Opinion

Unfreezing Assets Will Sanction-Proof Iran

David A. Grantham Senior Research Fellow, National Center for Policy Analysis

The world is self-correcting, or so the Obama administration believes. The Iran nuclear deal reflects one of his national security themes of the last seven years; a belief that the world would naturally reorient itself toward global good, if not for U.S. power. The agreement of the P5+1 (the U.N. Security Council’s permanent members plus Germany), which requires very little of Iran and erases virtually any leverage the U.S. had over the Islamic state, underscores this truth.  And releasing $100 billion housed in foreign bank accounts stands as the U.S. government’s most alarming concession.

The immediate revenue will undoubtedly find its way to Iranian-sponsored terrorist organizations. President Obama already conceded this point. But those concerns merely nibble at the edges of a larger pie. Of greater concern is the sudden injection of cash, which will energize Iran’s economic aggression. For Iran, wealth is the great equalizer.

The penalties for violations built into the nuclear deal hinge on two faulty assumptions: sanctions can be reapplied and other countries have a vested interest in Iran’s compliance. Iran has mastered the art of masking oil revenue, routing embargoed goods through well-advertised smuggling routes in places like Dubai, and channeling finances through covert investment partnerships with Russia. The Iranian government is sanction-proofing its economy. They will invest, convert, and shelter the new revenue (and future revenue) to guard against future U.S. action. The most important enforcement tool available fails without a target.

Worse still, Iran has built a financial arsenal for undermining U.S. interests, despite sanctions. In 2011, U.S. government reports surfaced detailing Iran’s large gold purchases and its use in trade with willing partners like India and China. Gold not only allows Iran to circumvent sanctions, but is also designed to weaken U.S. interests in the region by discouraging the use of the dollar. In fact, market experts estimated that Iran was the largest purchaser of gold over the last twenty years. A sudden financial windfall would take the country’s economic warfare to a new level.

The immediate influx of money will also be a boon to the country’s long-term economic plan of making Iran necessary for other economies. According to Rand Corporation, China has become Iran’s primary oil customer. In exchange, Iran receives the benefits of Chinese engineering and military hardware. The revenue can immediately go to work improving Iranian infrastructure, ensuring the sustainability of terrorist operations. Those Indian refineries, specifically built to convert Iranian crude, anticipate a significant jump in oil imports with the lifting of sanctions. And delivery will become easier since the two countries also signed an agreement in May 2015 to construct container and cargo terminals in the southeastern Iranian city of Chah bahar.

Meanwhile, Russia agreed to send Iran S-300 missile systems in what Karoun Demirjian of the Washington Post called Russia’s “best opportunity to enter the Iranian market” after sanctions are lifted. Indeed, billions in new revenue and a flood of new investors clamoring for access to Iran’s raw materials, consumer market, and energy sector, will give the greatest state-sponsor of terror an unprecedented new revenue stream.

Billions in cash and new investors paves the way for financial cooperation with those who share an interest in a weakened America. More importantly, this scenario guarantees Iran a greater piece of the international financial web.  A U.S. government, historically wary against targeting the oil wealth of Iran because of the impact to world markets, will find itself more frightened than ever to take action against a country so tied into other economies. Iran’s financial allies will feel the same. The interconnectedness of the global market will dissuade many from punitive action against the Islamic Republic if violations were discovered. Unfettered access to billions accelerates this process.

Iran’s power rests with its financial potential. Unleashing this potential ensures the rise of a despotic state intent on crippling U.S. economic interests. Rather than proposing to unfreeze assets in small bundles, tied to specific humanitarian purchases or as a reward for successful inspection of a nuclear site, the U.S. government has swung open the vault door, wrongly believing it can shut it at any time. Congress has little choice but to reject the compromise. Secretary Kerry called rejection reckless, but it’s hard to imagine anything more reckless than this.

David Grantham is a senior research fellow at the National Center for Policy Analysis. He is a doctoral candidate in modern international history at Texas Christian University and holds a Master of Science degree in international relations from Troy University, and previously served in the Air Force Office of Special Investigations.