C-CAT Proposal for Energy Sanctions Against Iran
Table of Contents
1. Iran in Words and Intent – Quote Unquote
2. A Nuclear Iran – The Crossroads
3. A Nuclear Iran – The Threat
4. A Nuclear Iran – Immediate Implications
5. Proposed Sanctions – Petroleum
6. The U.S. Response
7. Canada’s Role
(i) Principle and Consistency
(ii) Substance vs. Symbolism
(iii) Leadership and Sovereignty
(iv) Hezbollah in Canada
8. Legal Pathway for Canadian Sanctions Against Iran
A. The Special Economic Measures Act (“SEMA”)
B. Scope of an Applicable Order under SEMA
C. The Challenge of Applying SEMA
9. Recommendations for Using SEMA
A. Impose sanctions against Iran by way of regulations under SEMA
B. Introduce legislation to prohibit companies supplying gas to Iran from doing business in Canada
C. The Challenge of Applying SEMA
10. Companies Potentially Affected by the Proposed Measures
A. The IRGC as a Political Force
B. The IRGC as an Economic Force
C. The IRGC as a Target for Sanctions
The Proposal
____
1. Iran in Words and Intent – Quote Unquote
Prime Minster Stephen Harper:
“I’ve been very outspoken for some time, warning not just Canadians, but our allies, that Iran was on this course, that they were determined to pursue it no matter what. And we believed and continue to believe that they’re not being truthful about all of their activities… And of course, the events of the last few days just underline those facts, and underline the grave threat that the government in Tehran does pose to international peace and security.” [1] (September 28, 2009)
Former Prime Minister Paul Martin:
“…This call for genocide coupled with Iran’s obvious nuclear ambitions is a matter that the world cannot ignore. And Iran must know, in no uncertain terms, that the free nations of the world will not tolerate its intransigence.” [2]
Iran’s Supreme Leader Ayatollah Ali Khameini:
Khameini explained to Former Spanish Prime Minister Jose Aznar “why Iran must declare war on Israel and the United States until they are completely destroyed.” [3]
“A nuclear arsenal would serve Iran as a deterrent in the hands of God’s soldiers.” [4]
Former Iranian President Ayatollah Ali Akbar Hashemi Rafsanjani:
“…The use of even one nuclear bomb inside Israel will destroy everything. However, it will only harm the Islamic world. It is not irrational to contemplate such an eventuality.” [5]
“We should fully equip ourselves in the defensive and offensive use of chemical, bacteriological, and radiological weapons.” [6]
Abdollah Ramezanzadeh, Spokesman for Former President Katami:
“We should prove to the entire world that we want power plants for electricity. Afterwards, we can proceed with other activities… We had an overt policy, which was one of negotiation and confidence building, and a covert policy, which was continuation of the activities.” [7]
Hossein Shariatmadari:
(the Supreme Leader‘s representative in the Kayhan Institute and Chief Editor of the Kayhan Daily)
“A country that has attained the knowledge and technology of uranium enrichment is only one step away from producing nuclear weapons. This [additional] step is not a scientific or a technical step, but a matter of political decision.” [8]
2. A Nuclear Iran – The Crossroads
Iran is one of the international community’s greatest concerns as a potential nuclear threat. Generous offers and incentives aimed at curbing Iran’s nuclear ambitions have met with failure, and the international community has reached a crossroads. While estimates vary, there is broad consensus that Iran’s attainment of nuclear weapons and delivery capability is imminent [9] and international alarm is growing over this prospect.
This memo briefly outlines the parameters of the Iranian nuclear threat and presents the rationale for Canada pursuing further sanctions against Iran. C-CAT recommends that Canada:
1. impose sanctions by way of regulations under the Special Economic Measures Act (“SEMA”), prohibiting any entity in Canada from providing or helping Iran obtain (i) refined petroleum or gas, or (ii) dual use technologies;
2. introduce legislation either amending SEMA to close a gap which might permit companies operating in Canada to supply gas to Iran through related entities, or introducing standalone legislation targeting Iran’s energy sector; and
3. list the Iranian Revolutionary Guard Corp (IRGC) as a terrorist entity under the Criminal Code.
