Eye on Iran: Iran Missile Tests Were 'in Defiance of' U.N. Resolution - U.S., Allies

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Reuters: "By launching nuclear-capable missiles Iran has defied a United Nations Security Council resolution that endorsed last year's historic nuclear deal, the United States and its European allies said in a joint letter seen by Reuters on Tuesday. Iran's recent ballistic tests involved missiles capable of delivering nuclear weapons and were 'inconsistent with' and 'in defiance of' council resolution 2231, adopted last July, said the joint U.S., British, French, German letter to Spain's U.N. Ambassador Roman Oyarzun Marchesi and U.N. chief Ban Ki-moon. The letter said the missiles used in the recent launches were 'inherently capable of delivering nuclear weapons.' It also asked that the Security Council discuss 'appropriate responses' to Tehran's failure to comply with its obligations and urged Ban to report back on Iranian missile work inconsistent with 2231. Spain has been assigned the task of coordinating council discussions on resolution 2231. Council diplomats have said the case for new U.N. sanctions was weak, hinging on interpretation of ambiguous language in a resolution adopted as part of a July nuclear deal to drastically restrict Iran's nuclear work... The four powers' carefully worded letter stopped short of calling the Iranian launches a 'violation' of the resolution, which 'calls upon' Iran to refrain for up to eight years from activity, including launches, related to ballistic missiles designed with the capability of delivering nuclear weapons. Diplomats say key powers agree that request is not legally binding and cannot be enforced under Chapter 7 of the U.N. Charter, which deals with sanctions and authorization of military force. But Western nations, which view the language as a ban, say there is a political obligation on Iran to comply... The letter said the four Western powers 'note with concern that Iranian military leaders have reportedly claimed these missiles are designed to be a direct threat to Israel.' Several diplomats said the most Iran could expect would be a public rebuke by the Security Council... But a council rebuke could provide a legal springboard for European countries to consider new sanctions against Iran, Western diplomats said." http://t.uani.com/1q1Ln0T

AFP: "Iran's supreme leader said Wednesday that missile power was key to the country's future security, slapping down moderates who say the focus should be on diplomacy. Ayatollah Ali Khamenei, who has the final say in all matters of state in Iran, praised the powerful Revolutionary Guards for their 'show of advanced and precise missiles' in recent tests that drew Western criticism. 'In this jungle-like world, if the Islamic republic seeks negotiations, trade and even technology and science, but has no defence power, won't even small countries dare threaten Iran?' Khamenei said in remarks published on his official website. 'Our enemies are constantly enhancing their military and missile capabilities and given this how can we say the age of missiles has passed?' His comments appeared aimed at ex-president Akbar Hashemi Rafsanjani, a senior leader of the reformist and moderate camp, who last week tweeted: 'Tomorrow's world is the world of dialogue not missiles.' They also came a day after the United States, France, Britain and Germany said Iran's recent ballistic missile tests violate UN Security Council resolutions... Iran has twice tested ballistic missiles since the July 14 deal, prompting Western condemnation and new US sanctions. 'The enemies of the revolution... use dialogue, economic trade, sanctions, military threats and any other means to further their goals,' Khamenei said. 'We should be able to confront and defend in all of these fields.' He said those who believe only diplomacy is the key to Iran's future are acting out of 'ignorance or treason.'" http://t.uani.com/1UsLYoP

NYT: "With an eye to President Obama's legacy and his own, Treasury Secretary Jacob J. Lew on Wednesday will hail the success of economic sanctions against Iran and other global offenders, but warn that their overuse could threaten the primacy of the United States and the dollar in the world economy. In his prepared remarks and in an interview, Mr. Lew also answered criticism from Congress and the Republican presidential candidates who oppose the Iran deal and the lifting of international sanctions that was part of it. He warned that if the United States had failed to respond as the agreement called for after Iran dismantled its weapons infrastructure, it would have lost credibility in threatening sanctions in the future against other bad actors to change their behavior. 'If you were sitting in Tehran now, it wouldn't necessarily feel like you'd gotten very much relief,' Mr. Lew said in the interview this week. 'We have to be very attentive to keeping our part of the bargain if we want others to do the things that we're trying to use sanctions to create the pressure for them to do.' Both in his speech at the Carnegie Endowment for International Peace and in the interview, Mr. Lew acknowledged the difficulty of relieving Iranians of nuclear-related sanctions given their other offenses - support for terrorism and human rights violations - that have provoked separate sanctions by both the United States and its allies." http://t.uani.com/1Tipsxt

