President Biden’s Aides Preparing to Hit Iran with Economic Sanctions
Evaluating Responses to Iran’s Attacks
President Biden’s aides are preparing to hit Iran with economic sanctions over Tehran’s attack on Israel, but experts say they face limited meaningful options for doing so without antagonizing China or risking a spike in the price of oil.
Iran’s Strike on Israel and the Aerial Barrage
In retaliation for a strike against its consulate, Iran over the weekend sent more than 300 drones and missiles toward Israel. The unprecedented aerial barrage did not cause major damage or injuries, as U.S.-led forces intercepted most of the projectiles.
Limited Options for Economic Responses
Still, U.S. officials and their European allies are discussing potential economic responses to Iran, as leading Western officials converged Monday on Washington for the spring meetings of the International Monetary Fund and World Bank. Their options are limited because Iran is already one of the most heavily sanctioned countries in the world, with U.S. penalties in effect on its banking, manufacturing and energy sectors.
Expanding Sanctions on Chinese Firms
Among the most obvious remaining options is aggressively expanding sanctions on Chinese firms that have bought large quantities of Iranian crude oil exports, which have provided a financial lifeline for Tehran as it remains cut off from the West. The United States has over the last year imposed sanctions on some commercial links in the oil trade between China and Iran, but experts say the administration could go further by hitting many more Chinese refineries and banks with the restrictions.
Challenges and Risks of Sanctioning Chinese Banks
Doing so carries its own risks, however. Treasury Secretary Janet L. Yellen and other administration officials have tried stabilizing relations with China in recent months, and a sudden blow to energy production could infuriate Beijing. Additionally, cutting off sales of Iranian crude could cause oil prices to spike globally amid tighter supply, potentially leading to higher gas prices ahead of the 2024 presidential election.
The Need to Involve China in Oil Revenue Cuts
“There are not a lot of options that are game changers, because so much of Iran is already sanctioned,” said Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, a foreign policy think tank. “But if you really want to cut off oil revenue for Iran, you have to go through China and Chinese institutions.”
Potential Consequences of Sanctioning Chinese Banks
Sanctioning Chinese banks for facilitating the purchase of Iranian oil could remove as many as 1.5 million barrels per day from global markets. That would send the price of oil above $100 per barrel, in what would be a political nightmare for the Biden administration, said Bob McNally, president of the Rapidan Energy Group, a consultancy.
President Biden’s Stance and Congressional Pressure
“The last thing Biden wants is higher gas prices, so he wants Iran selling its oil to China. He does not want that oil to be shut in. It’s as simple as that; he can’t afford to sanction Iran’s oil,” McNally said. “They could do some symbolic stuff, to go after a little trader here or there, but that’s likely about it.”
Biden has urged calm in the wake of Iran’s attack. The United States has made clear it will not participate in any Israeli military attack against Iran, and senior officials have stressed that their aims are to “de-escalate regional tensions” to prevent a broader conflagration. Israel’s war cabinet met on Monday to deliberate potential responses.
Tougher Sanctions and Pressure
While the West is ruling out participating in a military response, an economic response to Iran’s actions appears increasingly certain. European Commission President Ursula von der Leyen said officials in Brussels would discuss tougher sanctions against Iran. “We will reflect on additional sanctions against Iran in close cooperation with our partners,” she said in a statement.
Possible Measures and Sanctions
U.S. officials have, for instance, discussed tightening Iran’s access to frozen funds earmarked for humanitarian relief, according to two people familiar with the matter, who spoke on the condition of anonymity to describe private conversations. They have also discussed imposing additional sanctions on Iranian officials and businesses. The first could prove largely symbolic: Iran is already hardly accessing these funds. It’s also not clear how impactful sanctions on other firms, such as international suppliers of parts for Iranian drones, would prove.
Uncertainty and Expectations
A Treasury spokeswoman declined to comment on ongoing deliberations, but Yellen is scheduled to address the media on Tuesday. The Biden administration also faces pressure from Capitol Hill to act. The House overwhelmingly approved legislation on Monday aimed at cracking down Iranian oil sales to China. Critics have argued that Biden should have gone further to ensure Tehran is not able to reap billions from its oil exports.
The Dilemma of Maximal Pressure
Still, other experts say the challenge is that Washington has already been too aggressive in its posture toward Tehran. Iran has been under severe economic restrictions since the Trump administration abandoned the nuclear deal reached by President Barack Obama, and that gives policymakers little room to operate in the face of new emergencies.
