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Sudan, Iran find a bypass to U.N. sanctions
Mon. 11 Jun 2007

USA TODAY

By Barbara Slavin, USA TODAY

WASHINGTON — Sudan and Iran have been able to ease the blow of new U.S. sanctions by trading more with China and conducting deals in currencies other than the dollar. Their actions raise questions about whether sanctions are an effective way for Washington to punish rogue nations.

President Bush announced new penalties last month aimed at pressuring Sudan's government to halt genocide in its Darfur region. The sanctions barred Sudanese oil companies from using the U.S. financial system, a move Washington hoped would squeeze Sudan's economy.

Washington also has blocked two Iranian banks from using dollars, and is seeking new sanctions at the United Nations because Iran is defying U.N. demands to suspend its nuclear program.

The growing economic muscle of China, though, means that Iran and Sudan, both of which are oil exporters, have a viable business partner beyond the USA and Europe. The emergence of the euro as a strong currency also provides an alternative to the U.S. dollar for financing trade.

"These sanctions by themselves will annoy but not force the hand of the governments," says Richard Haass, president of the Council on Foreign Relations. "To do that would require far more serious steps backed by China and others."

The U.S. government is "mindful of" the actions being taken by Iran and Sudan, said Adam Szubin, director of the Treasury Department's Office of Foreign Assets Control. He said the sanctions are successfully restricting economic activity in both countries.

China plays big hand

China has greatly expanded trade and investment with both countries in recent years. "China is a large and growing user of energy and will need to rely on whatever sources it can get access to," said Julia Nanay, an analyst with PFC Energy, a Washington-based company that advises the energy sector.

China National Petroleum Corp. buys 60% of Sudan's oil and owns 40% of Sudan's Greater Nile Petroleum Operating Co., a consortium that pumps most of Sudan's crude.

"The Chinese companies are the only big players," said Abdul Rahim Hamdi, a former Sudanese finance minister who advises the government. New U.S. sanctions would have no effect, he said.

China is Iran's biggest trading partner, with more than $10 billion in commerce in 2005, according to the International Monetary Fund.

Iran has a preliminary deal with the China's state-run Sinopec to develop a major onshore oil field, Yadavaran, which could produce 300,000 barrels of oil a day.

U.S. officials, including Secretary of State Condoleezza Rice and Darfur envoy Andrew Natsios, have pressed China to restrict business ties with Iran and Sudan.

Israel and a number of states across the USA are pushing pension funds to dump stocks of companies that do business with Iran and Sudan. China's state-owned companies have foreign shareholders, including pension funds, but remain largely under the control of Beijing and are less vulnerable to such outside pressure, Nanay says.

Iran also is looking to India, another fast-developing economy with growing energy needs. India's minister for petroleum and natural gas, Murli Deora, said recently that India intends to go forward with a $7 billion gas pipeline from Iran through Pakistan to India, despite strong protests from Washington.

World must 'act responsibly'

"More should be done to convince the Chinese and the Indians" to cut economic ties with Iran, says the Israeli ambassador to Washington, Sallai Meridor. "The best scenario would be that everyone in the world would act responsibly on this issue."

Iran now collects about 60% of its oil revenue in currencies other than the dollar, primarily in euros, says Kent Moors, an oil expert at Duquesne University in Pittsburgh.

The sanctions aimed at Iran have not been completely ineffective. Financial restrictions have made it more expensive for Iranians to do business with the outside world, according to Saeed Laylaz, a consultant to Iranian businesses and former auto executive in Iran. However, Laylaz said, mismanagement by President Mahmoud Ahmadinejad was more to blame for economic woes, such as Iran's high unemployment and inflation.

Szubin, the U.S. Treasury official, said that oil and gas deals are being delayed because of growing concerns about the policies of both Iran and Sudan. Both countries still are trying to use dollars, he says, and the Treasury is becoming more successful in finding and freezing such transactions.

The Bush administration is asking China to use its influence to persuade Sudan to allow U.N. peacekeepers into Darfur. Washington also is urging European oil companies to limit investment in Iran.

"We need to pursue aggressive measures in response to the Iranian threat and the Darfur situation," Szubin says. "Any costs are far outweighed by the benefits and the urgency of U.S. action."

Sudan, Iran find a bypass to U.N. sanctions (http://www.iranfocus.com/modules/news/article.php?storyid=11529)