Since concluding the nuclear deal with the United States and other major powers last July, Iran has yet to realize the expected economic benefits. The Iranians are frustrated, but to a large extent have themselves to blame.
The agreement promised an end to sanctions imposed by the United Nations and the European Union in return for a freeze on Iran’s nuclear program. Iran has fulfilled its part; so have the major powers, and businesses are flocking to Iran in search of deals. Technically, Iran is free to export crude oil and access about $50 billion in foreign exchange reserves in foreign banks.
Even so, Iran is having trouble rebuilding its economy. Ayatollah Ali Khamenei, the supreme leader, complained last month that “our banking trade, our efforts to return wealth from their banks, various kinds of businesses that require financial services, all of these are still facing problems.”
One impediment is that most American sanctions remain in place because of Iran’s involvement in terrorism and human rights abuses and its testing of ballistic missiles. Iran knew that lifting all American sanctions was never part of the nuclear deal. This means American companies are still banned from doing business in Iran, except for trade in civil aviation, carpets and agricultural products. Also, Iran is still barred from using the American financial system, and its dollars, through which most international business is conducted. Many foreign banks who are free to engage with Iran hesitate to do so, fearing they will run afoul of American sanctions.
Before the nuclear deal, Iran was largely isolated from the international banking system. It has not kept up with strict new rules to prevent money-laundering and terrorist financing. Experts say Iranian banks are badly run, politicized and lack transparency — warning signs for risk-averse foreign banks. Iran’s warlike behavior in the region — supporting President Bashar al-Assad in Syria, arming Hezbollah and testing missiles — further discourages investment. As President Obama said recently, “Businesses want to go where they feel safe, where they don’t see massive controversy, where they can be confident that transactions are going to operate normally.” Iran can help itself by reforming its system and becoming a more constructive force in the region.
The Treasury Department, concerned that Iran has not benefited enough from sanctions relief, is working to clarify the conditions for doing business with Tehran. There are no restrictions on foreign banks that want to do deals with Iran in euros or other non-dollar currencies. Foreign banks can also do trades in dollars if they can cover the transaction with the dollars they have on hand. In practice, that means smaller deals, because for larger ones, like oil contracts, they would have to access the American financial system, which is off limits.
Senators Marco Rubio and Mark Kirk, both Republicans, are sponsoring a bill that could make it even harder for Iran to do business in dollars and undermine the nuclear deal, which they oppose. Iran should be subject to sanctions when appropriate under United States law, but as long as it adheres to the nuclear deal, Congress should not take steps that would discourage legitimate business with Iran. It remains in America’s interest for Iranians to benefit from the nuclear deal so that they stay committed to it and moderate forces in Iran are strengthened.