How the Biden administration botched America’s sanctions against Iran

A fortnight ago Iran aimed more than 180 ballistic missiles at Israel. Now Israel will respond, and the world is holding its breath. What it does next, and how Iran reacts, will determine whether the Middle East is engulfed by all-out conflict. For America the question is how to encourage restraint from Israel, limit escalation, curb Iran’s baleful influence and deter it from choosing to build a nuclear weapon. Unfortunately, as our investigation this week shows, the Biden administration has undermined one of America’s main tools.

In 2018, under Donald Trump, America unwisely withdrew from an agreement to stall Iran’s nuclear programme and then imposed its harshest sanctions ever, in an attempt to punish the regime and stop it funding proxies and terrorists abroad. America banned its citizens from trading with Iran or handling Iranian money; it also reinstated “secondary” sanctions, which punish entities from third countries that deal with Iran, for instance by cutting them off from the dollar banking system.

President Joe Biden has often waived the enforcement of these sanctions. He was keen to bring Iran back to the negotiating table, and worried that a crackdown on Iran’s oil trade might fire up oil prices just when energy markets were alarmed by Russia’s invasion of Ukraine. His administration issued sanctions waivers to foreign entities, considered giving Iran access to frozen money and often turned a blind eye to Iranian oil smuggling.

The efficacy of sanctions was always going to erode. Faced with constraints, people will find other ways to shift money and goods around the world. Tankers are routinely renamed. It takes much less time for an Iranian stooge to set up a company in Hong Kong or Dubai than it does for America’s Treasury to investigate evasions. It was inevitable that money would flow away from the dollar banking system and into alternative payment mechanisms.

Yet by choosing not to rigorously enforce the sanctions, America has undermined their efficacy even in the short term, perhaps bringing China and Iran closer together. A complex infrastructure has developed to help Iran channel its revenues around the world. Last month it sold 1.8m barrels per day of crude oil, mostly to China—the highest level in six years.

Our reporting shows how a web of front companies uses banks in China, Hong Kong, the Gulf and even the West, many of which unwittingly handle Iranian money. Last year Iran’s revenues were worth $50bn-70bn. Precisely where the money ends up is uncertain, but oil sales are surely helping to arm Iran and its proxies.

Now that this infrastructure exists, the financial deterrence that America has lost is not easily regained. To throw sand in the gears of Iran’s war machine, America would have to punish the worst-offending banks in, say, China or the Gulf, or press their governments to insist that lenders make more efforts to comply with America’s edicts. But that either means escalating financial warfare with China, for which America may have little appetite, or cracking down on allies such as the United Arab Emirates. Leaning on friends to discipline their banks, or blacklisting some outright, would cost America diplomatic capital.

The unfortunate consequence is that the difficult task of influencing Iran’s behaviour has become even harder. America’s tools include threatening to enforce sanctions (or offering to lift them) and threatening to go to war. Those choices were fraught with risk. But their costs are higher today than they would have been if America had enforced sanctions rigorously. This also means that America has less to offer Israel as it tries to persuade it to moderate its retaliation for Iran’s missile strike. As an Israeli-Iranian war beckons, the last thing that the Middle East needs is a lack of good options.

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