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Trump admin divided over how far to squeeze Iranian regime

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Image: The Persian Gulf Star Co. gas refinery in Bandar, Iran, on Jan. 9, 2
The Persian Gulf Star Co. gas refinery in Bandar, Iran, on Jan. 9, 2019. -
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Ali Mohammadi Bloomberg via Getty Images file
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The Trump administration is divided over how far to pressure Iran with its sanctions campaign, as it weighs options that could bolster imports of medicine to Iran and permit some foreign governments to keep buying Iranian oil, according to former officials, congressional aides and sources close to the White House.

Republican hard-liners in Congress, including Sens. Tom Cotton and Ted Cruz, are pushing the White House to make good on President Donald Trump's vows to place "maximum pressure" on Iran's economy. But so far, the administration has held back from some drastic measures, with officials anxious to avoid triggering a spike in oil and gasoline prices, upsetting delicate trade talks with China or further alienating allies.

Trump reimposed economic sanctions on Tehran last year after pulling the United States out of the nuclear agreement between Iran and world powers, including a ban on Iranian oil imports. But the administration issued exceptions for eight countries, allowing them to keep purchasing a limited amount of Iranian crude oil.

The administration also issued waivers allowing Iran to receive international assistance to convert nuclear sites to purely civilian uses. The oil waivers, and those for civilian nuclear cooperation, expire in May. The president will have to decide soon whether to renew the waivers, revise them or scrap them altogether, and officials are arguing about what should be done.

Officials in the administration are also debating a proposal from Switzerland to set up a humanitarian payment channel that would encourage Swiss banks to handle sales of medicine, medical devices and other items to Iran without fear of violating U.S. sanctions.

The sanctions imposed by the United States already allow for transactions in humanitarian-related goods. But the sweeping measures — and the Trump administration's sharp warnings to European companies with ties to the Iran market — have had a chilling effect, spooking most foreign banks from handling any transaction with Iran, even ones allowed under U.S. law, former officials and regional specialists said.

As a result, Swiss officials have proposed to the Treasury Department to revive a model used by the Obama administration before the 2015 nuclear deal was clinched. This would involve Swiss banks handling transactions between Swiss or European firms selling medicine, food and other humanitarian-related goods to Iranian companies.

Swiss officials are looking for an additional level of assurance from the Treasury Department, removing any concerns for the Swiss banks handling payments for European firms exporting humanitarian goods to Iran, said Ellie Geranmayeh, a senior policy fellow in London at the European Council on Foreign Relations think tank.

"This channel is basically meant to be as bullet proof of a direct banking system as you can get," Geranmayeh said.

It remains unclear if the administration is ready to give the Swiss plan its blessing. The Treasury Department declined to comment. The Swiss Embassy also declined comment.

Iranian leaders have blamed U.S. sanctions for a sharp rise in prices for medicine and a shortage of some drugs, and accused Washington of targeting the country's health sector.

The Trump administration has dismissed the accusations, saying the regime has mismanaged its economy and has plenty of money to buy medicine.

Citing U.S. laws that allow the sale of food and medicine to Iran, a State Department official, speaking on condition of anonymity, said: "We understand the importance of this activity since it helps the Iranian people. It has never been, nor is it now, U.S. policy to target this trade."

The Swiss humanitarian payment arrangement could "counter the propaganda from the regime that America is to blame for difficulties in buying humanitarian goods inside Iran," said Mark Dubowitz of the Foundation for the Defense of Democracies, a think tank that supports severe sanctions on Iran.

Critics of the administration say it should have planned to ensure humanitarian trade would not be affected indirectly by the sanctions, instead of waiting until it became an issue.

"What's disturbing in this situation is the administration has reimposed sanctions, and is pursuing sanctions aggressively, yet they don't seem to have given much thought to finding avenues to ensure our sanctions don't cut off needed humanitarian supplies to Tehran," said a Democratic congressional aide, who was not authorized to speak on the record.

The Treasury Department declined to comment. The Swiss Embassy also declined comment.

While administration officials have yet to offer a public endorsement of the Swiss proposal, the administration quietly announced on Tuesday an extension of a 90-day waiver to Iraq to allow the government to buy electricity from neighboring Iran. The move caught members of Congress by surprise, and prompted frustration among Republican hard-liners, who argue the administration needs to take a tougher line in enforcing sanctions.

"You've got State trying to extend waivers. You've got Treasury brainstorming how to move money into Iran," said a Republican congressional staffer, who was not authorized to speak on the record. "It's like those people are running a full blown resistance campaign to undermine the president's Iran policy."

The divisions in the administration tend to pit Treasury and State Department officials against the White House National Security Council staff, which supports a harder line, former officials, congressional staffers and sources close to the White House said.

Treasury Secretary Steven Mnuchin last year rebuffed calls from hard-liners inside and outside the administration to cut Iran entirely out of the international bank messaging system known as SWIFT, heeding an appeal from European governments. The move angered some officials and members of Congress, as NBC News previously reported.

Now the administration is weeks away from a decision on whether to extend exceptions for countries buying Iranian crude, and the administration has sent out mixed signals. Officials say U.S. policy is to reduce Iran's oil exports to zero, but they also have refused to rule out renewing some or all of the waivers.

National Security Adviser John Bolton has consistently argued for a no-holds-barred approach to economic pressure on Iran, and will almost certainly oppose major exemptions for oil sanctions or renewing waivers allowing Tehran to receive international assistance for its civilian nuclear work, said Dubowitz of the Foundation for the Defense of Democracies.

"I can't imagine John Bolton being happy about any of this," he said.

Asked about disagreement inside the administration over sanctions on Iran, a State Department official told NBC News: "Any decisions related to sanctions exemptions are at the discretion of the Secretary of State."

Oil sanctions have put the White House in a bind, as the president does not want to see oil prices - and domestic gas prices -- rise. But Trump also has made the sanctions campaign against Iran a top political priority.

The oil market was taken by surprise in November when Washington issued waivers to Iran's top oil customers: China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey. Oil prices dropped as a result, as producers had anticipated a total ban on Iranian oil.

The 180-day waivers were meant to be a temporary step to help countries wean themselves off Iranian oil and avoid pushing up oil prices.

While some officials have indicatedthat removing Iranian oil from the global market would not have a major effect on oil prices, senior State Department official overseeing Iran policy, Brian Hook, struck a more cautious tone.

The president "has made it very clear that we need to have a campaign of maximum economic pressure ... but he also doesn't want to shock oil markets, he wants to ensure a well-supplied and stable oil market," Hook said at an industry conference in Houston last week.

Sanctions so far have roughly halved Iran's oil exports to about 1.25 million barrels of oil a day.

Advocates of a harder line are sending a clear message to the White House about what they want to see. "The Iranian regime uses its petrodollars to fund terrorism and sow chaos throughout the region. Going forward, the proper amount of oil exports from Iran is zero," Republican Sen. Cotton of Arkansas said in a tweet on Monday.