinese banking system; and the best way to defuse that threat was to support UN sanctions and thereby make it politically costly for the Obama administration to go far beyond the UN sanctions and gore China's economic ox.

China's support for UN sanctions was, therefore, foreordained.

The ITB announcement was awkward for Beijing's public diplomacy, but convenient for its dealings with the United States: threatened with the ITB deal, sanctions resolution negotiations over the last days assumed something of a fire-sale atmosphere, with Russia and China getting the best of it.

I conclude with the observation that China's strategy may well be understood, if not greatly appreciated, by Iran as the best way to muddle through the current mess.

I also conjecture that the Obama administration may even be grateful for China's participation, since the need to moderate US sanctions in order to keep China on board prevents the whole anti-Iran effort from degenerating into a scorched-earth fiasco.

China Weighs in on the Iran/Turkey/Brazil Agreement

Update

If the U.S. can't sabotage the ITB agreement, it will do its best to ignore it.

According to the Guardian.

A new set of United Nations sanctions are almost certain to be imposed on Iran next month, after Russia and China today agreed to support punitive action against Tehran's military and financial institutions, according to a security council source.

The Russian and Chinese move came as a surprise to the US and Britain, who had been braced for several more weeks of negotiation. Moscow and Beijing have over the last few months been either lukewarm or downright opposed to the idea of sanctions. The Obama administration has been working for months try to bring China and Russia round.
...

A draft security council resolution was agreed early today by the five permanent members of the security council – the US, Britain, China, Russia and France. The resolution is to be sent to the other 10 members of the council later today.

Hmmm.

I would speculate that the United States was very anxious to get this draft circulated in order to counteract the news of the ITB agreement. So maybe some hurried caving in to Chinese reservations provoked the "surprise".

China, for its part, has frequently expressed its support for the "two-track" process, so I suppose it would be awkward for Beijing to hold up the drafting process if the draft reflected most of its stated concerns.

However, China knows perfectly well that watering down the UN sanctions doesn't solve the problem.

The United States has gone out of its way to telegraph its position that harsher national and EU sanctions are a certainty once an enabling UN resolution is out of the way, as the Washington Post tells us:

Diplomats said that some of the proposed language in the current resolution was added with the full knowledge that it would be removed by the Russians and Chinese -- but then could be revived in the European resolution. The individual country sanctions would come after the European Union has acted and would be led by the United States, Britain, France, Germany and other like-minded nations, diplomats said.

So, the United States strategy could be rephrased as "meaningless sanctions through the UN to enable meaningful national sanctions (without any meaningful Chinese input) down the road."

By spurning the ITB deal, the United States has committed itself to the sanctions route.

Given America's enthusiasm for playing geopolitical chicken with China on this issue, I think Beijing will probably blink, keep its head down, and perhaps even vote for UN sanctions despite the consequences.

Beijing might be thinking that national sanctions would simply drive Iran further into the PRC camp. However, given the Pandora's box element of runaway national sanctions, I doubt China's leaders welcome the unpredictable risk and confrontation they involve (a caution that it might be wise for the Obama administration to emulate).

It is more likely that China will encourage diplomacy over the next few weeks, console Turkey and Brazil (who are undoubtedly insulted at the United States' dismissive treatment of their initiative), and try to sort out the geopolitical wreckage to its advantage if and when sanctions do come down.

Original post below:

They like it.

In addition to having the Ministry of Foreign Affairs spokesman speak positively of the agreement at the regular press conference, the MOFA drew special attention to it by extracting remarks Foreign Minister Yang Jiezhi made at to Chinese and Tunisian reporters (the president of Tunisia is visiting Beijing) and posting it as a separate statement on its Chinese language page.

Yang stated China had noted reports concerning the agreement negotiated between Iran, Turkey, and Brazil and "welcomed and appreciated" the diplomatic efforts of the involved parties.

In Chinese, the phrase is, "欢迎和赞赏".

欢迎--the well-known "huanying" or "welcome"--is pretty much meaningless diplomatic puffery.

赞赏 on the other hand, is quite a positive term. It means "appreciate and admire" and is just one degree short of "endorse".

Since China wasn't a party to the agreement, they wouldn't have been likely to use the term "endorse" in any case.

There was no mention of the process-related reservations and suspicions that all the other permanent Security Council members including Russia chose to voice.

The dominant theme for Yang's statement was the success of diplomacy, which, in this context, is an implied criticism of excessive reliance on sanctions.

He concluded his statement with the remark

中方愿意与有关各方一道为推动伊核问题的外交解决发挥建设性作用。

"The Chinese side is willing to work together with the concerned parties to play a constructive role in the diplomatic resolution of the Iran issue."

All in all, a strong Chinese statement of support and a sign that China is calling for more attention to the diplomacy side of dual track as the US labors to shift the focus back to the sanctions track.

Lost inTranslation

The United States Responds to the Turkey/Brazil/Iran Deal with Dismay, Denial, Deafness, Willful Misunderstanding, and the Occasional Malapropism

The deal for to provide fuel plates for the Tehran Research Reactor, brokered by Turkey and Brazil, has been signed.

The deal threatens to derail the push for Iran sanctions, which is apparently the be-all and end-all of America's strategy.

No question what Turkey--a non-permanent member of the Security Council this year--thinks:

"This agreement should be regarded positively and there is no need for sanctions now that we [Turkey and Brazil] have made guarantees and the low-enriched uranium will remain in Turkey," [Turkish Foreign Minister Ahmet Davutoğlu] said.

The Washington Post's Glenn Kessler tells us that the deal will provide excuses for more Chinese mushiness on sanctions:

More important, the deal gives China -- a veto-holding member of the Security Council long reluctant to support new sanctions -- an excuse to delay or water down any new resolution.

Now the United States has to find a way to kill the deal.

More from Glenn Kessler:

The best hope for U.S. officials is Iranian intransigence. The Iranians could haggle over the details and implementation of the agreement until it collapses, much in the way it first agreed to a swap deal with the United States and its allies before backing away.

Iran now must present a letter to the International Atomic Energy Agency in Vienna explaining the details of the transaction, which U.S. officials privately hope will begin the process of unraveling it.

Stay classy, fellas.

The first line of opposition has already been drawn: It's a trap! The crafty Iranians have continued to enrich uranium since the deal was originally floated. So sending 1200 kg of LEU overseas leaves too much inside Iran and does not eliminate the dreaded bomb breakout scenario.

Second line of opposition is that Iran is continuing to enrich LEU to 20%.

As CNN spun the agreement on its its homepage: Iran to resume uranium enrichment, linking through to a story entitled Iran to resume uranium enrichment despite Turkey deal.

This does not appear to be quality reporting.

The original version of the article, which grew wings and circulated all the way to China (it was apparently also the basis for a report in the Chinese language media), implied that Iran had bookended announcement of the Turkey deal with an intentionally defiant statement that it would be enriching more LEU.

However, when CNN updated the story (including a passel of disparaging comments on the deal from the UK, France, and Israel) it transpired that what the Iran foreign ministry spokesman had really said was this:

"We are not planning on stopping our legal right to enrich uranium," Foreign Ministry spokesman Ramin Mehmanparast told CNN by telephone.

That's different. Iran's centrifuges might well be spinning, but sticking a thumb in the West's eye doesn't seem to have been Mehmanparast's intention.

As stated in the text of the agreement, Iran wanted to make clear that, by acceding to the TRR swap, it was not surrendering its right to enrich uranium to under 20%--the basic premise of its engagement with the IAEA and NPT regime, and a right that even the United States is, in principle, willing to acknowledge.

So, even as Iran attempts to present its most accommodating demeanour, it looks like some problematic reporting and, to be fair, a less-than-stellar use of the English language by Mehmanparast, combine to make the regime look intransigent and, indeed, willfully provocative.

Funny 'bout that.

China, which I suspect is rather gleeful about the deal, hasn't weighed in with any official comment or endorsement as of this writing.

A glitch in Xinhua's editing gives an idea of China's current effort to stay above the fray and keep up with the latest spin:

TEHRAN, May 17 (Xinhua) -- An Iranian Foreign Ministry spokesman said Monday his country will continue enriching uranium to 20 percent itself, despite a swap deal signed just hours ago in which Iran has agreed to ship some most of its low enriched uranium to Turkey in exchange for 20 percent uranium needed for its Tehran reactor. [emph. added]

To console Xinhua with the knowledge that the decline of copyediting and authorial standards is not just a Chinese problem, Glenn Kessler wrote:

Brazil and Turkey, which were represented by their presidents in the talks, invested significant diplomatic cache in the negotiations.

