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Weapons of Mass Destruction (WMD)

Backgrounder: The U.S. Financial Squeeze on Iran

Council on Foreign Relations

Author: Lionel Beehner, Staff Writer
January 23, 2007

Introduction

Iran is beginning to feel the effects of U.S.-led financial pressure aimed at blocking foreign banks from dealing with Iranian financial institutions and companies linked to terrorism or weapons proliferation. The effort coincides with a UN Security Council resolution that imposes limited sanctions, including asset freezes against Iranian firms and travel bans against individuals connected to Tehran’s nuclear and missile program. The financial pressures have helped squeeze Iran’s economy and isolate the regime of President Mahmoud Ahmadinejad, but experts say more will be required to reverse Iran’s current course.

How has Washington targeted Iranian financial institutions?

The U.S. Treasury Department has stepped up pressure on foreign banks and companies that conduct business with Iran by warning them they could lose access to U.S. financial markets if they deal with Iranian firms tied to terrorism or the nuclear industry. U.S. Undersecretary of the Treasury Stuart Levey, on his recent tour of Europe, urged business leaders to sever their ties to Tehran. “I can assume he’s not asking them to do this out of the goodness of their heart but rather laying out penalties,” says Abbas William Samii, research analyst at the Center for Naval Analyses.

Most recently Treasury banned U.S. institutions and individuals from doing business with the state-run Bank Sepah, Iran’s fifth-largest bank, citing its alleged role in proliferating weapons of mass destruction. The bank will be prohibited from conducting transactions in U.S. dollars, the second such Iranian bank targeted in recent months (in September, Saderat was sanctioned for its alleged support of terrorism). Fearing a rebuke from Washington, several European financial institutions have severed ties with their Iranian counterparts. Others—including Germany’s second largest, Commerzbank—plan to continue business relations with Iran but will shift to euros instead.


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Copyright 2007 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.



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