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As standoff with Iran continues, U.S. prepares targeted sanctions

By Glenn Kessler
Washington Post Staff Writer
Wednesday, December 30, 2009; A01

The Obama administration is readying sanctions against discrete elements of the Iranian government, including those involved in the deadly crackdown on Iranian protesters, marking a shift to a more aggressive U.S. posture toward the Islamic republic, U.S. officials said.

Ten months after President Obama set a year-end deadline for Iran to engage with world powers on its nuclear program, the government in Tehran has failed to respond in kind, other than an abortive gesture in the fall.

Now, in what may be a difficult balancing act, officials say the administration wants to carefully target sanctions to avoid alienating the Iranian public -- while keeping the door ajar to a resolution of the struggle over Iran's nuclear program. The aim of any sanctions is to force the Tehran government to the negotiating table, rather than to punish it for either its apparent push to develop a nuclear weapon or its treatment of its people.

"We have never been attracted to the idea of trying to get the whole world to cordon off their economy," said a senior U.S. official, speaking on the condition of anonymity because of the sensitivity of the issue. "We have to be deft at this, because it matters how the Iranian people interpret their isolation -- whether they fault the regime or are fooled into thinking we are to blame."

As a result, top officials show little apparent interest in legislation racing through Congress that would punish companies that sell refined petroleum to Iran. "Sanctions would not be an alternative to engagement," another senior official said. "Our intention is to keep the door open."

Even before the unveiling of new sanctions, the administration has taken a dramatically harsher tone on Iran, in part because of the crackdown on anti-government demonstrators. After Iranian security forces shot at protesters in the streets over the weekend, Obama interrupted his Hawaiian vacation to strongly condemn the official reaction in Tehran.

Throughout the year, Obama had reached out directly to the Iranian leadership, through video messages and two personal letters to Iran's supreme leader, Ayatollah Ali Khamenei, in an effort to break through the antagonism and distrust that had built up since the 1979 seizure of the U.S. Embassy. When the protests over a disputed presidential election began in June, Obama's initial response was muted to keep the prospects for engagement open.

A likely target

Sanctions would probably be imposed in three ways -- at the U.N. Security Council, with like-minded countries and unilaterally -- and U.S. officials would pursue them more or less simultaneously, with initial emphasis on pressing forward at the United Nations in February. France, an advocate of firmer pressure on Iran, will hold the rotating chairmanship of the Security Council that month.

During the George W. Bush administration, the Security Council thrice imposed relatively mild sanctions on Iran for its failure to heed calls to halt uranium enrichment. Those efforts also largely targeted elite parts of the government, but concern about not harming ordinary Iranians has been heightened by the rise of a nascent opposition movement, diplomats said.

The precise contours of the administration's sanctions policy are still being decided, but high on the list of targets is the Iranian Revolutionary Guard Corps, the arm of the military that has been centrally involved in the attacks on demonstrators and that is playing an increasingly bigger role in Iran's economy. In 2007, the Bush administration cited the Revolutionary Guard and a group of front companies for their links to terrorism and proliferation -- including a major contractor known as Khatam al-Anbiya that channeled billions of dollars a year to the Guard from its activities in oil, construction, transportation and other industries.

The increasingly central role of the Revolutionary Guard in both the economy and the protests, officials said, makes it a target of possible resentment among the Iranian public -- and for tough U.S. sanctions. But officials insist that sanctions would not be linked to the protests. "It is only coincidental that at the same time we reached the deadline, the Iranian government has a bloody crackdown," said a third U.S. official. "It has only served to highlight the nature of the regime."

After Defense Secretary Robert M. Gates, the highest-ranking Republican retained by Obama is Treasury Undersecretary Stuart A. Levey, who spearheaded Bush's targeting of the Guard and nine of its front companies. Now Levey and his team have identified additional front companies, all of which could be targets for action.

In the past year, as the president has publicly pursued engagement, Levey has quietly gathered ammunition for a financial assault on Iran. At one point, he assembled in his office representatives of countries that might join the United States in such actions, including European powers, Japan, Australia and the United Arab Emirates.

Levey has also won the imposition of fines on major international banks, such as $536 million on Credit Suisse this month, for helping Iran evade U.S. sanctions. American officials hope that his track record will make companies think twice about doing business with Iran. "When you put all of this together it creates a risk profile, so that not just banks but other parts of the private sector see that the trend is all going in the same direction," one official said. "That whole dynamic increases the possibility that we could successfully apply significant and effective pressure on Iran."

A complicating factor

Ironically, the protests may also have doomed efforts to begin negotiations on the nuclear issue. Iranian negotiators, meeting with diplomats from the United States and other powers in Geneva on Oct. 1, had tentatively agreed to a deal to swap much of its enriched uranium for fuel for a medical research reactor used to treat diseases. But then Iranian leaders split over the deal, especially after opposition leaders questioned it.

Iranian officials, even if they wanted to engage, have been hamstrung because of the protests, Iranian analysts said. "It is the internal crisis that really worries our leaders. They can't speak with one voice in the international community at this point," said Mashallah Shamsolvaezin during a phone interview conducted before he was arrested Tuesday in Tehran for unknown reasons. He said there will be no compromise with the West as long as Iran's internal political crisis continues.

Administration officials have not given up hope that the deal can be revived -- they are encouraging Turkish efforts to bridge the gap -- but they say the apparent turmoil it generated within the Iranian leadership is a useful side benefit of engagement. The effort to engage "has had an unsettling effect on people in the regime," one official said. "It has made it more difficult to demonize the United States and say it has been the root of all evil."

U.S. officials say engagement also has paid dividends in recruiting international support for sanctions. China appears to be the biggest roadblock to robust U.N. sanctions, despite a personal plea by Obama to Chinese President Hu Jintao to consider the effect on stability in the Persian Gulf -- from where China gets much of its oil -- if Israel tried to destroy Iran's nuclear facilities.

"The Chinese are going to be very complicated on this issue," one official said. "They have a direct stake in the stability of the Persian Gulf, and we have tried to underscore the risks of instability. So far, they understand the argument but don't have the sense of urgency that other countries have."

Correspondent Thomas Erdbrink in Tehran contributed to this report.

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