Ahem.

One invests diplomatic capital to obtain an agreement. One garners diplomatic cachet from concluding an agreement. Cache, a collection of resources securely stored against a rainy day but by definition not yielding an investment return, resides, for the purposes of this sentence, in that dread limbo where Francophone ignorance, mispronunciation, and misapprehension reign and Spellcheck cannot go.

This deal represents bad news for the Obama administration.

Insisting on sanctions as a precondition for further Iran-related movement provided welcome domestic political cover for the administration.

If the UNSC sanctions drive sputters, then the U.S. either have to abandon the signature multi-lateralism of the Obama administration to pursue destabilizing and probably futile unilateral sanctions, or risk the wrath of the pro-Israel/security hardline/knee-jerk Republican bloc with inconclusive, moderate noodling on the issue.

And I don't even need to trot out my personal hobby horse--the theory that Iran sanctions was a precondition for Israel's entry into the non-proliferation regime and the success of the Obama administration's NPT Revcon-centric global security strategy--to observe that moderation by the U.S. would embarrass it in front of its European allies.

China Matters' favorite arms control wonk, Jeffrey Lewis, also went on record with his dismay with the announced deal:

The downside of not insisting is that the deal — which does nothing to constrain Iran’s program — creates a false sense that the problem is Iran’s break-out capability. In the Reuters story, Western officials claimed “Iran was trying to give the impression that it was the fuel deal which was at the center of problems with the West, rather than its nuclear ambitions as a whole.” Yeah, no kidding. As regular readers know, I have long argued that the problem is not Iran’s enrichment at Natanz, not even to 20 percent. The problem is Iran’s history of clandestine enrichment. Iran wants to change the narrative to focus on the West’s objections to its arguably legitimate activities. Why we keep helping them do that is beyond me.

My personal feeling is that the precondition to stopping Iran's clandestine enrichment is a) engagement and b) dealing with the Israel problem c) building a genuine security consensus both inside and outside of Iran on the issue.

If the U.S. had treated the TRR swap as a trust-building transaction instead of an opportunity to demand the incapacitation of part of Iran's nuclear program, and if the Israel double standard didn't exist, Turkey probably wouldn't have been so eager to defy the United States and broker the deal.

But whatever.

With this convergence of enlightened expert opinion, political necessity, and geopolitical calculation, the Obama administration might be quite ruthless in trying to derail the deal.

In addition to griping about the additional LEU in Iran, the U.S. could insist on an enrichment freeze. Or France--whose job is to actually fabricate the plates--could state that it couldn't bring itself to cooperate unless all the LEU went to Turkey.

The West can certainly scupper the deal--at the cost of humiliating and angering Brazil and Turkey. But can it garner Chinese support for sanctions--and acquiescence to whatever skullduggery it comes up to rescue them?

China Sends Iran Back to the IAEA

I have an article up at Asia Times entitled China fine-tunes its Iran strategy.

I read the Chinese tea leaves (People’s Daily and Global Times) to come to the conclusion that China wishes to avoid a UN Security Council vote on Iran sanctions. Beijing fears that any UN vote, with a Chinese yea vote or abstention, or even with a nay vote, will serve as the politically enabling factor for harsh national sanctions that the US and key EU countries are teeing up.

I’m afraid that after Copenhagen, his travails in the U.S. Congress and, most importantly because of his strategy of leaving China as the last sanctions domino to fall (instead of giving Beijing face and reassurance by engaging it first and foremost), President Obama is suffering a credibility and mojo deficit in the eyes of the Chinese, and they will be extremely skeptical of any assurances that he can provide Beijing the opportunity to exert a moderating influence on any post-UNSCR rush to national sanctions.

So I concluded that China would recommend to Iran to try to keep this matter bottled up in the IAEA, despite the replacement of the Iran-friendly ElBaradei with the West-tilting new DG, Yukiya Amano.

I supported this inference with Iranian and Chinese reporting of conciliatory Iranian moves toward the IAEA, and declarations of loyal fealty to the NPT.

Today, there was further evidence of an Iranian charm offensive, in the form of a formal letter to the IAEA re-opening the matter of fuel for the Tehran Research Reactor (TRR).

The TRR swap is apparently the great lost opportunity of US-Iran nuclear diplomacy.

To a certain extent, the conventional narrative concerning the TRR swap (Iran would ship its 3.5% U₂₃₅ Low Enriched Uranium to Russia for further enrichment and receive fuel plates for the TRR in return) appears to be correct.

Iran, by not making an open and positive response to the offer when it was officially tendered in October, blew it.

However, I’m of the suspicion that Iran had plenty of help.

The swap was grew out of a request by Iran in June 2009 for help from the IAEA in obtaining new fuel plates for the TRR, an elderly reactor originally provided by the US to the Shah that still produces medical isotopes in Tehran. The Obama administration was brought into the deal, the response from Iran (presumably representing President Ahmadinejad’s views) was positive, and apparently a great deal of open-hand-not-closed-fist excitement ensued in the White House.

However, it would seem largely because of French and Israeli resistance (which, given France’s desire to assert itself in the Levant as a serious power at Iran’s expense, may be one and the same thing), the trust-building measure turned into an adversarial disablement proposal.

According to an authentic-looking internal French government document that was leaked and posted on the Arms Control Wonk website, the French insisted in September that the EU’s “freeze-for freeze” mechanism (a demand, detested by Tehran, that Iran suspend all enrichment work in return for a suspension of sanctions) be part of the deal; that no less than 1200 kg of LEU in a single shipment be involved; and the deal had to be accepted and the LEU had to come out by the end of 2009 before any plates went in.

And, according to the West, it would take about a year to grunt out the 264 pounds of fuel plates (which would be fabricated in France after the Russians enriched the LEU to 19.75%), an assertion that the Iranians found highly dubious.

The way the whole thing played out made Ahmadinejad look like a chump.

Instead of a friendly, historic exchange with the United States (apparently, rapprochement with the United States is not a matter of serious dispute in Iranian circles; the only question is, which political grouping will get to take the credit and reap the rewards), he was supposed to publicly knuckle under to the West in an adversarial process, give up most of his LEU immediately and without negotiation in exchange for nothing, and wait and hope his plates (and political windfall) showed up a year later.

Like I said, Ahmadinejad blew it, but it looks like he had lots of outside and inside help.

If you look at the situation and drew the conclusion that some parties were determined to make sure that Ahmadinejad was deprived of his “Nixon Goes to China” moment with the Great Satan, well, we’re on the same page.

The current Iranian approach to the IAEA on the TRR has been rejected by the United States and we may very well be looking at nothing more than diplomatic kabuki as both sides gird themselves for the struggle to decide whether the Iranian issue is addressed by a UNSC resolution.

That the Obama administration has given up on its noble aim to engage with Iran is indicated by the rather inexplicable decision to acquiesce to Israel’s assumption of a high profile role as sanctions cheerleader to the EU, Russia, and even China.

Israel is, of course, not a member of the NPT or IAEA , allegedly maintains an undeclared and highly destabilizing arsenal of 200+ nuclear warheads, and proliferated in a major way to the South African apartheid regime.

Not exactly the poster child for the NPT and IAEA.

Which may be another reason why the Chinese would tell the Iranians to push the IAEA angle.

The United States might have a compelling reason to dig a grave for the Teheran Research Reactor swap.

Opponents of the deal—call them cynics, cooler heads, Iran-haters, or, perhaps professional paranoiacs—could seize on the problem that the uranium in the fuel plates that Iran got back would be significantly enriched—from 3.5% up to 19.75%--and apparently in a form that could, without much ado, be used as feedstock for enrichment to weapons grade (80%).

According to Arms Control Wonk, the plates in the Tehran Research Reactor are simply sintered U₃O₈, and Iran already has the chemistry and processing know-how to needed to turn that kind of plate into feedstock for weapons-grade enrichment.

And, at 19.75% enrichment, the West would have already done most of Iran’s enrichment work for it.

Jeffrey Lewis of AWC, offered a useful analogy along these lines: imagine a box filled with 100 tennis balls, of which four are red (U₂₃₅)and the rest white (U₂₃₈). To upgrade the red balls to 20% of the total, you have to throw away 80 tennis balls for a ratio of 4 red to 16 white. To get to 80% red balls, you just have to throw away another 15 balls to get your final ratio of 4:1.

The West would be throwing away 80 of the tennis balls on Tehran’s behalf, and apparently it’s relatively trivial for Iran to take care of the remaining 15.

