New Iran and Divided West

  November 09, 2021   Read time 3 min
New Iran and Divided West
With a proposal for UN economic sanctions facing veto by the Soviet Union in January, US state officials engaged in extensive lobbying of other major capitalist allies to secure active support for the sanctions.

The Washington administration appeared to have realised that the appetite of its allies to take parallel measures against the Islamic Republic was limited, and was also concerned not to jeopardise the international consensus on condemnation of the Soviet action in Afghanistan by taking unilateral moves. The application of sanctions against Iran also raised the dilemma of whether this would lead to a suspension of Iranian oil supplies to the capitalist industrialised countries. Requests did nevertheless stream from US officials to other heads of state for co-operation and signals to the Iranian government of such support.

European states were extremely reluctant to break economic relations with Iran. Thus, as a means of bolstering their resolve, ‘Washington let it be known through a veritable torrent of leaks, public hints, and private statements that the alternative would be a unilateral interruption of Iranian commerce through some military action, specifically the mining of Iranian ports.’ The European Economic Community (EEC) and Japan, while eschewing retroactive measures, came in May 1980 to suspend all contracts concluded with Iran since the taking of hostages. Although some West European companies offered to sell Tehran arms and other banned goods, and Austria, Switzerland and Sweden did not join the EEC in supporting the US-led sanctions, Iran had to pay premiums on certain imports and use Dubai as a transit port for many of its imported items. By June 1980 there were already signs that the sanctions were taking a toll on the Iranian economy, and in August President Bani Sadr conceded that they were having considerable effect.

The measures taken by the administration in Washington in general, and the freezing of Iranian assets held by US banks in particular, had two consequences in serving US public and private objectives. Firstly, although the full range of strategies adopted in order to ensure the release of the hostages may not yet have fully come to light, the impact of the sanctions and freeze on assets undoubtedly created pressure for a settlement of the crisis as oil exports fell, foreign exchange reserves not covered by the freeze were running low, factories were working at one-third capacity and there was a shortage not only of technicians but also of spare parts.

The second consequence of the US measures was the protection of private property, as the assets were ultimately used for the repayment of US claims against Iran. The resolution of the crisis through the Algiers Accords provided the funds for the full repayment of all claims of US corporations and private interests against Iran ‘to a degree unprecedented in any compensation programme after a revolution or a war’. This effectively protected the property of US individuals and companies, particularly banks, against any move by the new government to repeal the contracts or arrangements of the ancien regime. The Revolution threatened the interests of a number of US banks by leaving them exposed to loans authorised by the shah without constitutional status, which were subject to annulment by the revolutionary government.

The freezing of the Iranian assets, by ensuring that these would ultimately be set against loan payments, thus safeguarded the banks against financial difficulties. The freeze on assets was removed by the US administration (19 January 1981) only after the majles approved a law allowing international arbitration in the disputes with the United States. As a result of eventual negotiations, the government agreed to repay over $5bn in syndicated and non-syndicated bank loans from US and foreign banks, and to set up an escrow account with a further $1bn against claims filed against Iran by US firms and citizens. The issue of unpaid Iranian debts to US entities was referred to the Hague tribunals, which continued for a number of years and came to find largely in favour of the claimants.

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