Britain, France, Germany, warn of tougher measures on Iran

Totaling $10 billion, the funds are Iraqi payments for electricity provided by neighboring Iran.

The move was made two days after the November presidential election, the state department confirmed last week, riling Biden's critics.

“The House voted to eliminate these waiver authorities - twice. But the Biden administration is still waiving the sanctions, putting more money in the Iranian regime’s pockets to fund its terrorist proxies and nuclear weapons program," Republican Michael McCaul said on X.

"The US should not be subsidizing Iran’s malign activities.”

On November 8, Secretary of State Antony Blinken announced: "it is in the national security interest of the United States" to waive mandatory economic sanctions that bar Iraq from transferring upward of $10 billion to Iran in electricity import payments.”

Republicans have objected to the move, warning that the money will not be used for the benefit of Iran’s cash-strapped population - one third of which now live below the poverty line - but will instead be funneled toward Tehran’s militant allies in the region.

The administration previously signed off on renewing the waiver one month after Hamas's October 7 attack on Israel, the Washington Free Beacon reported on Tuesday. Iran has armed, funded and trained the Palestinian militant group.

Last year, the US unfroze $6 billion in Iranian funds to bank accounts in Qatar in exchange for the release of five US-Iranian prisoners held by Tehran. That move was lambasted by Republican critics as indulging Iranian hostage diplomacy.

Amid bipartisan pressure following the Oct. 7 attack by Iran-backed Hamas against Israel, the Biden administration told lawmakers it would effectively refreeze those funds for the foreseeable future.

The most recent waiver lifted sanctions for 120 days and will overlap with the incoming administration of Donald Trump, whose punishing sanctions gutted Iranian finances.

Given the pledge by incoming Trump administration officials to renew that “maximum pressure” stance on Iran, the waiver could be scrapped.

During the previous Trump administration the waiver was in force but access to the funds was stricter, according to the Beacon, which regularly lampoons Democrats and supports Republicans.

“The Biden State Department tweaked the waiver last year to allow Tehran to convert the funds from Iraqi dinars to euros, then hold those euros in bank accounts based in Oman,” the Beacon reported.

“Access to a widely traded currency like the euro enables Iran to more easily spend the cash in international markets. Under the first Trump administration, Iran had to keep the cash in an escrow account in Baghdad, making it more difficult to access.”

State Department deputy spokesman Vedant Patel told reporters in a briefing on Nov. 7 that the administration still considered Iran an adversary but wanted to facilitate the provision of Iranian electricity to Iraq.

"We remain committed to reducing Iran's malign influence in the region,” he said. The United States last year designated Iran the world’s top state sponsor of terrorism.

"Our viewpoint is that a stable, sovereign, and secure Iraq is critical to these efforts.”

The funds are mandated for use on humanitarian needs such as medicines, according to the Biden State Department instructions.

However, its Republican detractors maintain that the money is fungible, allowing Tehran to divert its dwindling cash reserves to regional allies such as Hamas, Hezbollah, and the Houthi rebels in Yemen.

"Joe Biden and his team are taking credit for bringing down Assad just a few weeks after renewing a sanctions waiver to give Iran access to billions of dollars," Richard Goldberg, a former White House National Security Council member who worked on the Iran portfolio, told the Beacon.

"Give me a break. This policy of appeasement needs to end on January 20, and locking down these accounts so Iran can't get access should be priority one.”

Western countries stepped up sanctions on Iran this year over its human rights record and support of Russia in its war on Ukraine.

Iran has managed to circumvent many of the sanctions and boost revenue from oil exports during Biden's term, leading critics including some Democrats to urge a more muscular approach.

"Iran agreed to the Agency's request to increase the frequency and intensity of the implementation of safeguards measures at FFEP (Fordow Fuel Enrichment Plant) and is facilitating the implementation of this strengthened safeguards approach," the International Atomic Energy Agency said in the confidential report to member states.

On Wednesday, Laurence Norman of the Wall Street Journal tweeted that Iran will give more access to monitors from the UN’s International Atomic Energy Agency (IAEA) after banning one third of the agency's team last year, citing officials. Measures are being put in place “to ensure Tehran’s increased 60% production doesn’t lead to diverted fissile material or a sudden push to weapons grade” uranium, he said.

Norman wrote that among the measures, there will be “more frequent IAEA inspections of Fordow and a few more inspectors”.

It is a turnaround for Tehran which last year banned around one third of the IAEA’s inspectors, accusing them of being politically motivated.

“The inspections to Fordow won’t however be daily,” Norman added, expecting an updated IAEA report soon.