3. A Nuclear Iran – The Threat
Policy initiatives to address Iranian nuclear ambitions must give careful consideration to the depth and pervasiveness of the religious and political convictions of Iran’s ruling elites. The Islamic Republic of Iran is an ideologically based regime [10] committed to pursuing the principles and goals of the Islamic Revolution as articulated by Iran’s Supreme Leader Ayatollah Khomeini, who perceived Iran as a nation with a mission – “to export our revolution to the whole world”[11] and “to establish an Islamic state worldwide.”[12] The regime’s foreign policy initiatives stem from deeply held beliefs of a conspiratorial West seeking Iran’s demise and the conviction that Iran is the true and rightful heir to the leadership of the entire Muslim Ummah. [13]
The theological and revolutionary zeal of Iran’s clerical elite has now taken an even more extreme turn with the ascendance of President Mahmoud Ahmadinejad.[14] Mr. Ahmadinejad and his supporters subscribe to an apocalyptic theology in which facilitating a clash of civilizations between the Islamic world and the West would hasten the messianic revelation required for establishing Islam’s ultimate dominion on Earth. The apocalyptic expectation that the Imam will manifest himself in the context of major inter-religious conflict is a critical factor that potentially distorts any normal strategic calculus.[15]
4. A Nuclear Iran – Immediate Implications
Iran’s ruling elites are uniformly Islamist and violently anti-Western. They have used terror and subversion as tools to destabilize other countries; they have publicly offered to share nuclear technology with those “who are determined to confront the bullying powers and aggressors” [16]they co-sponsored the Syrian nuclear program  [17] and they have threatened to wipe other countries off the map. Accordingly, the possibility of a nuclear confrontation instigated by Iran or by one of its terrorist proxies is a plausible prospect if Iran achieves nuclear weaponization.
Iran’s nuclear project has already raised tensions in an unstable Middle East. The fear of an Iranian nuclear arsenal has already resulted in at least twelve Arab states in the last two-and-a-half years announcing plans to pursue nuclear technology, leading to the possibility of the collapse of the already tottering nuclear non-proliferation treaty regime [18] and other catastrophic confrontations in the region. Furthermore, even if Iran were to never use its nuclear arms technology, the mere possibility of an Iranian nuclear break-out capacity will bolster the confidence and enhance the aggression of an already belligerent Iran. This in turn will supply the Islamic Republic with a “de facto nuclear deterrent,” making it even more immune to conventional deterrence. [19]
5. Proposed Sanctions – Petroleum
Despite sitting on some of the largest oil reserves in the world, Iran has been forced to import about 30-40% of its refined petroleum [20]—gasoline and diesel—because of a lack of investment in its oil refining infrastructure. Iran does not have the trained personnel to add refining capacity on its own and is dependent on foreign investment and technical assistance to construct new refineries. Gasoline is mainly supplied by a handful of companies including Swiss-Dutch energy trading giants Vitol and Trafigura, Swiss trader Glencore, the French energy firm Total S.A, Royal Dutch Shell, and the Indian multinational Reliance Industries.[21] Chinese companies also reportedly have begun supplying gasoline to Iran.[22]
Given the disrepair of Iran’s economy, a comprehensive gas embargo would likely materially affect Iran’s supply of refined gas and other petroleum imports, thus imposing pressure on the state to accede to international norms. Washington and Ottawa should therefore give companies a choice between providing gasoline to Iran’s relatively small domestic market or gaining access to a much larger and more lucrative North American market. Companies should not be able to provide services to Iran with impunity while simultaneously benefiting from the North American market as well. Sanctions should be imposed on any entity – including suppliers, shippers and insurers – that provides, or helps Iran obtain, refined petroleum.
As a BBC report noted, having to ration fuel is “dangerous” for the government of “an oil-rich country like Iran, where people think cheap fuel is their birthright and public transport is very limited.”[23] Almost every time Iran has faced a gasoline shortage, there has been unrest and violence.[24] A serious disruption of the Iranian economy will also act as a targeted sanction against the Iranian Revolutionary Guard Corps (IRGC). The IRGC is the nation’s most powerful economic, social and political institution. It is the prime mover in exporting Iranian terror and has emerged as a driving force behind efforts to crush a still-defiant opposition movement.