So the wonderful and thrilling humanitarian gesture of providing new fuel plates for the Tehran Research Reactor could be construed, and probably was construed, by Iran’s legion of informed critics, as a potential acceleration of Iran’s weaponization program.

Oops.

ACW’s Geoffrey Forden proposed that the plates be fabricated as a uranium-beryllium compound, based on the idea that separating out beryllium is a difficult and novel technical task and Iran would have to expend time, money, and conspicuous effort to develop new technology and processes in order to extract the uranium from the fuel plates for the dreaded weaponization breakout.

Unfortunately, just as careful cooks don’t lightly substitute margarine for butter in their recipes, responsible and careful operators of nuclear reactors apparently don’t toss in a brand new type of fuel plate without furrowed brows and lots of technical and safety hand-wringing.

It would be understandable if the Iranians wondered if the US was going to assist Iran with a crash-reengineering and retrofit of the Tehran reactor for the uranium beryllium fuel—and take responsibility if things didn’t go right—and looked at this kind of hocus-pocus with a jaundiced eye.

I suppose, when this chapter in the endless history of the US-Iran nuclear dispute is penned, we’ll find out if the issue of the potential proliferation risk of the new fuel plates was covered ahead of time during the excited White House confabs over Iran’s offer, or came up later as one of those classic “Ms. Titanic-meet-Mr. Iceberg” oh sh*t moments.

If the latter was the case 1) Ahmadinejad would have been suspected of setting a perfidious trap and 2) the White House would backpedaled away from the deal at light speed to avoid appearing to be Iran’s dupe and 3) thrown up a bunch of roadblocks in order to reduce the perceived proliferation and political danger.

In any case, with the help of the revelation of a secret Iranian enrichment facility near Qom (known by Western intelligence for over three years, but somehow not revealed until the eve of the formal conference between Iran and the West on the swap at the beginning of October 2009 and necessitating a critical report by the IAEA in the last month of ElBaradei’s term; bad luck, Mr. Ahmadinejad!), the Tehran Research Reactor deal became a theater for heightened suspicions of Iran’s proliferation intentions and not the confidence-building diplomatic exercise it was originally intended to be.

And the inevitable outcome of suspicion is, apparently, sanctions.

Funny ‘bout that.

A Wedge Too Far?

Via Laura Rozen, more talk of Hillary Clinton jawboning Saudi Arabia to assure Chinese energy supplies if a) China votes for Iran sanctions and b) Iran’s petroleum exports to China are disrupted as a result.

China, of course, considers itself a great power with its own energy allies in the Middle East, not an awkward teenager who needs mom’s Chevron card to gas up the sin wagon.

Anyway, if Iran oil goes off the market, every producer in the world, including Saudi Arabia, will be pumping like crazy to take advantage of the higher prices.

So I wonder if this highly and unnecessary publicized offer is just another wedge, designed to force China either to betray its alliance with Iran or insult the Saudis by spurning their generosity.

Beyond that issue, I see a problem: according to Rozen's sources, the Security Council resolution will not involve onerous and extensive sanctions. Russia, despite its current desire to curry favor with the United States on Iran, will apparently see to that.

Disruption of Iran’s energy exports will come if and when the EU and the United States decide to go for “crippling sanctions”, as Israel demands. The theory is that a unanimous Security Council resolution would be the politically enabling event that could trigger EU and US sanctions.

Raising the issue of China’s energy supplies in the case it is cut off from Iran sends a rather clear signal that “crippling sanctions” beyond those expected from the Security Council are on the table. And China will have zero leverage on the nature of sanctions once the U.S. gets past the Security Council.

I don’t think China is going to believe any assurances from Hillary Clinton that, if China votes for sanctions, nothing too bad will happen to Tehran after Iran sanctions become a plaything for the implacably hostile U.S. Congress.

If China voted for Security Council sanctions and then had to stand by helplessly as the EU and U.S. (and a healthy collection of warships in the Persian Gulf) shut down Iranian oil exports, China’s interests, self-esteem, and international perceptions of its role as a reliable ally and regional force would suffer.

So the “Saudis will give you oil” line may be counterproductive when it comes to getting a Chinese aye vote in the Security Council.

Judging from the Chinese papers and blogs, resentment over China getting caught in the middle of the U.S.-Iran scrap is universal, mixed with grudging awareness that China got stuck there because the Russians apparently decided to side with the U.S. on sanctions.

There’s some thought that the Russian move was inspired both by Moscow’s need for a ratcheting down of U.S. missile defense and NATO expansion plans, and by a desire to put China in its place.

One columnist voiced hopes for China to step up as the essential middleman, persuading Iran to back off on 20% enrichment, and thereby cracking the anti-Iran united front and asserting China’s relevance in the Middle East in one fell swoop.

China faces an array of bad choices and unlikely options, and renewed challenges in translating its economic and military heft into geopolitical influence.

It will be interesting to see how this plays out.

Rollback: Is the Obama Administration Going Zero Sum on China?

A wise man—I believe it was Auric Goldfinger—once said:

Once is circumstance. Twice is happenstance. Third time it’s enemy action.

As China absorbs a sustained crotch-kicking from the United States on the issue of its impending Security Council vote on Iran sanctions, it appears to be pondering the fact that this is the third time in less than two months that China has found itself on the losing side of a diplomatic initiative by the United States.

First, at the Copenhagen climate summit, Beijing apparently came prepared to negotiate on the issue of emissions monitoring and verification, but was blindsided by the U.S. strategy of publicly demanding an undefined level of “transparency” as the price of the billions of climate adaptation aid dangled before the small and vulnerable countries that China claimed to be representing.

Second, Secretary of State Hillary Clinton jumped into the Google controversy with both feet, calling for China to conduct a “transparent”—hey, there’s that word again!—investigation.

Now, the United States is publicly calling upon China to look beyond its narrow, short-term interests (i.e. good relations with Iran and access to its oil) in favor of the long-term interests of the region (Persian Gulf ringed with pro-U.S. regimes graciously shipping oil to China).

In each case, China is being presented with a fait accompli in which it is being asked to sacrifice its own interests for the sake of U.S. priorities—zero sum instead of win-win, in game theory parlance.

And in each case, either by accident or design the Obama administration has seized upon a hot button issue that has formed a wedge between China and a vulnerable constituency: developing countries at Copenhagen, the international business community on Google, and the Arab states on Iran.

In fact, with only a little glimmer of paranoia, China would be justified to see the Obama administration’s geopolitics as a conscious exercise to roll back the easy gains in Africa, the Middle East, and with business-hungry entities and states around the world during the blundering Bush years.

It seems clear to me that China feels that way and, on the issue of Iran, has fired a clear shot across the bow of the United States.

Instead of discretely and confidently soft-pedaling the issue of America’s demands on China, Beijing has gone public with its dismay.

For instance, courtesy of Danwei, here’s the front page of Global Times, with the gigantic headline, The United States and Europe are Compelling China to Sanction Iran:



Normally, China is careful to advertise that nobody can force China to do anything.

In this case, I think it’s a signal to the United States that China is looking for a gesture that the Obama administration is not discarding the principle of win-win negotiations among equals when dealing with Beijing.

I wonder if they’ll get it.


I cover the issue in an article for Asia Times entitled, China feels U.S.-Iran fallout.

As to whether the Obama administration has a conscious and consistent strategy of rollback against China, my opinion is mixed.

On the one hand, I wonder if the Obama administration is capable of such sustained, Machiavellian cunning. If it had deployed a sophisticated multi-issue wedge campaign against the U.S. Republicans, the Democrats would have health care reform in their pockets by now and be looking at legislative domination in 2010.

On the other hand, the Iran issue looks a little too manufactured to represent a genuine crisis that just happened to buzzsaw China. And it’s not the first time China has found itself on the wrong side of a U.S. wedge issue.

The current sanctions campaign against Iran brings the Obama administration a host of domestic and regional political benefits, including an opportunity to wedge Syria away from Iran and Hamas.

As to the actual danger of an Israeli attack on Iran’s nuclear assets, the punditocracy usually likes to invoke the IDF attack on Saddam’s Osiraq facility, usually accompanied by fluttering eyelids, moistening loins, and the trembling phrase “destroyed in 100 seconds”.

Iran’s nuclear program is a different kettle of fish, not only because Israeli planes would need explicit approval from the U.S. forces in Iraq or Saudi Arabia for overflight.

At the time of Israel’s attack on Syria’s “box in the desert” in 2007—seen as a project to demonstrate the feasibility of a devastating attack on Iran—I looked at some of the tactical issues involved.

