U.S. hits regime's military with new sanctions

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New U.S. sanctions announced yesterday on key units of Iran's military are expected to have only a modest economic impact, but accompanying moves against major Iranian state banks could have real bite, according to financial experts.

Confirming months of speculation, Treasury Secretary Henry M. Paulson Jr. and Secretary of State Condoleezza Rice jointly announced a string of sanctions targeting the Iranian Revolutionary Guard Corps (IRGC) and the elite Quds Force, the domestic and international military arms of the Islamist regime in Tehran.

In addition, three major Iranian banks — Bank Melli, Bank Mellat and Bank Saderat — and a number of top military officials were sanctioned. The U.S. action cited their support of terrorist groups and role in spreading ballistic missile technology.

"Once the U.S. government declares a financial institution radioactive, there's a tremendous ripple effect throughout the entire international financial community," said Lee Wolosky, a former National Security Council official and a specialist in international financial law at the New York firm Boies, Schiller and Flexner.

Jonathan M. Winer, a lawyer and former senior State Department official for international law enforcement, said the new sanctions were "a very powerful tool" that will affect Iran's ability to do business around the world.

Mr. Paulson said the U.S. financial sanctions were also a tool to press foreign lenders to cut off vital banking services and credits to the regime. With the IRGC controlling major energy, construction and commercial interests in addition to its military forces, any trade with Iran could fall afoul of the U.S. sanctions, he said.

"It is increasingly like that if you are doing business with Iran, you are doing business with the IRGC," Mr. Paulson said.

Hard-line Iranian President Mahmoud Ahmadinejad already faces rising criticism at home over the struggling economy, suffering from a lack of investment, rising prices for food and other staples and gas rationing in a country with some of the world's largest proven oil reserves.

The U.S. move was just the latest in an escalating confrontation with Iran, which has clashed with Washington over its covert nuclear programs, its suspected support of anti-U.S. forces in Iraq and Afghanistan, and its hostile stance toward Israel and other U.S. allies in the region.

The Bush administration has already secured two rounds of U.N. sanctions against Iran for its nuclear programs, which Tehran insists are for peaceful purposes.

Tehran rejected the new sanctions.

"The hostile American policies ... are contrary to international law, without value and — as in the past — doomed to failure," Foreign Ministry spokesman Mohammad Ali Hosseini told Iran's state television yesterday.

The move drew a mixed reaction from other capitals. The British Foreign Ministry endorsed the U.S. sanctions, and said London was prepared to support new sanctions against Iran both at the United Nations and within the European Union.

But Russian President Vladimir Putin, whose country has substantial commercial links to Iran, criticized the sanctions strategy against Iran in unusually harsh terms.

"Running around like a madman with a razor blade, waving [sanctions] around, is not the best way to resolve the situation," Mr. Putin told reporters in Portugal after a summit meeting with EU leaders.

U.S. officials have claimed substantial success in curbing Iran's links to the international banking community, with a number of major European lenders cutting or curbing ties in Iran.

Matthew Levitt, a former Treasury official and sanctions specialist now with the Washington Institute for Near East Policy, called the new sanctions "very, very wide-ranging." He noted that Iran's most important banks are effectively cut off from the U.S. financial system and must operate in a world oil market tied to the U.S. dollar.

Added Mr. Winer: "Will [the sanctions] stop Iran? No. But does it make it more expensive and more difficult? Yes."