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U.S. aims to isolate Iran if talks fail

The Obama administration is laying plans to cut Iran's economic links to the rest of the world if talks over the country's nuclear ambitions founder, officials and outside experts say.
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

The Obama administration is laying plans to cut Iran's economic links to the rest of the world if talks this week over the country's nuclear ambitions founder, according to officials and outside experts familiar with the plans.

While officials stress that they hope Iran will agree to open its nuclear program to inspection, they are prepared by year's end to make it increasingly difficult for Iranian companies to ship goods around the world. The administration is targeting, in particular, the insurance and reinsurance companies that underwrite the risk of such transactions.

Officials are also looking at ways to keep goods from reaching Iran by targeting companies that get around trading restrictions by sending shipments there through third parties in Dubai, Hong Kong and other trading hubs.

The administration has limited options in unilaterally targeting Iran, largely because it wants to avoid measures so severe that they would undermine consensus among countries pressing the Iranian government. A military strike is also increasingly unpalatable because, officials said, it probably would only briefly delay any attempt by Iran to produce a nuclear weapon.

Whatever steps are taken, officials said, their goal would be to disrupt the Iranian economy across many sectors, particularly businesses that help support Iran's military and elite.

As a practical matter, the effort would build on efforts during the Bush administration that targeted leading Iranian banks and the key Iranian shipping line. In many cases, officials said that rather than impose new sanctions, they would need only to tighten enforcement of existing rules and regulations. Indeed, the key architect of President George W. Bush's effort, Treasury Undersecretary Stuart Levey, was retained by President Obama to ensure continuity in a possible squeeze on Iran.

In the case of the insurance industry, the administration would extend a prohibition against providing the "transfer of financial resources or services" to aid Iran's nuclear and missile programs, currently enshrined in U.N. Security Council Resolution 1737, to include insurance companies, export credits and the like.

Iran has raised tensions in the region with two days of missile tests, which were previously scheduled but came just days ahead of Thursday's meeting in Geneva between Iranian diplomats and representatives of major powers, including the United States. The administration is pressing for Iran to provide international inspectors immediate access to a second uranium-enrichment facility that was made public last week and to agree to serious talks to rein in its nuclear ambitions.

"Towards the end of the year, we'll be able to calculate how much progress" has been made in those talks, State Department spokesman P.J. Crowley said Monday. "If they continue to fail to answer the questions, then obviously there will be implications and consequences to that, as well."

The administration has sought to display a united front with its partners in the talks -- Britain, France, Germany, Russia and China. But Russia and China are especially wary of imposing more sanctions beyond those contained in three U.N. Security Council resolutions aiming at deterring Iran. Russian officials on Monday began backing off from statements made last week by President Dmitry Medvedev suggesting that Russian resistance to sanctions was weakening.

Foreign Minister Sergei Lavrov told Russian news agencies that the missile launches were "worrisome" but added, "I am convinced restraint is needed." Similarly, a Foreign Ministry source told Russian agencies that Western powers needed to restrain themselves.

Both Russia and China have veto power on the U.N. Security Council, and reluctance by either to support additional sanctions would make it extremely difficult and time-consuming to erect additional international measures. But many European and Asian countries demand the cover of a U.N. resolution before taking economic action against another country. As a result, administration officials are focused on measures that they can argue are already authorized under existing resolutions.

"Ninety percent is enforcement," said Patrick Clawson, deputy director for research at the Washington Institute for Near East Policy. "Ten percent is new rules. They have the mechanisms in place."

Already, Levey has pressured more than 80 banks around the world to cut their ties to Iran, saying that any cost-benefit analysis would show that the business is not worth the risk of unwittingly assisting groups such as the Revolutionary Guard. The U.S. government has also backed the message with tough fines against some foreign banks. The Dutch bank ABN Amro in 2005 agreed to pay $80 million for violating U.S. sanctions against Iran and Libya, and Lloyds this year paid a $350 million fine for secretly channeling Iranian and Sudanese money into the American banking system.

Insurance is the lifeblood of the shipping industry, but often insuring cargo consists of several layers. One critical aspect is reinsurance, in which an insurance company spreads the risk of a deal to dozens of other companies around the world. If the pool of potential reinsurers for Iranian goods shrinks because of international pressure, it would become increasingly difficult and costly for Iran.

Last year, as an example of the emerging strategy, the Treasury Department designated Iran's national maritime carrier, Islamic Republic of Iran Shipping Lines, as engaging in deceptive activities such as repeatedly changing its ships' names in an effort to shroud its involvement in illicit commerce and proliferation activities. The action essentially warned U.S. financial firms not to engage in any businesses with it or its subsidiaries. Officials expect the European Union to follow suit if talks with Iran fail to make progress this year, which would make it difficult for such companies as Lloyds or Munich Re to continue providing re-insurance for Iranian business.

Early this year, an IRISL-chartered ship, the Monchegorsk, was stopped at Cyprus carrying weaponry allegedly headed for Hezbollah -- an incident that U.S. officials said highlights the dangers of reputable financial firms dealing with Iranian entities.

Even so, the effort is not likely to produce instantaneous results.

"The idea of targeting insurance and reinsurance is a good one," said David F. Gordon, a former State Department official who is direct of research at Eurasia Group, a political risk and consulting firm. "It is the only potential game-changer around. But I am not sure it will be enough to move the Iranians and do it in a timely fashion. The Iranians are very committed to the program."

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