The Israeli air force is undoubtedly working continuously to improve its long-range threat, but Iran is still a long ways away and there are quite a few targets to bomb.

Here's what I wrote in 2007. If anybody has an updated or more informed take, feel free to weigh in. If you follow the link to the original posts, you'll find links for some of the information and quotes.

Friday, October 05, 2007

The Mystery of the Dropped Fuel Tanks

I had vowed to give up blogging on Middle Eastern affairs.

However, an e-mail from a reader concerning the Israeli raid on a purported North-Korea-linked military facility in Syria enticed me to wander off the Asian affairs res once again.

FYI, the combat radius of an F-15 in deep strike mode is 1800km
The distance to the Syrian target is ~ 700 km.

No need for drop tanks........

Hmmm. Too interesting to pass up.

The Internet is a treasure trove for armchair commanders and aviation and weapons enthusiasts. Industrious googling yielded the following information:

During the raid, some Israeli aircraft jettisoned two external fuel tanks up by the Turkish border.

The tanks were from an F-15I fighter bomber , called the “Ra’am” or “Thunder”, itself the Israeli variant of the F-15E Strike Eagle.

In agreement with my correspondent, the Observer states the Ra’am is:

...the newest generation of Israeli long-range bomber, which has a combat range of over 2,000km when equipped with the drop tanks.

But I think the Observer (and perhaps *gasp* a loyal reader) got it wrong. Either they confused cruising range with combat range, or confused the current F15I with its previous incarnations (for instance the F15C does have a combat radius of 2000 km).

The F-15E is a completely different animal from previous F-15s, which were sleek interceptors, designed “without a pound for the ground” i.e. no air to ground armament, for those days of air-to-air combat with the parfait knights of the Soviet bloc.

The F-15E is a big, fat hog of a plane, sometimes nicknamed the Flying Tennis Court, or Rodan for its resemblance to the ungainly but murderous superpterodactyl featured in the Godzilla movies.



It’s meant to carry big bombs and missiles to blow up stuff on the ground and the people standing in it or next to it, and fight its way out if necessary.

So it’s got bigger engines and less range than previous F15s.

According to the data I dug up, the F-15E has a combat radius—the distance it can be expected to fly for a mission assuming high speed, fuel-consuming maneuvers--of 790 miles (see here and here ).


To achieve this radius, it needs its internal fuel plus external fuel.

Internal fuel capacity is 5,952 kg.

External fuel consists of two components:

Conforming fuel tanks or CFTs with a total capacity of 4500 kg. They are integral parts of the plane—one report I read said the plane isn’t really designed to fly without them—and can’t be jettisoned.

Then there’s another 5500 kg in conventional external fuel tanks—the kind that were dropped during the mission.

With a fistful of caveats, the combat radius for an F-15I without the external fuel tanks would be around 500+ miles.

Distance from the Hatzerim airbase (home of the F-15I-equipped 69th Squadron) near Beersheba to Dayr az Zawr: 420 miles.

So you might think that the conventional external fuel tanks weren’t needed for this particular mission, and the only reason to carry them was for road-testing prior to some Iran-related hanky-panky.

Maybe yes, maybe no.

If the Israelis really did bomb Dayr az Zawr, it’s unclear why they went barnstorming up to the Turkish border a hundred miles away.

But they certainly did go, and to fly that kind of mission including a flyby of the Turkish border, I think they would need the external fuel tanks.

Maybe the Turkey excursion was to test some fancy new electronic countermeasures equipment mounted on another plane, called “Suter”, to disrupt Russian air defense hardware recently supplied to Syria—and Iran, for Israel’s benefit and our own.

Aviation Week put out the story courtesy of “U.S. officials”:

A Kuwaiti newspaper wrote that "Russian experts are studying why the two state-of-the art Russian-built radar systems in Syria did not detect the Israeli jets entering Syrian territory. Iran reportedly has asked the same question, since it is buying the same systems and might have paid for the Syrian acquisitions."


We got a certain amount of military chest-thumping about how cool this new gear is, but these planes only jettison their fuel tanks if they’ve been engaged and need extra speed and mobility, which leads one to believe it couldn’t have worked too great.

As to Israeli insistence that they’ll take out Iran if we can’t get off our collective rears, I found this analysis interesting and persuasive.

It argues that the Israeli air force simply doesn’t have the horses to haul the armament needed to make a terminal dent in the hardened and dispersed Iranian facilities on a 1200-mile mission—remember, more fuel means fewer weapons carried--unless the U.S. either assists in the refueling of the Israeli planes or allows them to stage the assault U.S. from bases in Iraq.

And maybe not even then.

Bottom line:

Theoretically, the Israelis could do this, but at great risk of failure. If they decide to attack Natanz, they will have to inflict sufficient damage the first time - they probably will not be able to mount follow-on strikes at other facilities.

When all the analyses are done, there is only one military capable of the sustained widespread air operations required to eliminate Iran's nuclear weapons research program - the United States.

So it looks like the Israelis could start something—but it would be up to Uncle Sam to finish the job.

I take this as support for my thesis that a key data point for Israel from the Syria raid was the nature of the U.S. support it did—or did not—elicit, and what that would mean for Israel if it conducted a dramatic but less than conclusive raid on Natanz with the hope that the U.S. could be dragged into the campaign.

So: War with Iran—it’s up to us. Don’t know whether that’s reassuring or disturbing.

Iran Turns to China in Nuclear Standoff

Update: According to Haaretz:

Ahmadinejad said on Tuesday Iran was now prepared to send low-enriched uranium (LEU) abroad before getting reactor fuel back. Before, Tehran insisted on small swaps on its own soil.

That would defeat the draft plan's purpose of reducing Iran's total LEU reserve below the quantity required to set off an atomic bomb, if it were refined to high purity.

As noted below, China is perhaps the only major power that Iran could rely upon to conduct an offshore swap. Wonder if China will rise to the bait. CH 2/09/10

Original post:

During a February 9, 2009 press briefing, a spokesperson for Iran’s Ministry of Foreign Affairs praised China’s ever more important role on the world stage.

He also stated, according to Phoenix TV’s correspondent on the scene:

If China was willing, Iran could consider conducting the nuclear fuel exchange through China.

The nuclear fuel exchange refers to a proposed confidence-building deal between Iran and the West that has basically turned into a confidence-demolition deal.

The IAEA proposed that Iran ship most of its declared low-enriched uranium (LEU) to Russia for enrichment to 20%; then the Russians would ship the fuel to France for fabrication into rods and return the rods to Iran so it could make medical isotopes in its Tehran Research Reactor.

Theory was that Iran would get out of the uranium enrichment business and the world could find something else to worry about.

However, U.S. engagement with Iran, like so many other nice things the Obama administration had planned, went off the tracks, thanks in part to the large anti-government demonstrations following last year’s dubious presidential election in Iran.

Understandably, the Iranians worried that, if they sent their uranium overseas to Russia (which has started to side with the U.S. on Iran issues) and France, they might never get it back, and they reportedly proposed some deal that would involve incremental exchanges of enriched material for their LEU.

The result was a lot of huffing and puffing from the West about Iranian bad faith and a concerted drive for new Iran sanctions.

China is the only member of the P5 (Security Council + Germany) clearly resistant to new sanctions.

The Iran offer can be seen as 1) an effort to get China involved on its side 2) a recognition that China is the one party that would reliably return their uranium.

The offer didn’t come up in China’s MOFA Feb. 9 presser. On the Iran issue, the Chinese spokesperson stated:

We hope and support that the concerned parties can achieve a unanimity of views on the IAEA’s draft agreement for supply of fuel to the Teheran Research Reactor. This would contribute to the favorable resolution of the Iran nuclear question.

The Chinese, like the rest of the world, are probably waiting to see if the Iranian government can keep the lid on the demonstrations everybody’s hyping for February 11.

If the Iranian government works its authoritarian magic on the demonstrators, I believe China will maintain its current position of negotiations and no sanctions. If the wheels come off and Iran heads for a period of serious political instability, China will simply keep its head down until the clear winner emerges.

China Matters tries to resist the urge to engage in fine de siecle woolgathering, but to me the Iran kafuffle represents the further poodleizing of France and Germany. Ever since the Suez crisis in 1956 the UK has recognized that its only hope of punching above its weight in world affairs was to cleave to the United States more closely and sincerely than any other power.

Now Germany and France see lining up with the US on Iran as a way to assert their claim to an outsized share of world political and moral leadership.

Problem for Merkel and Sarkozy is, it was one thing to line up with the US, the world’s dominant military and economic power at the height of the Cold War. It’s a different thing to for fading Western powers to try to ignore the shift of economic and military gravity away from the North Atlantic with an anti-Iran rave-up.

