Trump Announces Sanctions on Iran Central Bank for Saudi Attack

(Bloomberg) -- The U.S. slapped terror-related sanctions on Iran’s central bank and sovereign wealth fund on Friday in retaliation for last weekend’s attack on Saudi Arabia, moves aimed at squelching any remaining trade the country conducts with Europe and Asia.

“These are the highest sanctions ever imposed,” President Donald Trump told reporters during a meeting with Australian Prime Minister Scott Morrison at the White House. “We’ve never done it at this level.”

Friday’s action sanctions the central bank under a George W. Bush-era executive order designed to disrupt terrorist groups’ financial networks, over what the administration says is the bank’s support for the Islamic Revolutionary Guard Corps. It’s a controversial step, as sanctioning the central bank may also limit the ability to import humanitarian goods into the country.

Proponents such as Mark Dubowitz of the Foundation for Defense of Democracies argue that by linking the central bank to terrorism, the move will scare away remaining market participants and subject companies to potentially devastating secondary sanctions. It may also create a chilling effect even if a Democrat beats Trump in 2020 and seeks to re-enter the Iran nuclear deal that Trump walked away from in 2018.

“It creates a wall of market deterrence,” Dubowitz said in an interview. “When you set aside the technical gobbledygook, what’s left is that if you do business with Iran, you are supporting terrorism.”

The Treasury Department issued a statement saying Iran’s sovereign wealth fund, the National Development Fund of Iran, was also a major source of foreign currency and funding for the IRGC. The move is aimed partly at tying up any NDF money kept in overseas bank accounts.

Trump said he’ll meet Friday with his national security advisers to discuss further responses to the attack on the Saudi oil facilities, which the U.S. has blamed on Iran. He’s under pressure from hawks among congressional Republicans to order a military attack on the Islamic Republic but has resisted, and has drawn comparisons to the Iraq War that he says he opposed.

Trump said a U.S. attack would be the “easiest thing,” adding, “and maybe it’s even a natural instinct.” But he said that he was showing U.S. strength by not immediately ordering a strike. He could take out 15 different targets in Iran if he wanted to, Trump said.

“I could do it right here, in front of you, and that would be it,” he said. “It shows far more strength to do it the way we’re doing it. I think restraint is a good thing.”

More than 80% of Iran’s economy is under U.S. sanctions already, the Trump administration has said, and the U.S. is looking to target sectors that continue to function, such as trade in manufactured goods and transportation equipment. The U.S. is already sanctioning significant sectors including oil, banks and steel, leaving smaller targets including certain exports and government officials.

The U.S. has previously targeted the country’s central bank, sanctioning one of its governors and another senior official in May 2018 for allegedly providing support for terrorist activity. Tensions have steadily risen between the U.S. and Iran since 2018, when Trump abandoned the 2015 accord negotiated by President Barack Obama to curb Tehran’s nuclear weapons program and began re-imposing sanctions relaxed under the deal.

Friday’s action may also complicate plans by European nations to launch a mechanism known as Instex that would serve as a financial go-between for humanitarian trade with Iran. Iran’s counterpart to Instex, the Special Trade and Finance Institute, is closely linked to the Iranian central bank.

The Trump administration argues that there are already carve-outs for humanitarian trade with Iran and Instex isn’t needed. Critics say the new rules will only make that trade more difficult, and regular Iranians will suffer.

“The end result of this shift in policy -- whether out of criminal negligence or willful vindictiveness -- is likely to be pain for the Iranian people in the form of more medicine shortages for drugs produced in the West and sharply rising prices for food,” Ryan Costello, the policy director at the National Iranian American Council, said in a statement.

To contact the reporters on this story: Saleha Mohsin in Washington at smohsin2@bloomberg.net;Josh Wingrove in Washington at jwingrove4@bloomberg.net;Nick Wadhams in Washington at nwadhams@bloomberg.net

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Joshua Gallu

©2019 Bloomberg L.P.