The Wall Street Journal recently reported that even now, the threat of sanctions has had an impact:
Some big oil traders have already quietly scaled back or are preparing to halt fuel shipments to Iran amid uncertainty over whether the U.S. and Western powers will impose sanctions against the Islamic Republic for its nuclear program. European oil giant BP PLC, which has extensive trading operations, stopped shipments of gasoline and other oil products to Iran at least six months ago. According to a person familiar with the matter, the “overall environment,” including the West’s standoff with Iran over its nuclear program, had been behind the halt to shipments. An official at Total SA said the French oil major would stop gasoline shipments to Iran if the U.S. and other European nations were to approve measures calling for a halt on fuel exports to Iran. “If we get to that point and measures were put into law in the U.S. and Europe not to trade refined [oil] products to Iran, then we will follow the law,” the Total official said.[25]
6. The U.S. Response
On April 28, 2009, Senators Joseph Lieberman (I-Connecticut), Evan Bayh (D-Indiana) and Jon Kyl (R-Arizona) led a bipartisan coalition of 25 U.S. Senators that formally introduced the Iran Refined Petroleum Sanctions Act (IRPSA), which “explicitly empowers the president to impose new economic sanctions on foreign firms involved in the export of gasoline and other refined petroleum products to the Islamic Republic of Iran.”[26] The legislation was also introduced in the U.S. House of Representatives by Congressman Howard Berman (D-California), Chairman of the House Committee on Foreign Affairs, and the Committee’s ranking Republican, Congresswoman Ileana Ros-Lehtinen (R-Florida).[27] The legislation has extensive bipartisan support from three-quarters of both the U.S. House of Representatives and Senate.
In addition, the Senate and the House passed an amendment “that bans companies that sell gasoline and other refined oil products to Iran from receiving Energy Department contracts to deliver crude oil to the U.S. Strategic Petroleum Reserve.”[28] The House also passed the State-Foreign Operations Appropriations Act containing language proposed by Congressmen Brad Sherman (D-California) and Mark Kirk (R-Illinois) to “forbid the provision of U.S. government export support to companies involved in the refined petroleum trade with Iran.”[29]
7. Canada’s Role
The international community must intercede immediately. It will be far more difficult to force a belligerent Iran to publicly rescind a decision of its Supreme Leader or to forgo nuclear arms and technology it has already developed, than to do so preemptively. But the window of opportunity for implementation of a non-military option is quickly closing. C-CAT therefore proposes that Canada impose further economic sanction against Iran. This initiative should be adopted for the following reasons:
(i) Principle and Consistency – Canadian leadership on this matter is consistent with the present government’s assertive and principled foreign policy on issues like Afghanistan, China, the Middle East and terrorism. In particular, this government’s policies should reflect the strong and unequivocal position on Iran it expressed as the Official Opposition in the aftermath of the murder by Iranian authorities of Canadian Zahra Kazemi in 2003.[30]
(ii) Substance vs. Symbolism – Canada has participated in multilateral and unilateral sanctions against Iran and has taken the lead at the UN in the passage of resolutions censuring the regime’s dismal human rights record. While laudable, these measures may be considered largely symbolic as they failed to achieve their objectives, due in part to the narrow scope of the sanctions.[31] The existing multilateral sanctions against Iran already implemented by Canada and other countries have failed, being far weaker than those imposed in the past on non-global threats such as the Congo, Liberia, Cote D’Ivoire, Sierra Leone, Haiti[32], Burma, and Zimbabwe. Expanding the present sanctions regime against Iran should therefore not be perceived as a departure from existing policy but as a function of maintaining consistent standards in the formulation of sanctions-related policy, and as a method to achieve the intent of those sanctions against Iran that Canada has already implemented.[33]
(iii) Leadership and Sovereignty – Canada is a global energy superpower that is perceived by many other states as a balanced, responsible and moderate international player. As noted by Human Rights Watch, “Canada has a certain credibility that others don’t.”[34] As such, Canada’s leadership in this effort will encourage other states to consider participation in imposing further sanctions. Houchang Hassan-Yari, an expert on Iran-Canada relations at the Royal Military College in Kingston also concurs: “Canadian criticism does have an effect,” he said. “It’s a sign of moral isolation for the Iranians. If they cannot accommodate a country like Canada, it will be extremely difficult for them to have normal relations with Americans or many European countries.”[35]
The present nuclear context also provides an avenue for Canada to reaffirm its positions on the following issues, related to Canadian sovereignty and policy: the murder in Iran of Canadian photographer Zahra Kazemi, the unjust incarceration of other Canadians in Iran, and Iranian support for the Taliban in Afghanistan.[36] Any state that is knowingly aiding and abetting those who are killing Canadian soldiers must be subject to the most severe censure in Canada’s diplomatic arsenal. Canada is both justified and obligated to apply sanctions in these circumstances. To do otherwise is to be derelict in the most basic area of obligation incumbent upon any sovereign state – providing maximum protection for those sent out to fight on our behalves.