It seems to me that the lesson that China and India will draw from the Iranian uranium farce is that the world’s business is not being run properly by a politically stymied superpower abetted by second-rate Europowers struggling for relevance.

Coincidentally, the Guardian weighed in on Europe’s bleak prospects on February 8:

Since EU leaders last met in Brussels before Christmas, the mood has soured. For the Europeans who claimed for two years to be leading the world on climate change, the global warming summit in Copenhagen was the gamechanger, a moment when the global balance of power tilted and relegated the EU to the second division.

"What we saw in Copenhagen is that Europe does not count," Daniel Gros, director of the Centre for European Policy Studies, told a conference of Brussels thinktanks.

"For good or for ill," a senior European official told the Guardian, "the message that Copenhagen sent is that Europe is not at the table. The fact of the matter is that Europe's leaders were taking a coffee and [Barack] Obama visited them at the coffee break. But he negotiated with others."

The Europeans are struggling to recover from that blow.

For the past 18 months, the British foreign secretary, David Miliband, has been warning that Europe faces being sidelined in a "G2" world run by the US and China unless the EU steps up.

Miliband's worst fears materialised when Obama held his press conference at the end of Copenhagen and deleted Europe from the script.

"If the G2 world was approaching, suddenly there it was," said the diplomat. "A seminal and symbolic moment."

Perhaps pledging to be the US’s BFF on Iran is not going to extract Europe from its geopolitical cul de sac.

Swan Song

Observing President Bush's farewell tour of Europe reminded me of Cynthia Heimel's ode to toxic relationships, Get Your Tongue Out of My Mouth, I'm Kissing You Goodbye!

Old Europe might have wished for a low-key, dignified, and not quite bittersweet parting with the arrogant troublemaker who brought it so much trouble.

However, students of Bush psychology will not be surprised that our lame duck prez insisted on one last degrading service from our European allies in order to demonstrate he still had the upper hand in the waning days of the dysfunctional partnership.

In this case, Britain and the EU meekly gratified President Bush on the issue of Iran sanctions.

On June 16, standing with President Bush, Gordon Brown announced that the EU foreign ministers' meeting that afternoon would impose new sanctions on Iran's Bank Melli.

Trouble is, he was wrong.

The EU foreign ministers meeting announced no new sanctions against Iran that day.

Why?

Because they didn't want to.

The Financial Times' Westminster blog explained the problem:

[T]he EU agreed (some weeks ago) on what action to take against Bank Melli. This is a significant step. But they have not agreed on when to take it. Downing St argue this is a formality and the sanctions will be imposed in coming weeks. Yet this gap is important, particularly as the EU has made a new offer to Iran to suspend its uranium enrichment programme in return for economic and political support. The Iranians have yet to respond. Mr Brown effectively punished Iran with the stick before Iran decided whether to take the carrot... it is hard to imagine the negotiators welcomed this surprise announcement, or relished explaining it to the Iranians. A decision like this is announced with the agreement of 27 EU foreign ministers, not after a UK/US bilateral. Unexpected moves like this do not help to build trust.

The FT quoted a diplomat as ranking this blunder as “a seven on a scale of ten”.

Was it a blunder? Or a piece of sabotage?

On June 21, the LA Times' Borzou Daragahi provided an interesting and circumstantial account of a deal that EU foreign affairs chief Javier Solana carried to Tehran on June 14: a six week freeze on sanctions while Iran continued to operate its uranium enrichment facility at Natanz without adding new capacity, to be followed by a six month freeze on all enrichment operations while negotiations took place.

Despite reports that the US "signed off" on the EU package, such a proposal would directly contradict the Bush administration’s bedrock position that Iran has to cease all enrichment before any negotiations can take place.

The money line from Daragahi's account:

[T]he proposal's 7 1/2 -month time frame would ride out the term of the Bush administration, which has repeatedly threatened military action to destroy Iran's nuclear facilities.

What we have here, ladies and gentlemen, is an apparent maneuver by the EU to move the Iran issue out from under George Bush's (and Dick Cheney's) baleful shadow, and kick can down the road to (hopefully) a Barack Obama administration.

President Bush's riposte: to kick the props out from under the EU proposal by armtwisting Gordon Brown to pre-emptively repudiate the key confidence-building measure at its heart: no new sanctions.

Faced with this embarrassing situation, the EU scrambled to accommodate President Bush while trying to maintain some semblance of credibility (and dignity) with Iran as a negotiating partner.

A week later, on June 23, the EU announced sanctions on Bank Melli, but trying to straddle the problem, according to Kuwait's Arab Times:

The EU official stressed the sanctions were based on measures agreed by the UN Security Council and that six powers — the five permanent members of the Council plus Germany — still sought an answer from Iran to their incentives offer. “We are continuing with the double-track,” the official said of the carrot-and-stick policy.

Correctly reading the signal that the EU wants them to keep cool, the Iranians oblige.

From the June 30 Tehran Times:

PARIS (IRNA) - Iran's Ambassador to France Ali Ahani said that the European Union (EU) decision to impose sanction on Iran's Bank Melli indicates lack of goodwill on the part of European side and such attempts are unacceptable.

Ahani made the remark in a meeting with Head of Parliamentary Assembly of the European Council Luise Maria Deping, adding that Iranian officials are studying a package of proposals from the Group 5+1, and that according to the common points in packages of proposals exchanged by Iran and Group 5+1, both sides can reach consensus during negotiations.

It seems apparent that Iran realizes that, despite US and Israeli demands for militancy, the EU can be cajoled and mollified at least until the Bush administration is out of office.

The only riposte left for the Bush administration is for John Bolton to spread dire warnings of an Israeli attack on Iranian nuclear facilities between the November elections and the January inauguration (presumably only if Barack Obama is elected; I assume the Senator McCain's “bomb bomb bomb Iran” chant is proof against any doubts of his fortitude), threats which I imagine are rather empty but are not doing oil prices or our reputation in Europe a world of good.

Aside from Daragahi's excellent piece, the reporting I came across on this new round of sanctions seemed, in general, to disregard some key points that I will take the liberty of making:

First, the United States is trying to impose a US anti-Iran sanctions regime on Europe that goes beyond explicit UN sanctions. US-led coalitions of the willing going beyond the UN have a rather bad reputation in Europe. Outside of France's President Sarkozy, nobody even professes to like them. The only way we get Europe to go along is through blatant arm-twisting and sub voce threats of dire actions against European banks by our Treasury Department if they continue to do business with Iran.

In other words, we don't intimidate, punish, or sanction Iran, with whom we have absolutely no relations. We intimidate, punish, and sanction our allies. Inside the US, for reasons that bewilder me, nobody seems to see this as a problem.

Second, the sanction was a partial sanction, much less than the wholesale sanction of the entire Iranian banking sector that the US has been threatening. It's virtually meaningless.

Reportedly, Iran pulled $75 billion out of Europe as a precaution against a major sanctions action and I have a feeling the European banking system is going to miss that $75 billion more than Iran is going to miss Bank Melli's operations in Paris, London, and Hamburg.

Thirdly, the Europeans are not keen on sanctions because they understand that following Washington's lead is driving Iran's money, business, and strategic focus away from Europe and toward Asia in general and China in particular. I covered this matter in considerable detail in a piece I wrote for Japan Focus, but here I will confine myself to quoting from the Arab Times on the consequences of Iran sanctions:


"[The sanctions'] impact (will be) more expensive imports," Iranian analyst Saeed Laylaz said of the impact on Iran of the move against Bank Melli, a key supplier of export guarantees. "The economy of Iran will be more dependent on Chinese markets," he added of a growing shift in Iran's focus to Asia that has seen Europe's share of the Islamic Republic's trade dwindle to 25-30 percent from twice that five years ago.

In summary, the EU is trying to extricate itself from a misconceived, ineffective, and financially costly sanctions regime.

For his farewell appearance in Europe, President Bush didn't try to accommodate the concerns of the European governments. Instead, he undercut and humiliated them with a pre-emptive announcement in an attempt to make their negotiations with Iran founder.

That's a good-bye kiss that would leave a bad taste in anybody's mouth.

Iranian Gas Pains—for American Policy

Via the estimable Laura Rozen, a report on another effort to put paid to the Axis of Evil by cutting off Iran’s imports of gasoline, this time via a nonbinding bipartisan Congressional resolution proposed by Democrat Gary Ackerman of New York and Republican Mike Pence of Indiana.

It’s being floated at the AIPAC conference.

