By Arab News
By David Reaboi*
US President Joe Biden this week returned from an embarrassing, gaffe-filled trip to Europe to address the war in Ukraine. While there, he escalated tensions between Russia and the West by calling for the overthrow of President Vladimir Putin.
It might look like a serious crisis in relations, but Russia’s actions in Ukraine don’t seem to be derailing everything.
Despite tough talk and unprecedented economic sanctions for the brutal war on Ukraine, Biden administration diplomats are showing themselves to be far more deferential in their negotiations with the Russians in Vienna.
It is impossible to overstate the incongruency in tone between Biden’s vocal belligerence on Russia and his administration’s quiet desperation to obtain a new Iran deal. Both Tehran and Moscow know that Biden will not take no for an answer and that he is determined to bring back anything he can call a “deal.”
Whatever happens in Vienna will greatly affect the US’ ability to maneuver diplomatically when it comes to Ukraine, as well as in Europe and Asia.
Rather than negotiate directly on a new (though admittedly dangerous) nuclear deal with the Iranians, Washington empowered the far more cagey and skilled Russian diplomats to handle the mullahs’ portfolio. If this sounds familiar, it should: Obama alums like National Security Adviser Jake Sullivan and Deputy Secretary of State Wendy Sherman have, as they did in Syria in 2015, again empowered Russia as the decisive stakeholder in the Middle East.
Aside from a bad new Iran deal that would remove sanctions on Islamic Revolutionary Guard Corps terrorists, flush the regime with cash and put Iran within months of obtaining nuclear capability, Biden’s insistence on both Russian and Iranian buy-in will hurt the US in two immediate ways. It will empower Russia at a time when it is both diplomatically isolated and economically frozen out of key markets, giving it more leverage; and it will further alienate America’s allies in the region, which have already begun to recalibrate what a more hostile (but declining) US would mean for the region and the world.
Because of the corrupt media in the West, observers in the Middle East might be the only ones with a vantage point to clearly see how these two issues are linked. While American and European news consumers have been focused on horrific images from Russia’s brutal war in Ukraine, in Riyadh or Jerusalem one eye is always on the expansionist and threatening regime in Tehran.
Even as the US touts its efforts to punish Moscow for its war in Ukraine with harsh economic sanctions, it might be time for a reevaluation of the efficacy of sanctions elsewhere. Last week, The Wall Street Journal reported on Iran’s shadowy clandestine financial network and its success in circumventing trade and finance bans in response to sanctions that made the Shiite theocracy a global pariah.
In addition to damaging Iran’s ability to procure materials for its nuclear program, economic sanctions were intended to be a non-kinetic way to influence the Islamist theocracy’s foreign policy, hopefully forcing it to stop its terror proxy armies from wreaking havoc in Syria, Lebanon, Yemen and Iraq. With its currency in freefall and its domestic economy reeling, the mullahs would have to choose whether to prioritize guns or butter.
According to documents obtained by The Wall Street Journal, the scheme worked like this: Iranian banks that serve companies barred by US sanctions from exporting or importing engage affiliate firms in Iran to manage sanctioned trade on their behalf. Those firms establish companies outside of Iran’s borders to serve as proxies for the Iranian traders. The proxies trade with foreign purchasers of Iranian oil and other commodities, or sellers of goods for import into Iran, in dollars, euros or other foreign currencies, through accounts set up in foreign banks.
Some of the revenue is smuggled into Iran by couriers who carry cash withdrawn from the proxy company accounts abroad, officials told The Wall Street Journal. But much of it remains in bank accounts abroad, according to the Western officials. The Iranian importers and exporters trade foreign currency among themselves on ledgers maintained in Iran, according to the Iranian central bank.
Using this elaborate scheme, Iran has been able to circumvent the collapse of its currency and blunt the efforts of the US in controlling its adventurism in the region. Tehran has made a fortune “from exports of petrochemicals, metals, automobile parts and other goods,” The Wall Street Journal reported, “while financing the importing of the industrial machinery, oil services and electrical components critical to keeping its companies and economy running.”
This story is also a cautionary tale about the Biden administration’s sanctions on Russia. At first, sanctions appear to cripple or injure a nation’s economy. But their products or natural resources will eventually find their way to market, even clandestinely. As the president’s official Twitter account triumphantly touts the collapse of the Russian ruble and the damage to Moscow’s economy, Iran’s experience flouting sanctions shows that it will not be long until Russia has moved a good portion of its export economy underground.
Of course, the elaborate scheme to evade sanctions is not available to most Russians or Iranians; ordinary people without means will continue to suffer financial hardships. Whether these people blame their leaders and topple their governments or rally behind them is a gamble.
When it comes to sanctions, the US has a choice: It can enforce them comprehensively, putting its financial crimes infrastructure to work and empowering it to root out violations like Iran’s; or it can admit that, as a soft power tool, sanctions are not as effective in altering state policy as many had hoped.
- David Reaboi is a long-time consultant in national security and political warfare and a fellow at the Claremont Institute. He writes at Late Republic Nonsense.