Dollar-Clearing Battle: First Step to Killing Iran Nuclear Deal

Bank Muscat (Wikimedia Commons)

by Ryan Costello

Lawmakers and advocacy groups undertook many steps to weaken the Iran nuclear deal during the Obama era to set up President Trump’s unilateral termination. Last week, Republicans on the Permanent Subcommittee on Investigations released a 50-page report delving into the Obama administration’s efforts in early 2016 to ensure that Iran was able to repatriate its own frozen assets held at Bank Muscat in Oman.

Lead author Senator Rob Portman (R-OH) and others, including President Trump, have spun this arrangement as a nefarious side deal aimed at permitting Iran access to the U.S. financial system. However, the report offers key insight into how deal opponents succeeded in hobbling Iran’s relief by securitizing the debate over sanctions relief for Iran, ensuring that any relief for Iran was falsely viewed as a negative for regional and global security and a political liability. 

That the U.S. was obligated to take affirmative steps to ensure effective sanctions relief under the Joint Comprehensive Plan of Action (JCPOA) has been greatly under-appreciated and often ignored in Washington. Yet, the text of the agreement is clear that the U.S. and other parties would “agree on steps to ensure Iran’s access in areas of trade, technology, finance, and energy.” This goes beyond U.S. commitments to prevent the re-imposition of sanctions or “interference with the realization of the full benefit by Iran of the sanctions lifting,” which were also commitments under the JCPOA. Instead, it entails affirmative steps that had not been decided to ensure that Iran reconnects with the global economy.

The Oman Connection

At the outset of the JCPOA, Iran was granted access to billions of dollars of its own assets that had been frozen in accounts around the globe. Yet, the repatriation of those assets became a major complication, as detailed by the subcommittee report. In January 2016, Iran sought to convert its assets at Bank Muscat in Oman into euros for future purchases. However, there was a hang-up, as Bank Muscat notified the Treasury Department’s Office of Foreign Assets Control (OFAC) that it would need a U.S. bank to first convert the funds into dollars before they could be converted into euros. Given that the dollar is the world’s reserve currency, dollar-clearing transactions that briefly transit through the U.S. financial system are common. However, dollar clearing through the U.S. financial system for transactions involving Iran had been barred since November 2008 and was not formally lifted by the JCPOA. Absent a license from the Treasury Department to permit the dollar clearing, the conversion of the assets would be far more complicated.

Starting in January 2016, the Iranians asserted that the JCPOA was clear that Iran would have the right to convert its assets “without any qualifications and conditions.” Treasury officials then looked into what sections of the JCPOA would obligate the U.S. to authorize the dollar conversion. They found many—to the apparent surprise of at least one Treasury official.

There was a great deal riding on the JCPOA’s successful implementation. Iran had rolled back its nuclear program and subjected it to intrusive inspections, forestalling the twin threats of both a nuclear-armed Iran and war with Iran over its nuclear program. As Secretary Lew detailed in a speech in March 2016, “to pressure bad actors to change their policy, we must be prepared to provide relief from sanctions when we succeed. If we fail to follow through, we undermine our own credibility and damage our ability to use sanctions to drive policy change.” Thus, not only was the nuclear deal at stake, but also the U.S. ability to trade in the extensive sanctions that remained on the books for further concessions from Iran.

The Obama administration wanted to ensure that it was complying with both the letter and spirit of the JCPOA. It therefore decided to issue a license to Bank Muscat to enable dollar clearing, provided a U.S. bank was willing to engage in the transaction. Despite assurances from the administration, two banks rejected the proposal in February and March 2016 due to reputational risks and fears of being tangled up in ongoing litigation against Iran.

Rising Opposition

Amid these efforts to enable Iran to repatriate the funds as envisioned under the JCPOA, deal opponents began to put pressure on the administration’s plans. In March, leading Congressional Republicans Ed Royce and Jeb Hensarling pressed Secretary of the Treasury Jack Lew on whether Iran would have access to the U.S. financial system, to which he responded “[p]art of the agreement was to give Iran access to money that it has a right to. We will work on making that happen.” Then the Foundation for Defense of Democracies (FDD)—the epicenter of nongovernmental efforts to dismantle the Iran nuclear deal—jumped into the fray. It issued a warning in the Wall Street Journal that Obama was “dollarizing the Ayatollahs” and hinted that Congress would block the administration’s plans. Much more pushback from FDD and congressional Republicans followed.

Sanctions relief for Iran had been effectively securitized. A brief transit from third-party banks to the U.S. and back again involving Iranian assets had been exaggerated as “the ultimate prize” for Iran, generating significant congressional opposition. Such indirect access posed neither a threat nor a cost to the U.S., though it represented a key choke point where deal opponents could limit Iran’s relief under the accord.

With rising domestic opposition and without a U.S. bank willing to engage in the exchange, the Obama administration appears to have backed down from both efforts involving the Bank Muscat assets and additional plans to put forward a general license to permit dollar clearing. The administration continued to insist publicly that Iran would not have access to the U.S. financial system, while discussions aimed at resolving the issue with both the Federal Reserve Bank and German Central Bank in April 2016 “faded with no resolution.” That same month, Secretary Kerry boasted that predictions of an Iranian windfall were inaccurate since Iran had only received roughly $3 billion of its frozen assets abroad to date. This, of course, angered the Iranians who were still trying to get their assets repatriated. According to the subcommittee report, by January 2017—a full year later—the assets were still sitting in Bank Muscat. The report indicates that Bank Muscat may have “eventually found a way to make small fund transfers without the use of the U.S. financial system,” a far more painstaking approach that apparently took some time to arrange.