As we sweat through a summer of $4 gas, it certainly is infuriating to see Iran sucking up seven million gallons per day of the precious juice from the international market—and selling it for less than a buck a gallon at the pump in downtown Tehran.

But it appears likely that futility and frustration will continue to stalk the United States in our gas war with Iran.

There was a spasm of hope in the US foreign policy community last year when Iran tried a free market solution to dealing with its citizenry’s overconsumption of subsidized gas—it raised prices. Some gas stations were burned down, raising the specter of a righteous petrocarbon revolution.

However, the government backed down—guaranteeing a monthly ration of gas at the ridiculously low price—and the mollified protesters returned to their gas guzzlers.

The issue returns whenever the United States casts around for another way to pressure Tehran.

Previous efforts to cut off the flow through something I would characterize as “moral suasion plus”—the threat of US Treasury sanctions against banks that handle gasoline letters of credit—led to one of those irritating free market reactions: the Iranians shifted their purchases to cash at slightly higher prices on the Singapore market early this year.

The Ackerman-Pence resolution specifically excludes military action. That means the only additional measure open to the Bush administration would be to explicitly threaten financial reprisals against—well, that’s the problem right there.

It’s a good bet that the second-tier banks that Iran has turned to for cash transactions have minimal U.S. presence and therefore are relatively impervious to the big stick in Treasury’s arsenal—the threat that an offending bank will be cut off from the U.S. financial system.

If the bank isn’t intimidated enough to self-enforce the ban on Iranian transactions, then the U.S. has to detect and trace murky cash transactions in violation of national bank secrecy laws, threaten multiple jurisdictions and institutions with punitive sanctions, and basically risk the danger of appearing like Elmer Fudd shooting a the global financial house to pieces while he’s chasing Ahmadinejad’s Bugs Bunny.

The classic story of sanctions is Action: Meet Reaction.

Even as the U.S. government labors to exploit Iran’s gasoline import vulnerability, Iran is preparing its riposte.

And that means we have to prepare a riposte to their riposte.

An outfit called the Institute for the Analysis of Global Security provides an interesting insight into where a single-minded commitment to escalation can take one.

In a December 2006 report entitled Ahmadinejad’s Gas Revolution: A Plan to Defeat Economic Sanctions, IAGS authors Anne Korin and Gal Luft take aim at Tehran’s diabolical plan to reduce its dependence on imported gasoline, decrease its energy costs, and improve the environment... by converting automobiles to liquefied natural gas.

In its conclusions, the report warns darkly:

If Ahmadinejad’s plan for energy independence is implemented, within five years Iran could be virtually immune to international sanctions.

The solution, in Korin and Luft’s view: more sanctions, sabotage, economic warfare, and punitive US actions to strangle the Iranian LNG demon in its cradle.

If the Iranians switch to bicycles, I suppose the next step will be a war on gravity.

But for the time being, I suppose we can take solace in the fact that the Iranians are so stupid they don’t build sufficient domestic refining capacity to turn their own crude into mogas.

Well, maybe not.

Iran is aware of the problem.

Maintenance and expansion of their Shah-era refineries have been crippled by US sanctions--sanctions whose likely purpose in part is to prolong Iran's vulnerability to the "gasoline weapon". As a result, the product mix includes only 17% gasoline, about half of what a reasonably well-run refinery can achieve. If Iran could get those existing refineries up to capacity, they might not have to import any gasoline at all.

The government has bitten the bullet and decided to drop Euros 2.2 billion on a contract with China’s Sinopec to expand triple the gasoline output of two of its key refineries.

But there’s a good reason why the Iranian government has been reluctant to pull the trigger on these large, vulnerable, delicate, and ridiculously expensive facilities.

According to my back-of-the-envelope calculation, not building refineries makes perfect sense for Iran—at least in the context of socialist fiscal policy.

Currently, Iran pumps crude at a cost of let’s say $20/barrel and sells it for north—way north, today-- of $120 a barrel. Let’s assume a profit of about $100/barrel. Gasoline costs about $140/barrel wholesale. To make things simple, let’s say that Iran has to export 1.4 barrels of crude to net enough money to import one barrel of gasoline. Cost to Iran of that barrel of gasoline: $28 dollars in crude production costs. 42 gallons per barrel. Divide $28 by 42 and ta-da~! you get a cost of 67 cents a gallon, about the price it’s selling for at the pump in Tehran.

In other words, by the mathematics of a crude-based planned economy, Iranian motorists are getting gasoline roughly at cost.

How ’bout that.

Of course, from the a centrally-planned economy point of view, there should be better ways to spend Iran’s oil wealth than creating a thick brown haze over Tehran—and generating that ineffable sense of car-fueled freedom that is supposed to be the exclusive birthright of secular, capitalist free market economies.

As to the supposed no-brainer of building a refinery inside Iran to meet its gasoline needs, refineries are supposed to be built in major consumption centers, not production centers.

With a population of 50 million, Iran can stake a claim to be the Middle East’s major consumption center.

However, there is a 25 million ton surplus of gasoline production capacity in the Middle East already.

And here’s what’s happening in Saudi Arabia:

They already have 8 refineries with a throughput of 2.1 million barrels per day.

They are expanding local capacity by 25% to 2.5 million barrels per day at a cost of $12 billion.

Looking at the local glut, the Saudis have recognized that further refinery growth has to be near consumption centers, and they are putting another 800,000 barrels worth of capacity in China.

Long story short, there’s extra gasoline in the Middle East, and the Saudis are leading a charge to put in even more capacity.

Extra Iranian refining capacity is not really needed.

In refined products, they’ve lost the regional race to Saudi Arabia, and if Iran puts a refinery anywhere, it should be in Asia.

From a comparative advantage point of view, the Iranian government should be concentrating on pumping crude and using the proceeds to import gasoline and buy other nice things...like infrastructure and technology that will be useful to Iran after the crude is gone.

The only reason for Iran to expand its refining capacity is the political factor, not the economic factor.

In other words, U.S. sanctions are distorting the free market in trade and investment in the Iranian petroleum industry.

On the whole, we’re the ones fighting the invisible hand of market economics, not Iran.

And maybe that’s why it seems we’re losing the sanctions fight.

China Hand Article on Iran Sanctions Up at Japan Focus...

...and Bonus OTFI Anecdote for China Matters Readers

I have an article up on Japan Focus concerning the U.S. financial sanctions campaign against Iran and the resultant shift of Iran’s financial, economic, and diplomatic focus toward Asia and, in particular, China.

There’s a lot of information on the resistance and evasion the sanctions inspire, both in Asia and Europe, and I think it provides a healthy corrective to the one-sided America-centric “noose is tightening” narrative in the U.S. media.

It invites the reader to consider the iron law of unintended consequences, which in this case dictates that our adoption of a short-term tactic with a dubious track record and a dim prospects for success is causing not only a shift of tens of billions of dollars of trade toward Asia but also a fundamental and perhaps irreversible Iranian realignment toward China.

The piece is entitled US Sanctions Send Iran Into the Arms of Asia

I thank the editors of Japan Focus for the opportunity to contribute, and for their assistance in whipping the article into shape.

Because of the august character of the publication, and limitations of theme and space, I passed up several opportunities to snark on Stuart Levey and the Treasury Department’s Office of Terrorism and Financial Intelligence.

But here, with no limits on topic, length, or the patience of my readers, I feel I can enlarge on the topic of OTFI’s questionable effectiveness as a projector of American “soft power” and illustrate my point with an unintentionally amusing anecdote from Stuart Levey concerning the Iranian outrage he exposed simply by opening his morning paper.

Certainly, Treasury is doing the Lord’s work in cracking down on international money laundering, particularly with respect to the oceans of cash that drug dealers attempt to move through the system.

But, as a March 24 article by Josh Meyer in the Los Angeles Times entitled Terrorism Money Still Flowing pointed out--as a column left front page story! and, to my mind, the first instance of less than adulatory coverage for Stuart Levey and OTFI in big media-- --OTFI has not demonstrated its ability to effectively interdict the relatively insignificant sums needed to mount a terrorist operation.

In my mind, the situation is even more dismal when considering the use (or abuse) of OTFI as a tool of American anti-diplomacy i.e. applying tools developed for the multi-lateral perfection of anti-money laundering measures to pressure foreign governments and international banks to promote U.S. financial embargos that they don’t necessarily support.

Wrong doctrine, wrong organization, wrong mission, in my view.

When it comes to the matter of breaking North Korea and Iran’s back with sanctions, OTFI is long on frequent traveler miles and short on accomplishments.