Regional Destabilization

CNN: "A large weapons cache headed for Somalia was discovered and seized by the French on March 20, authorities said. It's the second large weapons seizure in the region this month, and both may have been headed to Yemen from Iran. According to a U.S. assessment, the arms that were most recently seized originated in Iran, and their likely ultimate destination was Yemen, Cmdr. Kevin Stephens, a spokesman for U.S. 5th Fleet, told CNN. Iran has been accused of arming Houthis -- fellow Shiite Muslims fighting against the government in Yemen's civil war -- before. Stephens would not specify whether or not the United States believed this weapons shipment was headed to Houthi rebels. Earlier this month, a similar arms cache was discovered off the coast of Oman. U.S. authorities said those weapons were believed to be initially sent from Iran and were probably intended for Houthi rebels in Yemen by way of Somalia, according to Lt. Ian McConnaughey with the U.S. Navy. The March 20 discovery is the third such weapons seizure since September, Stephens said. French forces spotted the ship carrying the arms as part of routine surveillance in the northern Indian Ocean. On board the vessel, they found discovered 'several hundred AK47 assault rifles, machine guns and anti-tank weapons,' according to a March 28 news release by the Combined Maritime Forces. The CMF is a multinational naval partnership -- which includes France -- that helps police more than 3 million square miles of international waters... This latest weapons seizure would provide another example of forces inside Iran stoking sectarian tensions in the Middle East if the U.S. assessment proves correct." http://t.uani.com/25wgT7a

Nuclear & Ballistic Missile Program

Reuters: "Iran's test launches of nuclear-capable missiles did not violate a United Nations Security Council resolution, the Interfax news agency cited a Russian foreign ministry representative as saying on Wednesday. The United States and its European allies said in a joint letter seen by Reuters on Tuesday that the launches has defied the resolution that endorsed last year's historic nuclear deal. 'The resolution does not ban (the tests),' Interfax cited Mikhail Ulyanov, head of the ministry's department for non-proliferation and arms control, as saying." http://t.uani.com/1q1I35O

Free Beacon: "Iran is covertly expanding an underground network of ballistic missile construction and testing sites, despite new U.S. sanctions aimed at deterring the Islamic Republic's illicit program, which is believed to be focused on the delivery of a nuclear warhead. Iran's Revolutionary Guard Corps, or IRGC, has clandestinely moved to expand a network of front companies that primarily fuel the underground construction of ballistic missiles, according to sources following the country's procurement system. Iranian military leaders-who have recently dismissed new U.S. sanctions-are now focused on perfecting intercontinental ballistic missile technology, which would enable Iran to fire a nuclear-tipped warhead over great distances. Iran maintains the 'largest inventory of ballistic missiles in the Middle East,' according to U.S. intelligence assessments. The country has recently been moving materials to underground sites via a complex network of IRGC-controlled companies, according to a brief on the procurement activity released by the Foundation For Defense of Democracies' Center on Sanctions and Illicit Finance." http://t.uani.com/1q1NaCV

Business Risk

AFP: "Austrian President Heinz Fischer has said it is unclear how long it will take for the West to lift sanctions on Iran, in an interview with Iran's state television news agency IRIB. 'Austria alone cannot lift the sanctions. The EU cannot do it alone too, but it's the international community that should do it,' Fischer said, in comments published late Monday by IRIB. 'The U.S. also plays a role in this regard,' the Austrian president said. He was replying to a question about problems facing Iranian banks who wish to use the international payments system SWIFT allowing the resumption of foreign transfers. Some banks in Iran have been able to reconnect to SWIFT since the lifting of sanctions was announced in January. But banks accused of links to the country's elite Revolutionary Guard remain under U.S. sanctions... Fischer, speaking in anticipation of a two-day state visit to Austria by Iranian President Hassan Rouhani that was postponed Tuesday, said the process of lifting sanctions on Iran had 'started.' He added however: 'I cannot make any predictions on how much longer it will take' before all sanctions are lifted. 'But I hope that all sides will remain committed to the nuclear deal so that all of Iran's sanctions are lifted in due and scheduled time,' Fischer added." http://t.uani.com/1ROBVtR

Reuters: "Iranian President Hassan Rouhani postponed a two-day visit to Austria indefinitely for security reasons on Tuesday, the evening he was supposed to arrive in Vienna, his Austrian counterpart's office said. It was not clear what the security reasons were, a spokeswoman for Austrian President Heinz Fischer's office said. A planned Rouhani visit to Baghdad immediately before the Austrian trip had, however, also been postponed for security reasons, Fischer's office and an Iranian official said. 'We were working (on preparations) until 5, 5:30 p.m.,' the spokeswoman said, underlining the short notice as Rouhani had originally been expected to arrive around 7:30 p.m. local time. The visit was due to be Rouhani's second to the European Union since international sanctions against his country were lifted in January under a landmark nuclear deal with major powers that was negotiated in Vienna last year. The Austrian Chamber of Commerce had said 1 billion to 2 billion euros ($1.1 billion to 2.3 billion) of business deals would be signed, a sum dwarfed by Rouhani's visits in January to Italy and France but still significant for much smaller Austria. Rouhani, the chief architect of the nuclear deal and keen to open Iran's economy to the world, had been due to meet Fischer and other officials on Wednesday and Thursday." http://t.uani.com/1MSC6g7

