Omri Ceren: Dollarizing Iran

Omri Ceren writes from The Israel Project with the first of three updates on the Obama administration’s latest assistance extended to our enemies in the Islamic Republic of Iran. This is at least a good place to begin and I thought readers would find it of interest. Omri writes with his usual alphabetized footnotes:

Last week the AP revealed the Obama administration is planning to provide Iran with another wave of sanctions relief, because the Iranians are demanding it [a]. The Iranians started prominently demanding new concessions a few weeks ago, and their calls were then taken up by Iran deal supporters [b][c][d][e]. The planned concessions go way beyond the nuclear-related sanctions lifted by the summer deal, and include giving Iran access to U.S. financial markets and the dollar, something administration officials swore last summer would never ever happen [f][g].

The administration’s collapse will drive the conversation this week. There have already been a range of responses from policy analysts, from Congress, and from the press. I’ll send around highlights this morning.

First up: the policy implications. Mark Dubowitz and Jonathan Schanzer – executive director and vice president for research at the Foundation for Defense of Democracies – have a new piece in the WSJ unpacking the debate over this new concession. Schanzer linked to it on Twitter this morning and summarized the argument: allowing Iran access to the U.S. dollar would be “a total implosion of US financial policy on Iran” [h].

The broad points from the piece:

The administration ruled out letting Iran dollarize until the Iranians made their new demand – Treasury Secretary Jacob Lew was adamant during a congressional grilling last July. “Iranian banks will not be able to clear U.S. dollars through New York,” he told the Senate Foreign Relations Committee, or “hold correspondent account relationships with U.S. financial institutions, or enter into financing arrangements with U.S. banks.”… What explains this possible reversal? Most likely, Iran demanded it. Secretary of State John Kerry and Foggy Bottom, always fearful that Tehran will walk away from the nuclear deal, may be ready to comply.

The administration ruled out letting Iran dollarize for a good reason: it will nuke the U.S. greenback and poison the global financial system – Congress is getting ready for a fight. It’s not hard to understand why. The Financial Action Task Force, a global antiterrorism finance body, maintains a severe warning about Iranian financial practices. Last month it warned that Iran’s “failure to address the risk of terrorist financing” poses a “serious threat… to the integrity of the international financial system.” The Treasury Department also recognizes the danger, in 2011 labeling the Islamic Republic a “jurisdiction of primary money laundering concern.” That finding, which remains in place, cites Iran’s “support for terrorism,” and “illicit and deceptive financial activities.”

And now the technical stuff.

The Obama administration will likely claim that letting Iran trade in dollars helps monitor the deal and gives the U.S. leverage to enforce it. The bottom half of the Dubowitz and Schanzer piece dismantles those arguments. Most broadly, Treasury long ago assessed that the cost of giving Iran access to the U.S. financial system outweighed the intelligence benefits. Regarding monitoring, the Iranians won’t directly use their dollars for nefarious purposes – exactly because they know we’d catch them – but will instead use the newfound credibility that dollar access gives their banks for those purposes. Regarding leverage, the U.S. won’t gain any new leverage because Iran will keep their dollars where the US can’t get them. In fact the administration argument on leverage is backwards: Obama officials told Congress over the summer that access to the dollar was being withheld specifically to provide the U.S. with leverage over non-nuclear activities – ballistic missiles, terrorism, human rights, etc – so “why throw away that leverage in exchange for no new concessions?”

The technical policy issues are devastating but they may get overshadowed by the even more devastating political optics: the administration told Congress that it had made a final set of concessions to Iran and promised that access to the dollar would never be granted, then the Iranians came back and demanded access to the dollar, and now the administration is collapsing.


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