OTFI’s Stuart Levey is routinely lionized in the financial press as the suave, implacable Harvard lawyer who criss-crosses the globe (he’s visited 74 countries!) putting righteous fear of the United States Treasury into bad banks and nefarious regulators.

However, when he touts one of his signature achievements, the impression is less than overwhelming.

From Levey’s March 6 remarks to the ABA:

Let me give you an example I sometimes share to illustrate how the Iranian government will deceive and abuse banks that do business with them.

An affiliate of the Atomic Energy Organization of Iran – an entity that was designated by the UN Security Council in Resolution 1737 – placed an ad in the International Herald Tribune requesting bids to build two nuclear power plants in Iran.

It is hard to imagine a transaction with bigger and brighter red flags for a financial institution. Bidders were asked to deposit a non-refundable fee in an account at a particular bank.

I have spared that bank, which is a well-established, high-quality bank, the embarrassment of identification here.

When I saw the ad, I called them, and they told me that this account had been opened at the request of the Iranian Foreign Ministry to support Iranian diplomats accredited to the International Atomic Energy Agency in Vienna. They said they were dismayed when they saw the ad and learned that the Iranians were attempting to use their bank for this purpose.

The picture of Levey unfolding his IHT and spitting out his morning coffee in outrage at Iranian presumption is amusing.

Especially when one considers that, even though we spend about $90 million per year on the Financial Crimes Enforcement Network—of which OTFI is an important part—it’s also somewhat disturbing to think that this dastardly ploy might have escaped our notice if the boss man had hurried through his morning cruller and skipped straight to the comics.

But I suspect we had some help from our loyal allies as well.

What probably happened is that Israel’s Ehud Olmert spit out his morning coffee when he unfolded his copy of Ha’aretz—with the local edition of the International Herald Tribune containing the offending ad--neatly wrapped inside.

The Jerusalem Post and other Israeli outlets gave conspicuous and indignant play to the story.

One outlet reproduced the ad, permitting the curious to frustrate Stuart Levey’s efforts to shield the offending but ultimately undoubtedly contrite bank from international obloquy.

Courtesy of Aratz Sheva here it is:


Austria Bank—Creditanstalt

Deal with it!

Levey’s pride in his stunt is questionable on so many levels.

First of all, on the merits of the case, it appears Iran has a right to pursue nuclear power for electrical generation using light-water technology, even through a sanctioned organization.

The UN Security Council Resolution 1737 designating the Iranian Atomic Energy Agency, which Levey cites, states:

“13. Decides that the measures imposed by paragraph 12 above do not apply to funds, other financial assets or economic resources that have been determined by relevant States:
...

(d) to be necessary for activities directly related to the items specified in subparagraphs 3 (b) (i) and (ii) and have been notified by the relevant States to the Committee

What’s listed under 3 (b) (ii), you might ask.

Exemptions for “the supply, sale or transfer of:
(i) equipment covered by B.1 when such equipment is for light water reactors;

(ii) low-enriched uranium covered by A.1.2 when it is incorporated in assembled nuclear fuel elements for such reactors.”

In other words, it seems all Iranian organizations, including those designated in the UN sanctions, are still free to engage in business relating to light water reactors using low-enriched uranium.

Of course, the intended beneficiary of this exemption was undoubtedly Russia, which is in the midst of executing the Bushehr contract and would not condone sanctions that would entail mandated non-payment for the millions of dollars of equipment Russia has shipped and is shipping to the site.

But the Iranian Atomic Energy Agency is allowed to engage in light water reactor-related activities, and that’s what we want to encourage, isn’t it?

Second, as a matter of geopolitics, some strategists might consider the fact that the Iranian government was willing to open competition for subsequent reactors at Bushehr to international bidding to be an interesting opportunity to wean Iran away from Russia and increase Iranian transparency and engagement with the West on nuclear issues.

Third, Levey by his own account saw fit to put the kibosh on this Iranian gambit at his own initiative. Consulting with State Department moderates and even NSC hawks was apparently unnecessary.

And there, in my mind, you have the OTFI problem in a nutshell.

Prone to error, answerable to no one, ill-suited to self-reflection, apparently oblivious to its own misjudgments.

China and the Iran Sanctions Follies

Connoisseurs of Oriental guile will find much to appreciate in the current sparring over Iran sanctions—if one enjoys the spectacle of China eating our lunch.

Of course, the United States has been fully engaged in the process. It has responded to Russian and Chinese intransigence on Iran cleverly by alienating the Japanese and the Indians with the insistence they forego Iranian energy projects and compromise their energy security.

Now, taking a whack at the last shaky pillar of the anti-Iranian alliance, the U.S. wants Europe to abandon its significant ongoing export trade with Iran in the area of capital goods and commodities in the service of America’s unilateral crusade to remake the Middle East.

And China is poised to benefit.

Reports on the most recent conference call between “political directors” (the UN ambassadors having been unable to strike a deal, the Security Council + Germany negotiations have been apparently kicked up a level) revealed that a key sticking point has been the US insistence on a “loan guarantee” ban for the next round of sanctions.

This rather mystifying demand is more easily understood if one looks back the previous history of US economic pressure on Iran.

For those of us who have been living on the desert island for the last five years, the Bush administration approach to international initiatives has been 1) to unilaterally set policy 2) institute the policy, either by itself or in cooperation with a “coalition of the willing” and 3) use UN mechanisms to create a binding obligation under international law for footdraggers to follow that policy.

In the case of Iran, the United States has been campaigning to isolate Iran economically by pressuring European banks, by virtue of their US operations, to comply with the U.S. ban on financial transactions with Iran, theory being that the mullahs will be brought to their knees by being cut off from the world financial system.

I accept that Iran is a doddering theocracy with a mismanaged economy, but it’s also an oil exporter with a favorable balance of trade, US$60 billion in forex reserves, powerful foreign friends in Russia and China, and a political opposition that’s been neutered by overt American hostility and the negative example of Iraq.

So contra the free market economists who believe that Iran’s fatal flaw is the absence of a economy that adequately honors and respects free market economists, I don’t think the Iranian government’s going anywhere...even though their money is.

The BBC reported that Iran is pulling its money out of European banks as a precautionary measure against possible sanctions. The money is reportedly going to Asia. I wouldn’t be surprised if it ended up in China.

Anyway, returning to the iron law of unintended consequences, the US has managed to screw up banking relationships between Europe and Iran, to the benefit of certain unnamed Asian banks.

The intended consequence:

Additional risk for European exporters: if they signed a contract with an Iranian firm under letter of credit payment terms, there was the risk that the payment could not be negotiated.

The unintended consequence:

European exporters turn to loan guarantees from their home governments, which insulate an exporter from the political risk of dealing with a dodgy foreign bank by interposing a local bank as the payer and covering that bank’s risk with a loan guarantee in case the payment arrangements with Iran fall apart.

The result:

More friction and overbearing demands from the US (the quotes below are from Steven Weisman’s January 30 2007 article in the New York Times Europe resists U.S. on curbing ties with Iran, hereinafter Weisman):

Typically, American officials say, European companies that do business with Iran get loans from European banks and then get European government guarantees for the loans on the ground that such transactions are risky in nature.

According to a document used in the discussions between Europe and the United States, which cites the International Union of Credit and Investment Insurers, the largest providers of such credits in Europe in 2005 were Italy, at $6.2 billion; Germany, at $5.4 billion; France, at $1.4 billion; and Spain and Austria, at $1 billion each.

In addition to buying oil from Iran, European countries export machinery, industrial equipment and commodities, which they say have no military application.(Weisman)

For the United States, the loan guarantees defeat the purpose of the sanctions, which is to strangle all kinds of business activity, legitimate as well as illegitimate, as a means of extra-diplomatic pressure.

So Nicholas Burns went to Europe and tried to get the European Union to impose a ban on loan guarantees for Iranian transaction.


"We are telling the Europeans that they need to go way beyond what they've done to maximize pressure on Iran," said a senior administration official. "The European response on the economic side has been pretty weak."...

American officials say that European governments may have facilitated illicit business and that European governments must do more to stop such transactions. Treasury Secretary Henry M. Paulson Jr. has said the United States has shared with Europeans the names of at least 30 front companies involved in terrorism or weapons programs.

"They've told us they don't have the tools," said a senior American official. "Our answer is: get them." (Weisman)

No can doosky, said the EU.

No legal basis (it bears repeating that Iran is an outlaw state and Axis of Eviliteer only to the U.S.A.; it has diplomatic relations with all the European countries), so there would be a huge rigamarole involved in debating, implementing, and vetting an unprecedented EU initiative.

