How the Biden administration screwed up U.S. sanctions on Iran

Two weeks ago, Iran fired more than 180 ballistic missiles at Israel. Now Israel will respond, and the world holds its breath. Its next steps, and Iran’s response, will determine whether the Middle East descends into full-scale conflict. For the United States, the question is how to encourage Israeli restraint, limit escalation, contain Iran’s malign influence, and prevent it from choosing to build nuclear weapons. Unfortunately, as our investigation this week shows, the Biden administration has undermined one of America’s primary tools.

In 2018, under Donald Trump, the United States unwisely withdrew from a deal to halt Iran’s nuclear program and then imposed the toughest sanctions ever in an attempt to punish the regime and prevent it from funding overseas proxies and terror molecular. The United States bans its citizens from trading with Iran or handling Iranian funds; it has also reinstated “secondary” sanctions that punish third-country entities that deal with Iran, such as cutting them off from the U.S. dollar banking system.

President Joe Biden has frequently waived enforcement of those sanctions. He is eager to get Iran back to the negotiating table and worries that a blow to Iran’s oil trade could push prices higher at a time when energy markets are reeling from Russia’s invasion of Ukraine. His administration issued sanctions waivers to foreign entities, considered giving Iran access to frozen funds and often turned a blind eye to Iranian oil smuggling.

The effectiveness of sanctions will always diminish. Faced with restrictions, people will find other ways to move money and goods around the world. Tankers are often renamed. It takes far less time for Iranian puppets to set up companies in Hong Kong or Dubai than it does for the U.S. Treasury Department to investigate tax evasion. Funds inevitably flow from the U.S. dollar banking system to other payment mechanisms.

However, because the United States has chosen not to strictly enforce the sanctions, it has weakened their effectiveness even in the short term and may bring China and Iran closer. Sophisticated infrastructure has been developed to help Iran move its income around the world. Last month, the company sold 1.8 million barrels of crude oil per day, mostly to China – the highest level in six years.

Our reporting shows how front company networks exploit banks in China, Hong Kong, the Gulf and even the West, many of which unknowingly handle Iranian funds. Iran’s revenue last year amounted to $50 billion to $70 billion. Where the money ends up is uncertain, but the oil sales certainly help arm Iran and its proxies.

Now that this infrastructure already exists, the United States’ lost financial deterrence will not be easy to restore. To put sand into the gears of Iran’s war machine, the United States must punish the worst-performing banks in China or the Gulf, or force those governments to insist that lenders work harder to comply with U.S. edicts. But that would either mean escalating a financial war with China, in which the United States may have little interest, or hitting allies like the United Arab Emirates. Relying on friends to regulate their banks, or simply blacklisting some banks, would drain America’s diplomatic capital.

The unfortunate consequence is that the difficult task of influencing Iran’s behavior becomes even more difficult. U.S. tools include threats to impose sanctions (or offer to lift them) and threats of war. These choices are fraught with risk. But their costs are higher today than they were when the United States strictly enforced sanctions. This also means that the United States has less and less to offer Israel when trying to persuade Israel to moderate its retaliation for Iranian missile attacks. With the Israel-Iran war coming, the last thing the Middle East needs is a lack of good options.

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