(iv) Hezbollah in Canada– Hezbollah is considered by many experts to be a greater global threat than al-Qaeda.[37] In 2008 alone Iran provided Hezbollah with more than $200 million in funding[38] and is estimated to have “invested” over $20 billion in Hezbollah companies in Lebanon.[39] As Iran’s flagship terrorist proxy, it is responsible for numerous terrorist attacks across the world and has extensive involvement in transnational crime.[40] Canada has also been targeted. Hezbollah agents have created complex criminal enterprises throughout the U.S. and Canada, raising millions of dollars and enabling the purchase of high-tech equipment for export to the group’s Lebanese headquarters. [41] Operatives caught by CSIS told interrogators about a cross-Canada Hezbollah network that had conducted surveillance on Canadians targets,[42] and alleged Hezbollah agents wanted for terrorist activities overseas were found hiding out in Edmonton and Ottawa. In 1997, CSIS warned that Hezbollah had established an infrastructure in Canada “that can assist and support terrorists seeking a safe haven in North America.”[43]
8. Legal Pathway for Canadian Sanctions Against Iran
A. The Special Economic Measures Act (“SEMA”)
Canada can impose further sanctions on Iran without introducing legislation by utilizing the Special Economic Measures Act (SEMA). SEMA allows for orders and regulations amounting to economic sanctions against a foreign state “where… a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis.”[44] To date, SEMA has only been directed against Zimbabwe[45] and Burma/Myanmar [46]. But unlike those two countries, Iranian actions and intransigence in the pursuit of nuclear capability clearly have significant “international” and “security” implications that have already generated “international crises” of serious consequence.
Furthermore, even independently of the nuclear issue, Iranian actions have more than met the threshold for sanctions under the SEMA provisions:
1. The human rights violations and election fraud justifying sanctions [47] against Zimbabwe and Myanmar pale in comparison to those committed by Iran over the last 30 years.[48] In fact, Canada would be justified in imposing sanctions based simply on Iran’s recently “stolen” election that was accompanied by brutality against protesters who were beaten, imprisoned and in some cases executed.
2. Iran has conducted a relentless campaign undermining other states through instigation of regional conflicts; the assassination of Iranian dissidents throughout the world;[49] the high-profile kidnapping and murder of numerous foreign diplomats and nationals; the bombing of foreign embassies and community centres; and the support of terrorist activity across the globe, including involvement with al-Qaeda. [50]
B. Scope of an Applicable Order under SEMA
SEMA regulations can apply only to “any person in Canada” engaging in prohibited conduct, such as exporting products in relation to a particular country. In the case of Iran, the restriction would constrain any company carrying on business in Canada that supplies refined gas to Iran, including companies which are domiciled or incorporated elsewhere,. In addition to prohibiting the sale of specific products, it is also possible to restrict any dealings with certain designated persons in Iran. This provision could be applied to the IRGC or individuals associated therewith.
C. The Challenge of Applying SEMA
The question arises whether SEMA’s restrictions can effectively be applied where foreign companies exporting refined gas to Iran operate in Canada through subsidiaries. The Canadian subsidiaries may not be involved in exporting gas to Iran; therefore, the scope of regulations made under SEMA may depend on whether the foreign companies are “in Canada” within the meaning of SEMA by virtue of their relationships with their Canadian subsidiaries. The position could be taken that a foreign parent company’s control over a subsidiary in Canada may bring it within the reach of SEMA regulations. Typically, the parent is in regular communication with the subsidiary, has officers attending in Canada to the Canadian business at least occasionally, and appoints nominee directors to the subsidiary’s Board. These factors may provide a basis for characterizing the parent company as “in Canada” for the purposes of SEMA, although this position would likely be challenged.
