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  Tehran Tug o' War: Iran Remains Unimpressed by Sanctions

Tehran Tug o' War Iran Remains Unimpressed by Sanctions

By Dieter Bednarz and Ralf Beste

Part 2: Measures to Discourage Companies from Doing Business in Iran

After preliminary inspections by government offices and ministries, potentially sensitive orders are held up for a significant amount of time by the relevant state secretary at the Foreign Ministry. This is part of the exercise. When business owners call to ask about the progress of their applications, they are told, as a precaution, that although their export product is not on a current list of banned products, it could be at the actual time of delivery. Government bureaucrats call this a "strategy of discouragement." It is meant to be the sanctions regime of the future.

In mid-October, Reinhard Silberberg, a state secretary in the Foreign Ministry, convened a meeting of the relevant senior officials from the Chancellery and the German government's other ministries. The foreign office argued in favor of "discouraging" business with Iran. Bernd Pfaffenbach, a state secretary in the Economics Ministry, was none too pleased, but the Chancellery was also in favor of the strategy turnaround, eager to see actions follow on the heels of Merkel's tough words on Iran. The group agreed that the Economics and Finance ministries would invite German trade associations to a meeting to explain the sensitivity of doing business with Iran. The clear message was that German business owners should avoid deals with Iraq, even if they are legal.

Not much has happened since then. The Economics Ministry is performing its duty with little enthusiasm, and the "discouraging" signals have not convinced some trade groups. Next Wednesday, Silberberg plans to convene another meeting to review the October agreement.

The German economy is not about to take such efforts to influence it lightly. "The federal government is increasingly moving into a gray zone when it comes to implementing Iran sanctions. It appears to be trying to obstruct business deals that are completely legal," complains Klaus Friedrich of the German Engineering Federation (VDMA). "With such actions, the federal government damages the overall system of export control."

German business owners want to preserve their privileged status in Iran, where competitors are taking advantage of every German step toward withdrawal to capture market share. China replaced Germany last year as the leading exporter to Iran.

Among Western countries, the sanctions are stirring up suspicion and anger. What makes this all the more aggravating is that their benefits are by no means proven. Tehran is smugly pointing out that the decline in trade hurts Europe more than it does Iran, because Asia offers good alternatives. "Why are you Europeans giving up such a big market?" Iranian Deputy Foreign Minister Mehdi Safari asks condescendingly.

Despite all the government propaganda, however, the sanctions are actually hurting Iran's economy. The official rate of inflation is about 30 percent, and one in three Iranians between the ages of 19 and 29 is unemployed. There is believed to be a shortage of spare parts in the country's vital oil industry as well as in the chemical and machine-building industries.

Politically speaking, however, the sanctions have been relatively ineffective, as IAEA Director-General ElBaradei says. The die-hard reactionaries surrounding President Mahmoud Ahmadinejad are no longer the only ones insisting on Iran's right to close the nuclear fuel cycle. The reformers, too, have fallen in step with Ahmadinejad's hard-line approach, and they no longer seriously consider abandoning uranium enrichment.

The sobering outcome of five years of diplomacy and two years of sanctions is angry Israelis, Germans stressed by sanctions and defiant Iranians. Only a new initiative by the future US president can bring movement into these hardened fronts.

Foreign Minister Frank-Walter Steinmeier has come up with a surprising welcome message for President-elect Barack Obama: He wants to propose new sanctions. In Steinmeier's assessment, the new US president has finally agreed to take responsibility for making overtures to Tehran. But to convince Ahmadinejad to relent, Obama must keep additional sanctions in his back pocket. Steinmeier sees the threat of sanctions as a backup strategy for Obama, enabling him to use a carrot-and-stick approach in his negotiations with Iran.

On Thursday, Volker Stanzel, political director at the Foreign Ministry, presented Germany's proposal for a new regime of sanctions to his British and French counterparts. Under the program, the Europeans would jointly develop new trade restrictions in the banking and transport industries, and would attempt to gain Russian and Chinese support for the effort.

German business owners like tunnel builder Martin Herrenknecht, on the other hand, have given up hope of gaining support from their own government and are instead turning to Washington. Herrenknecht believes that the Americans should finally offer the Iranians direct talks. "I have high hopes for Obama," says Herrenknecht.

Translated from the German by Christopher Sultan.