Effective July 1st, the United States has authorized new sanctions directly targeting the already-devalued Iranian rial with penalties for transacting or holding the currency outside of Iran. This represents the first time that the U.S. has focused specifically on the Iranian monetary unit itself and the ninth set of sanctions President Barack Obama has imposed against Iran.
White House Press Secretary Jay Carney said, “This new action targets Iran’s currency, the rial, by authorizing the imposition of sanctions on foreign financial institutions that knowingly conduct or facilitate significant transactions for the purchase or sale of the Iranian rial, or that maintain significant accounts outside Iran denominated in the Iranian rial.”
The tough sanctions are intended to increase the financial pressure on the Islamic republic to abandon its nuclear program. However, Iran maintains that its nuclear energy program is for peaceful purposes only and has refused to back down arguing that it has this right.
Carney explained how the sanctions also target the foreign assets of Iran’s leaders, “Further increasing the pressure on the Iranian government, the Executive Order authorizes the imposition of additional sanctions on persons who provide material support to Iranian persons and certain other persons designated pursuant to Iran sanctions authorities that are included on the list of Specially Designated Nationals and Blocked Persons (SDN List) maintained by the Department of the Treasury.”
The Government of Iran’s leadership controls a vast overseas network of 37 private businesses for the purpose of managing off-the-books investments that are shielded from the view of international regulators.
This month in exchange for pledges to reduce oil purchases from Iran, the U.S. State Department renewed six-month waivers on Iran sanctions for nine countries in total, including China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan.
In early 2012, the U.S. and the European Union imposed payment sanctions on Iran’s oil and financial sectors with the goal of weakening Iranian oil exports and blockading transactions with the Central Bank of Iran via Swift. However, a European Union court in February ruled against the EU banking sanctions imposed on one of Iran’s largest banks, which extends to the payment sanctions imposed by Swift in March of last year.
The Iranian currency has already been suffering from record inflation losing more than two-thirds of its value in the past two years, trading at 36,000 per U.S. dollar as of April 30th, compared with 16,000 at the beginning of 2012.
“The idea is to cause depreciation of the rial and make it unusable in international commerce,” according to David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence.
President Obama issued this latest Executive Order on June 3rd and during an interview Cohen said, “the purpose of the one-month phase-in period is to give financial institutions currently holding rials the opportunity to dump them.”