Iran Downgrades Relations in Latin America
May 8, 2014 | 0147 GMT
Five years ago, Iran's then-President Mahmoud Ahmadinejad and Venezuela's then-President Hugo Chavez visited each other multiple times and stood arm-in-arm declaring a united front against "imperialism and colonialism" in an affront to the United States and its widening sanctions net. Chavez would even refer to Ahmadinejad as his brother, standing together as a "mountain" of resistance. But that brotherly love has not endured under Iranian President Hassan Rouhani and Venezuelan President Nicolas Maduro. The current leaders' feelings toward each other is not so much a matter of personality preferences; increasingly watered down relations between Iran and Latin America are a function of Iran's shifting geopolitical position.
Iran has shut down its second oil office in Latin America. On April 7, Iran's National Oil Company closed down an office in Bolivia, and today, a month later, Iran's Petropars Company canceled an oil agreement with Venezuela's Petroleos de Venezuela. We expect further closures in Ecuador, Cuba and Nicaragua, where Iran has set up similar operations. In the words of the managing director of Iran's National Oil Company, Roknoddin Javadi, Iran's offices in Latin America are not economically justified and serve only political purposes.
Javadi's candor is quite revealing. Indeed, Iran has set up a number of shell companies throughout Latin America over the past several years, not simply to demonstrate that political pariahs can band together in the face of U.S. aggression, but also to serve a practical purpose in circumventing sanctions. From joint oil projects to car and bicycle assembly plants to cement factories, deals were penned, though many of these companies lay dormant or were never built at all.
Instead, Iranian businessmen -- some of whom are tied to Iran's Islamic Revolutionary Guard Corps -- traveling on Venezuela's Conviasa flights from Tehran, Damascus and Caracas, would use these "legal" entities to launder money and in some cases acquire sensitive technology by proxy. The Fondo Binacional Venezuela-Iran, an Iranian-Venezuelan joint bank, would operate as a proxy for the Export Development Bank of Iran, a sanctioned entity that found willing partners in the region, particularly in Ecuador, to issue letters of credit for foreign transactions. In short, Iran's relationships in Latin America have been critical in enabling the IRGC to fulfill its mission of keeping Iran in business, even if it took inordinately creative means to do so.
But Iran is operating in a vastly different geopolitical climate now. With a July 20 deadline looming on the nuclear negotiations, U.S. and Iranian leaders are working feverishly toward a deal. On the surface, this is about defanging Iran's nuclear ambitions, yet both sides know that this is the crucial first step toward a strategic rapprochement with wide-ranging implications. And time is of the essence: The U.S. administration may be facing bigger challenges ahead after midterm elections, and the Iranian president is floundering at home over a bungled economic policy to phase out subsidies.
With the strategic drivers in play and the pressure on, it's no wonder that we are seeing some notable albeit subtle signs of progress in the negotiations. International Atomic Energy Association inspectors probed Iranian nuclear facilities this week and have reached a critical agreement on the inspection of the Arak facility, where U.S. congressmen and Israeli Knesset leaders alike have warned that a 40-megawatt heavy water plant still under construction could provide enough plutonium for Iran to construct a nuclear device. While resisting demands to dismantle the facility, Iran has been telegraphing a proposal under negotiation to redesign the facility in order to allay these fears.
That Iran downgraded its relationships in Latin America offers another prism into this negotiation. The U.S. Treasury Department has been focused on Iran's Latin America dealings, trying to apply pressure on Venezuela, Bolivia, Ecuador and Nicaragua to end any illicit collaboration with Iran. The closure of Iranian oil offices may serve several purposes for the Rouhani government.
First, Rouhani is already escalating efforts to neutralize the IRGC, which has run many of the shell operations in Latin America. Rouhani has not been particularly threatened by the IRGC's rather weak displays of opposition to his negotiation with the United States so far, but he has reason to be concerned about IRGC attempts to exploit widespread disillusion with Rouhani's economic reforms. Shutting down some IRGC operations abroad may be an attempt to rein in Rouhani's opponents and alleviate the government's dependency on the IRGC to maintain the country's financial well-being.
Second, Iran's National Oil Company is legitimately trying to lay the groundwork for the reopening of Iran's energy sector, with an expectation that sanctions will eventually be lifted and that Iran will have to get itself in shape financially and politically to manage that incoming investment and increased production. Trimming off a few expenses abroad could help in this regard.
Finally, Iran's proactive choice to shutter these operations in Latin America that have long irked U.S. Treasury officials is another positive gesture in its ongoing negotiations with the United States. Iran can signal that it is willing to play by the rules so long as Washington does its part to ease up on the financial sanctions and readmit Iran into the global banking system.
That is the next piece to watch. Iran is putting out a number of positive signals, but the United States will have to follow through with concessions of its own, starting with easing up on financial sanctions. Expert-level talks are taking place this week in New York, and the actual drafting of the nuclear agreement is supposed to continue May 13-16 in Vienna. There will be plenty of noise surrounding these talks, but also plenty of reason for us to remain cautiously optimistic in analyzing each side of this weighty negotiation.
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