White House Reaction To Latest Iranian Missile Test Signals a Major U.S. Policy Shift

On January 30, 2017, Iran test-launched a Khorramshahr medium-range ballistic missile, compounding concern among White House officials and U.S. allies regarding Tehran’s “destabilizing behavior across the Middle East.”  An emergency session of the U.N. Security Council was convened the same day to confirm this latest Iranian provocation.  The ballistic missile launch (the twelfth since the inception of the nuclear deal in 2015), combined with an attack on a Saudi naval vessel in Yemen by Iranian-backed Houthi rebels, prompted National Security Advisor, Michael Flynn to issue a stern warning on Wednesday, February 1, 2017, that put Iran “on notice.”

Although the statement does not set forth a clear and precise “red line” for Iran, it is indicative of a marked shift in White House policy toward Tehran that reflects President Trump’s consistent hardline approach toward Iran during his presidential campaign. If Tehran persists in this behavior, or other regional provocations, it could result in the restoration of more serious economic and financial sanctions or even limited military action by the U.S.  In this connection, it is worth noting that Flynn’s declaration was made amidst an ongoing three-day multilateral military exercise by 18 American, French, British, and Australian warships in the Persian Gulf.

An alignment between the White House and Congressional Republicans is likely in the sanctions space.  Lawmakers will likely deter President Trump from completely dismantling the JCPOA, but will assist in applying increased pressure through economic and financial means.  Sen. Marco Rubio, for example, reintroduced the Iran Non-Nuclear Sanctions Act on January 24, which would place significant pressure on Iran’s economy (although its prospects are still unclear).

Some key measures include:

  • the issuance of a Department of Treasury watch list for entities in which IRGC has an ownership of over 25%;
  • sanctions on the IRGC and Mahan Air – an Iranian airline that has aided and abetted the IRGC;
  • expansion of current sanctions against egregious human rights abuses;
  • authority to impose sanctions on persons who knowingly aid Iran’s missile program;
  • new sanctions on entities owned or operated (greater than 25%) by Aerospace Industries Organization, the Shahid Hemmat Industrial Group and Shahid Bakeri Industrial Group (i.e., companies with known links to  Iran’s missile program);
  • requiring presidential certification that persons listed in UN Security Council Resolutions are not engaged in activities in relation to ballistic missiles, calling for the imposition of sanctions if that certification cannot be made;
  • imposing sanctions on sectors of Iran’s economy that directly and indirectly support the ballistic missile program; and
  • codifying current prohibitions on Iran’s direct and indirect access to the US financial system.

Under the Obama Administration, the Department of Treasury’s Office of Foreign Assets Control advised the private sector that, in the event of “snapback sanctions,” foreign companies would basically be given the benefit of the doubt (and specific grace periods) in their efforts to adjust their operations to remain compliant with changing U.S. law.  There is concern, however, that the Trump Administration will not offer similar leniency to foreign firms operating in Iran.

In addition to legislative sanctions, the White House could choose to impose further measures, such as barring foreign banks from engaging in dollar-denominated transactions with Iran, encouraging greater diligence in the commercial space (e.g., in terms of identifying IRGC-affiliated entities)and building up the defense capabilities of regional allies, such as Israel (e.g., additional U.S. funding for the Arrow III) and Saudi Arabia (e.g., the THAAD missile-defense system).  Prime Minister Netanyahu is scheduled to visit the White House on February 15 to discuss sanctions policy on Iran as well as bolstered military safeguards.