Bloomberg: "Iranian President Hassan Rouhani unexpectedly canceled a state visit to Austria this week citing security reasons, according to an official Austrian government statement. Iran said the decision was reached mutually to allow for better preparation. Rouhani had been scheduled to meet Austrian President Heinz Fischer and other Austrian leaders on Wednesday and Thursday in only his second visit as president to Europe, after he traveled to Rome and Paris in January. Fischer said he regretted the cancellation. The Vienna-based Die Presse newspaper said Iran had demanded that Austria prevent planned demonstrations over the Islamic Republic's nuclear program during Rouhani's visit. The request, last raised on Tuesday morning, was rejected by Austria, it said without saying from where it got the information... Austria's Interior Ministry had 'no concrete signs of a security threat' and the preparation for Rouhani's visit had been 'completely ordinary and routine,' spokesman Karl-Heinz Grundboeck told the Austrian Press Agency... The postponement caught Iranian media by surprise as most had prepared special sections detailing trade links between the two nations." http://t.uani.com/1UUoVTF

WSJ: "As the U.S. encourages aircraft companies to seek licenses for exports to Iran, those companies face potential diversions of their product to the military and engagement with companies still under sanctions, exposing themselves to significant compliance risks, experts say. Those risks, in the months since the Iran nuclear deal was implemented in January, have already come into stark relief: U.S. agencies have denied export privileges in one case, and imposed new sanctions designations in another. The U.S. Department of Treasury's Office of Foreign Assets Control issued a 'statement of licensing policy' in January for the sale of civilian aircraft, and spare parts, allowed under the deal. The statement authorizes companies to seek a specific license for the sales, so long as they're exclusively for civilian use. It 'establishes a favorable licensing policy' for such sales, the statement said. And last week, OFAC issued a general license authorizing transactions that allow for the negotiation of, and entry into, 'contingent contracts' for activity allowed under the statement of licensing policy. Treasury said the general license 'will allow for more efficient processing' of the specific licenses companies may seek. Experts told Risk & Compliance Journal, though, that companies doing business in the aviation sector need to do extensive due diligence on their customers, and they need to ensure their exports don't end up in the wrong hands. Zachary Brez, a partner at law firm Ropes & Gray, said the exemption to the continued broad U.S. embargo on Iran for civil aviation sales 'has a humanitarian bent,' because of the risk to passengers from the poor state of Iranian air safety. However, he noted, aircraft parts are interchangeable between war planes and civilian planes, and that can pose problems for exporters because military use would breach sanctions. 'A plane is a plane,' said Mr. Brez. As a result, 'U.S. companies are going to be careful' before they sign deals with Iranian airlines, he said. The risks of failing to comply with the aviation-specific rules were already apparent by the end of January: The U.S. Department of Commerce's Bureau of Industry and Security issued a temporary denial order against three people and two entities for attempting to sell aircraft to Caspian Airlines, which remains under U.S. sanctions. And last week, the U.S. imposed sanctions on a group of U.K.-based businessmen and companies for allegedly helping Mahan Air acquire aircraft engines and other mechanical parts." http://t.uani.com/1RKw6am

Sanctions Enforcement

WSJ: "The monitor overseeing HSBC's compliance with a landmark anti-money-laundering settlement has uncovered a range of potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, and the opening of an account by a man in Mexico who had thousands of dollars of cash in a bag, according to a person familiar with the monitor's findings. In 2012, HSBC Holdings PLC agreed to pay a then-record $1.9 billion to the U.S. Justice Department to settle allegations it failed to spot the laundered proceeds of drug trafficking in Mexico and failed to flag transactions with countries subject to economic sanctions, such as Iran. The monitor's findings, which date from 2015, suggest that despite three years of efforts to bring compliance systems up to U.S. standards, HSBC still is struggling to meet the terms of the deal... The monitor's investigators also found an HSBC client exporting Levi's miniskirts from Brazil to Iran, a country that was under full U.S. sanctions at the time, not to mention banning such clothing in public. While the exports were a fraction of the bank customer's business, HSBC should have flagged this trade for additional scrutiny but didn't, the inspectors believed." http://t.uani.com/1UC704C

