Bloomberg News

U.S. Moves to Isolate Iran, Push Stronger International Action

October 13, 2011

Oct. 13 (Bloomberg) -- The U.S. launched a full-court press portraying Iran as an outlaw state that threatens global security.

In doing so, the Obama administration laid the groundwork yesterday for efforts to ratchet up multilateral sanctions, isolate the regime diplomatically and perhaps take other actions.

Vice President Joe Biden and Secretary of State Hillary Clinton led the offense, with Biden denouncing the alleged Iranian plot to assassinate the Saudi ambassador to Washington - - foiled by U.S. authorities -- as “outrageous.” Clinton demanded Iran be held accountable for “a flagrant violation of international and U.S. law.”

Deputy Secretary of State William Burns invited some 100 foreign diplomats in Washington to the State Department for a meeting revealing details of the alleged plot, while U.S. Ambassador to the United Nations Susan Rice -- flanked by officials from the Federal Bureau of Investigation, the Central Intelligence Agency and the Justice and State Departments -- briefed UN Security Council members in New York.

Iran’s ambassador to the UN, Mohammad Khazaee, told reporters the U.S. accusation is “a really big lie” and “doesn’t make sense.” He also accused the U.S. of setting a “dangerous precedent” in drumming up international condemnation for something he said Iran hasn’t done.

The Treasury Department, meanwhile, imposed sanctions on Mahan Air, an Iranian commercial airline it accused of “secretly ferrying operatives, weapons and funds” for Iran’s Islamic Revolutionary Guard Corps and its Quds Force unit.

The Plot

In Tehran, the Foreign Ministry summoned a Swiss diplomat who represents U.S. interests in Iran to answer questions about the U.S. federal indictment, according to the semi-official Mehr news agency.

Manssor Arbabsiar, a 56-year-old Iranian native and naturalized U.S. citizen who was working as a used car salesman in Texas, and Gholam Shakuri, an Iranian member of the Quds Force, were charged in Manhattan federal court with conspiracy to use plastic explosives to murder Saudi Ambassador Adel al- Jubeir. Arbabsiar is in U.S. custody; Shakuri remains at large, U.S. officials said.

U.S. administration officials briefed key lawmakers on the plot, and a number of senators and former officials publicly called for stronger action against Iran beyond existing sanctions that critics say have failed to stop Iran from supporting terror groups or ceasing a suspected nuclear weapons program.

Time to Act

Senator Joseph Lieberman, a Connecticut independent, called for swift passage of legislation he co-sponsored in May to toughen sanctions against Iran, North Korea and Syria.

“It is time for the United States and our allies to make clear to Iran’s leaders that if they continue on their current outlaw course, they will face more than just further incremental ratcheting up of economic sanctions and diplomatic pressure,” Lieberman said in a statement.

The brazenness of the plan suggests Iran’s leaders “did not believe there would be serious repercussions if their role was discovered,” Elliott Abrams, a former deputy national security adviser to President George W. Bush, said.

Abrams, a senior fellow at the Council on Foreign Relations in Washington, said the challenge facing the Obama administration “is to determine how to punish Iran in ways” that persuade Iran’s leaders to cease “any future plans for terrorism against Americans or in the United States.”

Terrorism Sponsor

The U.S. designated Iran as a state sponsor of terrorism in 1984 and says Iran provides weapons, training and money to Hamas and Hezbollah, among other Middle East militant groups that the U.S. classifies as terrorist organizations.

The Obama administration also reached out to leaders of the Arab League and the Gulf Cooperation Council, seeking to rally support for tightening sanctions on Iran.

Clinton telephoned numerous counterparts, the State Department said, including the foreign ministers of Saudi Arabia, Russia and Mexico, which the U.S. credited with helping foil the alleged plot by members of Iran’s Quds force to hire Mexican drug traffickers to carry out a bombing targeting the Saudi ambassador in Washington.

The gravity of the allegations has raised the possibility the U.S. will pursue punitive measures at the world body against Iran, which is already under four rounds of UN sanctions because of what the U.S. and other nations allege is a clandestine nuclear weapons program.

‘Crippling Sanctions’

U.S. financial institutions are barred from dealing with Iranian government institutions, and in August a bipartisan group of 92 U.S. senators called on President Barack Obama to impose “crippling sanctions” on Iran’s central bank, Bank Markazi, under last year’s Iran Sanctions Act. The move was led by Senators Mark Kirk, a Republican of Illinois, and Chuck Schumer, a Democrat of New York.

U.S. and European sanctions on more than 20 Iranian banks have hampered the country’s international commerce, and Iranian officials have talked to Chinese counterparts about creating a barter system to use Iranian oil to pay for Chinese construction projects in Iran, according to several U.S. officials who spoke on condition of anonymity.

On the Senate floor yesterday, Kirk called on the U.S. Federal Reserve and the European Central Bank to ban any transactions with the Iran’s central bank.

“Their currency would become like North Korea’s currency,” Kirk said.

Saudi Reaction

The Treasury Department hasn’t sanctioned Iran’s Central Bank, though it is already cut off from the U.S. financial system since financial dealings with Iranian government entities are prohibited.

“In coming days, the exchange of rhetoric will be aggressive, and Saudi Arabia will likely downgrade, or even break, relations with Iran,” Cliff Kupchan, an analyst at New York-based research firm Eurasia Group, said in an e-mail.

Although the alleged plot seemed amateurish considering that the suspects dealt with a Drug Enforcement Agency informant whom they hadn’t vetted, made a $100,000 wire transfer to pay for the alleged scheme and discussed it on the telephone, U.S. officials said they concluded that it wasn’t a rogue operation. Officials told reporters they believe the plan was likely discussed and approved at high levels of the Iranian government.

Who Knew?

The Quds Force, with several thousand officers, is the arm of Iran’s Islamic Revolutionary Guard Corps responsible for covert and special operations outside Iran, including arming and training Shiite Muslim militias in Iraq to attack U.S. troops. It reports to Iran’s Supreme Leader, Ayatollah Ali Khamenei.

U.S. officials asserted it is possible that Iranian President Mahmoud Ahmadinejad didn’t know of the risky plan to murder an ambassador in a restaurant in the American capital.

The officials said that some political hardliners who have recently reached high positions in the Iranian government have little or no experience in the West and may have failed to understand how the U.S. and other countries would respond to the plot to kill a diplomat on foreign soil.

Perhaps the most effective retaliation against Iran, one U.S. official suggested, would be for Saudi Arabia to boost its crude production in an effort to depress oil prices. Such a move would hurt Iran, which is the second-largest producer in OPEC and holder of the world’s fourth-biggest proven oil reserves.”

Oil Politics

Saudi Arabia is OPEC’s biggest producer. Saudi Arabia produced 9.76 million barrels a day in September, up 9.4 percent from 8.93 million barrels a day in May, according to Bloomberg data.

Tensions between predominately Sunni Saudi Arabia and Shiite Iran date back to Iran’s Islamic Revolution in 1979. Ayatollah Ruhollah Khomeini accused Saudi rulers of corruption and argued that the holy sites of Mecca and Medina in Saudi Arabia shouldn’t be under a single country’s guardianship. Saudi authorities have blamed unrest among Shiites in the Eastern Province, where the oil is, and in nearby Bahrain on instigations by Iran.

“For investors,” Kupchan said, “the main concern will be the prospect of tension and proxy hostilities between these two top oil producers.”

-- With assistance from Flavia Krause-Jackson and Bill Varner at the United Nations. Editors: Terry Atlas, Jim Rubin.

To contact the reporters on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editors responsible for this story: Mark Silva in Washington at msilva34@bloomberg.net


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