Last week, the IAEA’s chief, Rafael Grossi, said: "Today the agency is announcing that (Iran's) production [uranium] capacity is increasing dramatically of the 60% inventory."

In an interview with Reuters in Bahrain, he said that Iran had been producing uranium enriched to up to 60% at a rate of approximately 5-7 kilograms per month, adding that the figure is now expected to increase significantly, "seven, eight times more, maybe even more."

Norman said that the latest move by Tehran “gives Iran an easy leverage item next time they face a censure”.

Writing on X, he said: “They can threaten to withdraw additional oversight. But it’s worth noting that would be a comp safeguards breach. Not a JCPOA breach. So that would be a more serious issue.”

Also last week, a US intelligence report from November revealed that Iran could rapidly build a nuclear weapon should it decide to do so.

"The Intelligence Community continues to assess that as of 26 September 2024, Iran is not building a nuclear weapon. Tehran has, however, undertaken activities that better position it to produce one, if it so chooses," the Office of the Director of National Intelligence report said.

"Iran has continued to increase its stockpiles of 20-percent and 60-percent enriched uranium, manufacture and operate an increasing number of advanced centrifuges, and publicly discuss the utility of nuclear weapons," the report added.

In a commentary for the relatively independent Rouydad24 website, conservative commentator and former lawmaker Jalal Khoshchehreh analyzed Tehran's options after the talks ended in what the outlet described as a deadlock. Contrary to the dominant view among Iranian commentators, diplomats, and politicians—who believe there may be no resolution to this impasse—Khoshchehreh suggested the setback might prompt Iran to adopt a more pragmatic and realistic approach in its relations with Europe.

He noted that Iran is aware a prolonged stalemate with Europe could open the door for Donald Trump’s aggressive policies toward Iran once he takes office as President of the United States in mid-January. According to Khoshchehreh, the latest talks aimed to demonstrate Iran's readiness to manage the crisis. He also emphasized that neither Iran nor Europe favors confrontation, which might encourage Tehran to take more proactive diplomatic steps to avoid a unified front against Iran by the US, Europe, and potentially the international community.

Khoshchehreh further highlighted the importance of balancing domestic political dynamics with foreign relations, asserting that focusing on one without the other is bound to fail. This was apparently a veiled reference to human rights violations and lack of political and social freedoms.

After the Geneva talks, hardliners and members of Iran’s Supreme Council of National Security openly criticized the Foreign Ministry's efforts to negotiate with Europe. Iran’s chief negotiator, Majid Takhtravanchi, walked back his earlier optimistic remarks, stating that what occurred in Geneva amounted to exchange of opinions rather than "negotiations."

This internal discord within Iran's fragmented political landscape has bolstered hardliners who opposed the negotiations from the start. They also attacked Vice President Mohammad Javad Zarif for suggesting that Iran remains open to talks with the United States. Tehran now faces a critical decision: whether to cling to its ideological "principles" or adopt a more realistic foreign policy approach, as Khoshchehreh urged, invoking former Chinese leader Deng Xiaoping’s call for courage in pursuing the right path. Tehran must now weigh its lofty ambitions against the realities it faces.

Conservative commentator Hassan Beheshtipour had remarked earlier that European nations might activate the trigger mechanism in the 2015 nuclear deal, which would reinstate pre-2015 UN sanctions on Iran. Beheshtipour argued that Europe would only take this step if Iran fails to alter its behavior. Breaking with the reluctance of many Iranian commentators to criticize former President Ebrahim Raisi, Beheshtipour claimed Europe’s tough stance is a result of Raisi’s evasive policies, which worsened Iran-Europe relations.

Last week, hardline newspapers Kayhan and Javan, along with the ultraconservative Raja News website, sharply criticized the Iranian government’s efforts to restore ties with Europe. Both Kayhan and Javan urged President Masoud Pezeshkian to replace his advisers, while Raja News questioned Zarif’s authority to make what it called “dangerous suggestions” regarding Iran’s stance toward the United States.

Beheshtipour advised Iran to hold off on prioritizing negotiations with Europe, given Trump’s unpredictable policies and existing US-European divisions over Iran. He suggested Tehran wait until late January to reassess Trump’s shifting positions and isolationist tendencies before deciding on further negotiations.

Iran’s decision to employ advanced centrifuges and enrich uranium to higher levels falls within its rights under the Non-Proliferation Treaty (NPT), the ministry 's spokesperson Esmail Baghaei argued on Tuesday. These measures comply with International Atomic Energy Agency (IAEA) oversight protocols, he added.