Disincentive for Business

The subcommittee report details how important the dollar-clearing issue was for many banks and businesses considering transactions involving Iran. In the hundreds of “roadshows” the Obama administration engaged in to clarify U.S. sanctions policy between August 2015 and July 2016, “one of the most asked questions at these meetings concerned details about access to the U.S. dollar,” according to the report. Licensing banks to clear dollars through the U.S. financial system would have provided substantial reassurance to foreign firms considering reentry into the Iranian market as permitted by the JCPOA. Given the tremendous complication of engaging in any substantial trade with Iran while avoiding the U.S. financial system, combined with a murky political situation in both Tehran and Washington, many businesses chose to stay out of the Iranian market entirely. A May 2016 survey of companies interested in doing business in Iran showed that more than half were wary of reengaging in the Iranian market out of fear of running afoul of U.S. sanctions.

The end result was many deals inked, including the sale of U.S. manufactured Boeing aircraft to Iran, but few realized. With less ongoing business in Iran, Trump’s decision to snap back sanctions and kill the deal despite Iran’s compliance with its nonproliferation obligations was made all the easier. Congressional Republicans, and JCPOA opponents like FDD that sought to stifle Iran’s benefits under the accord, deserve a tremendous share of the blame for the agreement’s ultimate collapse.

Likely the greatest tragedy to this episode is that the Iranian people have been denied the sanctions relief that they made possible by pushing, against the odds, for greater moderation from their government. Sanctions empower authoritarian regimes, as they did previously in Iran by expanding the political and commercial power of the Islamic Revolutionary Guard Corps (IRGC). Now, rather than incentivize moderation by effective implementation of sanctions relief under the JCPOA, the U.S. has empowered the hardliners in Iran who warned that the U.S. could never be trusted to lift sanctions.

Ryan Costello is assistant policy director of the National Iranian American Council. Follow him on Twitter @RN_Costello.

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  1. Oh do get lost Ali Mostofi the asskisser of Iran-haters. We all hate the current regime but people like you won’t be satisfied until you see bombs dropping on Iranians, Iran divided into pieces and your beloved Reza Pahlavi, or MKO terrorists of Restart whores or whatever else the hell they are, take over what’s left of Iran (which is case of war, will only be some deserts in central Iran), and your oil being looted by your beloved friends in Tel-Aviv. You anti-Iran dogs disgust me. Go kiss Netanyahu’s ass…I think your daily dose of Netanyahu ass-licking is running low babe.

  2. Mr. Ali Mostofi, you seem to know it all? With due respect, you’re merely a troll repeating the same old molested narrative created by the Zionist thugs and their minions in Tel Aviv and DC. Furthermore, the idea that bad mouthing a Mullah could sway anyone’s opinion in this forum or any other site is lunacy. You and the so-called MKO gangsters, as well as Shah’s relics in the west have no chance, no hope, no base, no vision and over 95% of Iranians despise what you stand for (according to Western public opinion polls conducted in Iran). Thus, the dream of going to Iran escorted by US M1A2 or Bradly APCs is just a wet-dream or a hallucination and nothing more. USA has no conventional military-power nor the capacity to pacify Iran, and US military planners are no idiots to contemplate such a disaster. Of course, USA could destroy Iran theoretically by using nuclear weapons, but that’s not possible as it could lead to catastrophic results ending America as world power in addition to destruction of the whole Persian Gulf region and its surrounding areas By the way; I am no fan of the retarded non-Islamic regime in Iran or the phony titles of Ayatollahs, but I reject to repeat the Israeli/Zionist narrative against Iran. Cussing the regime figure-heads does no good to anyone, albeit it portrays weakness and desperation. If you really respect and love your nation as you claim then avoid becoming a pawn for Iran’s enemies. My parents left Iran when I was two years old, so I never had the fortune to see Iran. I refuse to allow my nations enemies to demonize Iran or its Nobel people, and the current regime will be changed by Iranians, and no one else has the right to impose a political system on Iran.

  3. My point of view, is my point of view and I am not affiliated with anyone. I have written on the subject for 40 years. Throughout this journey, I have been pleasantly reminded of the sort of thorny comments one has had to brush aside. It is then quite refreshing to see some here.

    I apologize to the managers of Lobelog to create such responses. I will not be drawn into jibes like the people who have commented. It is up to them to remove bad comments.

    I derive my point of view from the study of ancient Iranian culture. You will get others telling you that I am this or that. Not true. Read Iran News Blog on Facebook and then put a polite comment there.

    I am more encouraged if you throw mud. Try to put an intelligent comment that draws a person into a discussion.

  4. Ali, you sound like a broken record! Well WGaF anymore!
    During the Shah’s reign I used to have a boss at the Iranian Petrochemical Company who’s last name was also Mostofi! Astonishingly to his own admission his background was going back to the Kajaris Dynasty and he was proudly from the Mostofi-al-Doleh family! When he was confronted and told that Kajar’s dynasty was indeed a “dark chapter in Iran’s history” since Kajars donated the northern states of Persia to Russia for free just to preserve their dynasty and they won’t be removed from the power. After that conversation he never talked about his background again!
    I hope you’re NOT a member of that Mostofi’s family. But if you are, you’re automatically disqualified to speak on behalf of the Iranian people!

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