9. Recommendations for Using SEMA
A. Impose sanctions against Iran by way of regulations under SEMA
If any state deserves the sanctions afforded by SEMA, it is Iran. The present nuclear crisis is only the most recent – but potentially the most lethal – expression of Iran’s insatiable drive for regional and global supremacy. There is still a small window of opportunity for a non-military initiative to bring Iran back from the brink, and every opportunity must be exploited to this end. SEMA provides an existing legislative framework for Canada to take such measures that can be quickly implemented without undergoing a long legislative process, and should be acted upon immediately.
Admittedly, there is a risk that a regulation effectively punishing a Canadian subsidiary of a company which sells refined gas to Iran for the “sins” of its parent may not withstand judicial scrutiny. Still, if Canada were to approve a regulation prohibiting any company in Canada from selling refined gas to Iran, it would make foreign companies with Canadian subsidiaries potentially more cautious about continuing to engage in such conduct, given the adverse publicity which they would receive if charges were ever laid and the fact that SEMA has powerful remedies, including jail terms and large fines. Ultimately, each of those companies’ operations in Canada is actually or potentially many times greater than in Iran. C-CAT would therefore suggest that Canada has considerable leverage with them, particularly with PRC companies that have recently begun supplying gas to Iran.
B. Introduce legislation to prohibit companies supplying gas to Iran from doing business in Canada
To enhance the efficacy of these sanctions, C-CAT also recommends that in addition to sanctioning Iran under SEMA, Canada address the above “gap” in SEMA by introducing legislation to prohibit Canadian companies with related or affiliated corporations, such as a parent company, which supply gas and related services to Iran, from carrying on business in Canada. The bill could be introduced as a stand-alone act in the context of Iran or as a general amendment to SEMA, thereby also strengthening Canada’s policy options in applying effective sanctions in the future.
It is possible that this legislation could be challenged under the General Agreement on Tariffs and Trade (GATT) on the basis that Canada is preventing foreign companies from engaging in lawful trading. However, this possibility should not impede the application of SEMA against Iran at the earliest possible opportunity. The government could respond to such a WTO challenge by invoking the GATT’s “security exception”, including Article XXI(b)(i), which states that “Nothing in this Agreement shall be construed… to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests relating to fissionable materials or the materials from which they are derived”. Although the provision may have been intended to refer to trade in those materials, it could arguably apply to actions taken to protect security interests relating to nuclear threats. Other exceptions might also apply.
10. Companies Potentially Affected by the Proposed Measures[51]
Iran’s gasoline suppliers have significant business interests in Canada. Total S.A., the French-based energy company, has significant investments in the Canadian energy resources economy through its wholly-owned subsidiary, Total E & P Canada. Over the next ten years, Total E & P Canada is planning to invest $15 billion to $20 billion in Alberta’s economy through its oil sands projects.[52] The company aims to expand its production of Alberta’s oil sands through its leases at Surmont, Joslyn and Northern Lights.[53] The company is also performing exploratory drilling on its Asphalt Creek, Griffon, and Emerillon leases in the oil sands. Additionally, Total E & P is in the planning and development stages of a refinery that will convert bitumen into light, sweet synthetic crude oil.[54] The company has continued to position itself as the leading producer in Alberta’s oil sands.[55]
Royal Dutch Shell maintains investments in Canada as the nation’s largest sulphur producer and as a major player in the country’s oil sands.[56] Shell Canada Energy has a 60% interest in the Athabasca Oil Sands project.[57] It is estimated that “[b]etween 2001 and 2020, oil sands have the potential to generate at least C$123 billion in royalty and tax revenues in Canada.”[58] Shell also maintains oil refineries in Canada. In addition to its upstream activities, Shell Canada provides a variety of products for the Canadian market.[59]
Total S.A., Vitol and Trafigura have established offices in Calgary to support their presence in the Canadian market. [160]Total and Trafigura have also bought out a number of Canadian energy and commodities companies.[161]
