Reassuring Europe, at least a little.

Photographer: JOE KLAMAR/AFP/Getty Images

How the U.S. Will Ease Europe's Iran Sanctions Jitters

Eli Lake is a Bloomberg View columnist. He was the senior national security correspondent for the Daily Beast and covered national security and intelligence for the Washington Times, the New York Sun and UPI.
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In the final days of the Iran negotiations in Vienna, America's European partners asked Secretary of State John Kerry for a favor. They wanted a letter from Kerry promising that the U.S. Treasury Department would consult European companies on what kinds of investment in Iran would be permissible after U.N. sanctions were lifted.   

U.S. and European diplomats involved in the negotiations tell me that the issue had been discussed on and off in negotiations throughout the talks that began at the end of 2013, but that the request for an explicit letter didn't come up until it appeared Iran was willing to agree to the nuclear bargain.

The issue is important because U.S. secondary sanctions, which punish foreign companies that do business with Iran's banks, oil sector and other parts of its economy, will remain on the books. Obama has promised only to waive the enforcement of those sanctions when and if Iran complies with its obligations to limit and provide transparency for its declared nuclear program.

European governments are nervous that their banks and companies could be caught off guard if a future U.S. president decided to snap back sanctions for a violation, or simply resume enforcement of the sanctions Obama stopped enforcing. At the same time, European diplomats tell me that Iran must be shown some economic benefits for its nuclear obligations if there is any chance for the deal's tough monitoring provisions to last.

QuickTake Iran's Nuclear Program

Kerry ultimately complied with the request from the Europeans and sent private letters to the British, French and German foreign ministers promising that the Treasury Department would work with European companies to make them aware of new Iran regulations after a deal. The administration provided copies of those letters last month to Congress as part of a set of 18 documents on the Iran deal and its interpretations.

On the surface Kerry's assurances would not seem controversial. The Treasury Department under Obama and his predecessor has warned banks, insurance companies and other foreign concerns that do business with Iran that they risk being barred from U.S. financial markets. When many international sanctions begin to be lifted, it would stand to reason that the Treasury Department would inform these entities of the new regulations and enforcement policy, particularly since the Obama administration has pledged to keep enforcing less stringent sanctions against Iran for its human rights abuses and support for terrorism.

But the letters also raise the troubling prospect, for the Iran deal's critics, that the U.S. government will now be obliged to help assure nervous markets and companies that investment in Iran is a safe bet.  Critics of the deal see evidence of this already, in a draft statement -- also provided by the administration last month to Congress -- to be made public when the International Atomic Energy Agency certifies Iran has met its obligations promised in the nuclear agreement.

Members of Congress and Congressional staffers who have reviewed that statement tell me that it promises the U.S. government will give notice and consult with governments if the U.S. chooses to impose "snap back" sanctions in the event of an Iranian violation, to avoid any surprises and minimize the prospect that foreign companies would be unaware they could be sanctioned.  

"We are not putting out a statement saying we are on these guys like a hawk," Juan Zarate, an expert on terrorist financing at the Center for Strategic and International Studies and former deputy national security adviser to George W. Bush, told me. "The danger here is we are having to reassure markets and actors that it's OK to do business with Iran without addressing the underlying threats and risks of Iranian behavior, such as support for terrorism."

Senior U.S. officials like Undersecretary of State Wendy Sherman have publicly testified that the U.S. still intends to continue to enforce terrorism-related sanctions against Iran.

At a hearing before the Senate Banking Committee last week, Sherman said the British ambassador to the U.S., Peter Westmacott, had assured her that his government was committed to imposing snap back sanctions in the event of Iranian violations or noncompliance What's more, Sherman said Westmacott also told her that he understood that foreign companies investing in Iran after sanctions are lifted and waived, would not be allowed to continue those investments if they are snapped back.  

Richard Nephew, a sanctions expert who left the U.S. Iran negotiating team in December, told me that he expected the U.S. statement on sanctions would reflect the text of the Iran agreement, which makes it explicit that companies wouldn't be punished for business they conducted in Iran while the sanctions were not in effect, as long as that business started after sanctions were waived and ended when sanctions were snapped back.

Nephew, who is now head of the Economic Statecraft, Sanctions and Energy Markets program at Columbia University's Center on Global Energy Policy, also said he disagreed with Zarate's prognosis that the U.S. government would be in the position of assuring nervous investors about entering Iran's economy.  

"I think, at a minimum, the possibility of snap-back combined with the residual presence of secondary sanctions mean that businesses and banks will remain very nervous about working with Iran," Nephew told me. "Our messages of requiring due diligence and care to avoid doing business with the Iranian Revolutionary Guard Corps -- because of those secondary sanctions -- will actually undermine the investment climate in Iran and balance out any positives from the rest of the text of the agreement."

Others think the possibility of resumed sanctions is not even really intended to deter businesses. Mark Dubowitz, the executive director of the Foundation for Defense of Democracies and an expert on the U.S. sanctions against Iran, told me that the U.S. is trying to thread the needle between "economic seduction" and the "pretense of economic coercion."

"So the administration writes these letters to Europeans saying: 'Don't worry, you should feel free to go back into Iran. Indeed, you are critical to our economic seduction strategy,'" he told me. "And then gives this narrow interpretation of snapbacks and grandfathers to try and assuage Congress."

Dubowitz may be right in the end. Many sanctions experts predict that the crippling isolation of Iran's economy is now effectively over. But at the same time, even as the Iran deal is implemented, it's telling that the Obama administration is publicly committing to continue a milder and narrower economic war on Iran's government.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Eli Lake at elake1@bloomberg.net

To contact the editor on this story:
Philip Gray at philipgray@bloomberg.net