"The Islamic Republic of Iran, as a responsible member of the IAEA, has proven its commitment to cooperation with this body," Baghaei said, referring to recent discussions with IAEA Director General Rafael Grossi in Tehran.

"It is regrettable that these European countries, instead of building on the constructive engagements, continue with unhelpful and confrontational approaches."

The European trio, collectively known as the E3, issued a statement on Tuesday condemning Iran's actions as undermining the Joint Comprehensive Plan of Action (JCPOA), the 2015 nuclear deal. Their statement highlighted concerns over uranium enrichment at the Fordow facility to near-weapons-grade levels and an increase in the number of centrifuges in operation.

"Iran’s actions have further hollowed out the JCPOA," they wrote, urging Tehran to reverse course and adhere to international safeguards.

Baghaei dismissed these remarks, insisting that the current nuclear standoff stems not from Iran’s actions but from the US's withdrawal from the JCPOA in 2018 and the failure of European signatories to uphold their commitments under the deal.

Iran has long contended that its nuclear program is peaceful and that its uranium enrichment—reported to have reached 60% purity, just short of the 90% threshold for weapons-grade material—serves civilian purposes. However, this has been met with skepticism from Western nations, who argue there is no credible civilian justification for such enrichment levels.

The ongoing dispute has fueled fears of regional instability. IAEA Chief Rafael Grossi has acknowledged in recent statements that dialogue with Iran is indispensable.

However, he has warned that the lack of implementation of safeguards continues to pose significant challenges.

While the IAEA continues its efforts to mediate between Tehran and the west, diplomatic progress remains elusive.

Iran’s reliance on imported gasoline has intensified amid a domestic energy crisis marked by rolling blackouts, gas shortages, and an overburdened electricity grid.

With the Islamic Republic facing growing economic strains, Washington may target the importation of refined petroleum products, further isolating Iran from the global energy market.

The Washington Institute's recent report pointed out that Tehran is now "newly susceptible to pressure against its oil product imports, not just its oil exports," as the country grapples with energy shortages that have triggered public frustration and political instability.

In particular, the Institute suggested that Washington may reapply sanctions from the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), which gives the US authority to penalize companies and governments providing essential services—such as insurance, financing, and shipping—for Iran’s gasoline and other petroleum imports.

The report says that imposing sanctions on gasoline imports is more feasible and less diplomatically complicated than targeting Iran's crude oil exports, which are primarily sent to smaller refineries in China.

Gasoline, produced by foreign refineries, is a relatively small market for these countries, making them more susceptible to US penalties.

"Enforcing sanctions on Iran’s gasoline imports is more straightforward and less diplomatically fraught than sanctioning its oil exports, most of which go to small refineries in China. This gasoline is produced at foreign refineries that may be reluctant to incur U.S. penalties just for the sake of a relatively small customer like Iran," wrote Patrick Clawson, the Research Counselor at the Washington Institute.

This potential strategy comes as Iran faces a sharp rise in domestic fuel consumption, including gasoline, with daily demand reaching at least 120 million liters—far surpassing the country's production capacity.

Last year, Iran spent $2 billion on gasoline imports, and its reliance on foreign fuel is expected to rise, with projected imports of 15 million liters per day. The country’s inability to produce enough gasoline domestically has made it increasingly vulnerable to external sanctions targeting its refined oil products.

As the Trump administration prepares to tighten its sanctions regime, European powers may lend their support, fueled by dissatisfaction with Iran's nuclear ambitions and its recent actions, including the acceleration of uranium enrichment and non-compliance with the International Atomic Energy Agency's inspections.

The timing is critical for both Iran’s government and its citizens, as energy shortages continue to strain daily life, potentially leading to social unrest reminiscent of the 2019 protests sparked by fuel price hikes.

Following a televised interview by President Masoud Pezeshkian on Monday, speculation about the potential increase in gasoline prices has grown in Iran. In the interview, the president referred to energy shortages and stated that gasoline prices would rise, but did not announce the timing of the decision.

At the same time, the government and parliament are facing a challenge regarding who will take responsibility for this price increase.

In addition to gasoline shortages, Iran is also grappling with a growing natural gas deficit, exacerbated by inefficient energy policies.

The shortage of natural gas, used in 90% of Iranian homes for heating, has left the country in a precarious position, especially as it heads into a harsh winter.

As Iran faces mounting internal challenges, the US may find leverage in pushing for a reduction in gasoline exports, further isolating Tehran from the global market and heightening the strain on its economy.