Chinese petroleum companies, particularly PetroChina and China National Petroleum Corporation (CNPC), have made significant investments in Canada and in Iran. At the end of August, PetroChina bought a 60% stake in two new oil sands projects, including a $1.9 billion-investment in the Athabasca Oil Sands project.[162] In 2005, CNPC bought Canada-based PetroKazakhstan for $4.12 billion.[163] Recently, CNPC bought the Canadian energy company Verenex Energy for $400 million. China has made several agreements with Iran for oil exploration or access to resources. PetroChina and the National Iranian Oil Company (NIOC) signed a $1.76-billion deal to develop an oil field in western Iran.[164] CNPC has operated in Iran since 2004 and currently has two oil and gas projects there. [165] In 2009, CNPC signed an agreement with NIOC to buy a 70% share in the development of Iran’s South Azadegan oilfield.[166]
11. Further Action Against Iran: List the Iranian Revolutionary Guards Corps (IRGC) under s. 83.05 of the Criminal Code as an entity engaged in terrorist activity
A. The IRGC as a Political Force – The IRGC is the backbone of the Iranian regime. The IRGC controls Iran’s missile batteries, is deeply involved in Iran’s nuclear program,[167] and is responsible for the export of Iran’s Islamic Revolution and the promotion of Iranian sponsored terror and subterfuge throughout the world. Its members fill many key political posts. Today, more than half of PresidentAhmadinejad’s cabinet ministers are members of the IRGC, as is the president himself. Moreover, IRGC members hold nearly a third of the seats in the Islamic Consultative Assembly (Majlis). The majority of Iran’s 30 provinces have governors from the IRGC, and Iran’s chief nuclear negotiator is also an IRGC member. In the aftermath of Iran’s recent presidential elections, the IRGC and its subsidiary the Basij, a volunteer militia numbering in the millions, played a key role in crushing dissent, leading many analysts to describe the events surrounding the contested election as an IRGC “coup”.[168]
B. The IRGC as an Economic Force – The IRGC is a vast military-based conglomerate reaching into nearly every sector of the economy and dominating the oil and gas industry. Since 2005, when Ahmadinejad took office, companies affiliated with the IRGC have been awarded more than 750 government contracts in construction and oil and gas projects.[169] As described by Robin Hughes of Jane’s Defense Weekly: “All the money that’s coming in serves to make them the most powerful force in Iran…” [270]
C. The IRGC as a Target for Sanctions – The IRGC’s stranglehold on the economy means that continuing trade with Iran ultimately strengthens the most extreme elements of the Iranian regime. The need for effective sanctions against this entity as a whole will be critical to the success of any sanctions program against Iran. Although the US Treasury Department designated the IRGC as a terrorist entity and the UN has applied sanctions to some members of the IRGC,[271] existing sanctions have neither stopped the Iranian nuclear program nor diminished the power and influence of the IRGC. If enhanced sanctions are to penetrate the fortified economic position that is the IRGC powerbase, they will have to deliver a much more powerful blow to the industrial infrastructure that the IRGC controls. Thus, the gasoline sanction should be augmented by listing the IRGC as a terrorist entity under the Criminal Code, which would be done on the recommendation of the Minister of Public Safety.
Listing the IRGC as a terrorist entity will make any business or financial dealings with it potentially a criminal offence under the Criminal Code. Anyone who fails to freeze the property of a terrorist entity, fails to disclose to law enforcement officials property in its control of a terrorist entity, or fails to determine whether it is in control or property controlled by a terrorist entity can be found criminally liable.[272]
The listing of the IRGC, with its vast commercial enterprises, will make Canadian businesses, including financial institutions, far more careful about doing business in Canada, Iran or elsewhere with any Iranian entity which may be associated or controlled by the IRGC. This was the result after a similar measure was introduced by the US Treasury Department in 2007, thus effectively acting as a further powerful sanction.
Listing the IRGC, perhaps the preeminent sponsor of global terror, to Canada’s list of banned terrorist entities is a fully justified and necessary enhancement of Canada’s existing counterterrorism regime. It would also convey the seriousness with which Canada views the nuclear violations and human rights abuses committed by this critical Iranian organization.