"We want to squeeze the Iranians," said a European official. "But there are varying degrees of political will in Europe about turning the thumbscrews. It's not straightforward for the European Union to do what the United States wants."

Another European official said: "We are going to be very cautious about what the Treasury Department wants us to do. We can see that banks are slowing their business with Iran. But because there are huge European business interests involved, we have to be very careful."

European officials argue that beyond the political and business interests in Europe are legal problems, because European governments lack the tools used by the Treasury Department under various American statutes to freeze assets or block transactions based on secret intelligence information.

A week ago, on Jan. 22, European foreign ministers met in Brussels and adopted a measure that might lead to laws similar to the economic sanctions, laws and presidential directives used in the United States, various officials say. But it is not clear how far those laws will reach once they are adopted. Weisman

Further armtwisting was applied, and on March 12, Steven Weisman reported in a followup article:

European officials said a resolution embodying the wider ban was negotiated over the last week and should go far toward satisfying the Bush administration, which has been pressing European governments for firmer action against Iranian individuals and companies as part of a campaign to isolate the Tehran government because of its suspected nuclear arms program.

"This is a very positive initiative because it takes the European Union beyond where they were until recently," said R. Nicholas Burns, the under secretary of state for political affairs. "It's not everything we would like to see happen. But the trajectory is good and the momentum is good, so we think this is a positive event."

A text of the resolution, released Monday evening by officials of the European Union, calls for steps to carry out a United Nations Security Council resolution adopted in December. Europeans have been slow to follow through, saying governments do not have the legal tools to act against Iranian companies.

Reading between the lines, you can hear the Europeans sighing, “You don’t go and pursue non-proliferation with the realistic and responsive hyperpower you want; you go with the obtuse and coercive hyperpower you’ve got:

Two European officials said that in some respects the draft complies with American wishes for a broad move against Iran, but in other respects it could fall short. If the European Union adopts the resolution, European governments will have to enact laws individually to carry it out.

"The point is that it takes time for the Europeans to work out exactly where the center of gravity is so they can do something like this," said a European official, asking not to be identified because of the delicate nature of the discussions. "It's not as if the European Union can snap its fingers and get it done right away."

Since the EU has one of the world’s crappiest websites, I was unable to locate a text of the resolution but, rest assured, it does not include an enforceable demand for the cessation of loan guarantees.

OK, now we get the US riposte: put the loan guarantee ban in the UN sanctions resolution, so they can pressure European countries to individually abide by the ban and legislate it, instead of hiding behind the skirts of the EU.

The Chinese look at this state of affairs and say:

Great!:

Another proposed provision would would ban new commitments by countries for grants, loans and credits to Iran. Russia and China want this made voluntary.

The two nations also object to a call for international financial institutions to withhold funds from Iran as well as a proposal asking nations to “exercise vigilance and restraint” in providing financial support, including insuring companies trading with Tehran.

I sincerely doubt the Chinese have an export insurance i.e. loan guarantee program worthy of “vigilance and restraint “, so their objection to this language is meant to provide give moral support to the Europeans and conniptions to the United States.

Certainly it is amusing and instructive that the Western news outlets are happy to regurgitate the line that China is responsible for the balkiness on the loan guarantees, when the guarantees are of vital concern only to the Europeans, who are probably desperately grateful for the diplomatic cover from Beijing.

Add the “voluntary” grants, loans, and credits caveat and you have a diplomatic whipsaw that is, to me, brilliant in a Machiavellian sort of way.

European countries either decline to lockstep with the United States on the voluntary trade-related sanctions, in which case the trans-Atlantic united front against Iran is broken...

...or the Europeans withdraw the grants, credits, loans, and guarantees, declaring that Iran business is too risky for their companies, and the Chinese step in and scoop up the contracts.

Bwwwaaaaaaaaaaaahahahaaaaaaaaaaaaa!

They’re probably sitting around the Ministry of Foreign Affairs in Beijing, wiping tears of mirth from their eyes, and saying Can you believe it?

Certainly, China’s Ambassador to the UN Wang Guangya, doesn’t seem to be feeling a lot of pressure. Responding to the news that Iranian President Ahmadinejad plans to come to New York to address the Security Council, Wang said:

“Any member had the right to come to the council...It will be fun if he comes, especially if in connection with adoption of this resolution.”

Fun, indeed, especially since Wang can enjoy a front row seat watching the EU ambassadors squirm in their seats as Ahmadinejad scowls at his erstwhile allies and trading partners.

China and Russia have apparently settled comfortably into the formulation that Iran’s nuclear industry should not benefit from any material or technical support from the outside world, but Iran, as a sovereign state in reasonably good standing, should not be ostracized from the world community and be subjected to broad and coercive economic (or potentially military) sanctions for its controversial uranium program.

China's "main difficulty is with the financial and the trade sanctions against Iran because we feel that we (should) not be punishing the Iranian people," Chinese Ambassador Wang Guangya said after the meeting. "We should punish the Iranians for their activities in the nuclear field."

While stressing that Iran must face stiffer sanctions, Russian Ambassador Vitali Churkin said there had been "a lot of attention and discussion to make sure the Iranian people are not punished."

Sean McCormack, the State Department spokeman, attempted some divide and conquer of his own, stating as reported by Reuters:

McCormack said Russia was cooperating well — an indication China’s position was more difficult.

(Insert dismissive snort here)

If anything, China and Russia are probably closer to the EU position than we are.

In another sign that the Chinese are toying with us, Wang also generously agreed to expand the Iranian arms export embargo (given the presence of two US carriers and their attack groups in the Persian Gulf, I suppose the US didn’t even think of trying to rally support for an Iranian arms import embargo) beyond missiles and nuclear weapons.

He didn’t agree to an vaguely-worded ban with interdiction procedures that would allow the United States and its allies to conduct a broad campaign of harassment against Iranian financial and shipping assets (the Chinese learned their lesson from the North Korean sanctions, by which John Bolton tried to employ the Proliferation Security Initiative to impose a de facto economic blockade, asserting that everything North Korean, including a shipfull of cement off the coast of Madagascar, was directly or indirectly benefiting its weapons programs).

Per AFP:

According to "elements" of the draft, which were obtained by AFP, the text would stipulate that "Iran shall not export any arms or related material (emphasis added) and further decides that all states shall prohibit the procurement of such items from Iran by their nationals, or using their flag vessels or aircraft."

Instead, in a friendly shout-out to his friends in Tehran, Wang proposed an export ban on a few things the Iranians might urgently need at home in the next few months--and which I don’t believe they are in the business of exporting anyway:

Wang said China wanted the banned weapons defined according to the seven categories in the U.N. register on conventional arms: battle tanks, armored combat vehicles, large-caliber artillery systems, combat aircraft, attack helicopters, warships and missiles.

It will be interesting to see how far the loan guarantee ban goes, especially since the EU is key if the United States is going to have a majority in the “P5 + Germany” negotiating team, let alone the veneer of a global consensus for confronting Iran over its uranium enrichment program:

The U.S., Britain and France would almost certainly favor tough new sanctions, but know they will have to settle for less to ensure that Russia and China, which have close ties to Iran, won't use their veto power to block a new resolution.

Britain's U.N. Ambassador Emyr Jones Parry said recently that the new resolution would be looking at an "incremental" strengthening of sanctions. The word "incremental" has also been used by other council diplomats.

“Incremental” probably means adding a few more names to the banned companies and individuals list (the mandatory travel ban is apparently RIP as of today), so the UN can save face, point to a specific consequence for Iran’s ignoring the 60-day deadline in the previous resolution, and claim the UN process is still viable:

But not too many names! (note the interesting fact that Chinese Ambassador Wang Guangya seems to be speaking rather confidently on behalf of Russian ambassador Churkin):

But Wang said Russia had raised concerns about specifically mentioning Iran's Revolutionary Guards in the list of entities subject to asset freezes.

The elite military corps, which has more than 200,000 members and its own naval and air forces, oversees vital Iranian interests, including oil and natural gas installations and the nation's missile arsenal. It is independent of the regular armed forces and controlled directly by Iran's supreme leader.

"Russia has difficulties with the name of the Revolutionary Guard because they feel it is an institution in Iran and you don't have to penalize an institution," Wang said.

So far, it looks like the Chinese government is getting everything it wants (i.e. nothing of substance) out of this round of sanctions negotiations.

If the current round of UN negotiations produces only insignificant new sanctions, it will be interesting to see how long the Bush administration sustains its new-found interest in multi-lateral diplomacy vis a vis Iran.