Sanctions Relief

Reuters: "Iran is expected to add half a million barrels of oil supply a day within a year from its existing oilfields after the lifting of sanctions against Tehran in January, but developing new fields would take time, the head of the International Energy Agency said on Wednesday. Iran, previously OPEC's second-largest exporter, would need to prove that the investment conditions were profitable to the international investors and also that there was predictability in the markets, Fatih Birol, IEA's executive director told Reuters. Birol's estimate of Iran's supply increase from existing oilfields was in line with previous market estimates. And increases in Iranian gas supplies would come after oil, he said. 'It was misleading to believe that there would be a huge amount of new Iranian crude and natural gas production entering market in the short term,' Birol said on the sidelines of an event in Beijing to mark the 20th anniversary of cooperation between China and IEA. 'It would take some time in terms of developing new oil fields, finding transmission routes and having the necessary market conditions.'" http://t.uani.com/22OnM54

Reuters: "Iran's Ministry of Finance has issued 5 trillion rials ($145 million at the free market exchange rate) of lease-based Islamic bonds, expanding the range of the government's funding tools and providing a much-needed pricing benchmark for corporate issuers. The deal is the first time that Iran's government has issued sukuk using an ijara format, selling them through the country's over-the-counter securities market, known as Fara Bourse. The four-year sukuk were listed on March 16 and pay a nominal rate of 18 percent, according to Fara Bourse data. The proceeds will be used to settle debts owed by the government to Ayandesaz Pension Fund and Mahan Air, according to Novin Investment Bank, which arranged the transaction. The government would usually issue sukuk based on its own assets, but in this case the transaction was based on the creditors' assets, Fatemeh Khanahmadi, computational finance and risk manager at Novin Investment Bank, told Reuters. 'The creditors accepted it as the government is still guarantor to pay the principal and the interest to investors.' While officials have said foreigners are permitted to buy Iranian bonds, foreign portfolio investment in Iran is still very small, so all or almost all of this month's sukuk issue is likely to be held by domestic investors. In the wake of the lifting of economic sanctions against Iran in January, authorities are rolling out a series of initiatives to develop the country's capital markets and reduce local firms' reliance on loans from a debt-laden banking sector. The government has announced plans to issue 60 trillion rials worth of Islamic Treasury bills this year, after a maiden sale in September." http://t.uani.com/1V4HD9P

Opinion & Analysis

David Ignatius in WashPost: "Economic sanctions have become the 'silver bullet' of American foreign policy over the past decade, because they're cheaper and more effective in compelling adversaries than traditional military power. But Treasury Secretary Jack Lew warns of a 'risk of overuse' that could neuter the sanctions weapon and harm America. Lew made his unusual case against 'sanctions overreach' in an interview last week and in a speech prepared for the Carnegie Endowment for International Peace. His caution against overuse comes as some Republican members of Congress are fighting to maintain U.S. sanctions on the Iranian nuclear program, despite last year's deal limiting that Iranian threat... Lew notes that U.S. sanctions against Iran's nuclear program showed how effective this weapon can be when it's carefully fashioned as part of a broad coalition. America's program of so-called 'secondary' sanctions didn't just ban U.S. companies from doing business with Iran; they banned any company operating in Iran from using U.S. banks or other financial institutions. That made Iran a no-go zone for most Western companies. Contrast the success of this coordinated effort in bringing Iran to the table with five decades of unilateral U.S. sanctions against the Castro regime in Cuba, which Lew rightly notes were 'ineffective,' to put it mildly. Lew's larger point is that sanctions won't work if countries don't get the reward they were promised - in the removal of sanctions - once they accede to U.S. demands. 'Since the goal of sanctions is to pressure bad actors to change their policy, we must be prepared to provide relief from sanctions when we succeed. If we fail to follow through, we undermine our own credibility and damage our ability to use sanctions to drive policy change,' Lew explains in his speech. Congressional opponents of the nuclear deal with Iran want to keep the U.S. financial system off-limits. This case against 'Dollarizing the Ayatollahs' was made by Mark Dubowitz and Jonathan Schanzer in a piece with that headline in the Wall Street Journal on Monday. Lew counters such arguments in his speech: 'By following through on our commitment to provide sanctions relief, we sustain the powerful incentive for other malign actors to change their behavior.'" http://t.uani.com/1PFs8OZ

Thomas Friedman in NYT: "ISIS is a rocket whose guidance system is a direct descendant of the puritanical, anti-Shiite, anti-pluralistic Saudi Wahhabi ideology, and its fuel system is a direct reaction to Shiite Iran's aggressive push to keep Iraqi Sunnis permanently weak. As long as Iran and Saudi Arabia are going at it, there will always be another ISIS. Which is why the 'peace process' the Middle East needs most today is between Saudi Arabia and Iran." http://t.uani.com/1MB96i3

President of Yemen Abdu Rabbu Mansour Hadi in NYT: "In addition, it must be made clear to Iran, which seeks to expand its sphere of control through its Houthi proxies, that Yemen will not yield a single inch of territory to outside forces." http://t.uani.com/1pKk4rc