If talks fail, U.S. eyes Iran isolation

WASHINGTON - The Obama administration is laying plans to cut Iran's economic links to the rest of the world if talks this week over the country's nuclear ambitions founder, according to officials and outside experts familiar with the plans.

While officials stress that they hope Iran will agree to open its nuclear program to inspection, they are prepared by year's end to make it increasingly difficult for Iranian companies to ship goods around the world. The administration is targeting, in particular, the insurance and reinsurance companies that underwrite the risk of such transactions.

Officials are also looking at ways to keep goods from reaching Iran by targeting companies that get around trading restrictions by sending shipments there through third parties in Dubai, Hong Kong, and other trading hubs.

The administration has limited options in unilaterally targeting Iran, largely because it wants to avoid measures so severe that they would undermine consensus among countries pressing the Iranian government. A military strike is also increasingly unpalatable because, officials said, it probably would only briefly delay any attempt by Iran to produce a nuclear weapon.

Whatever steps are taken, officials said, their goal would be to disrupt the Iranian economy across many sectors, particularly businesses that help support Iran's military and elite.

As a practical matter, the effort would build on efforts during the Bush administration that targeted leading Iranian banks and the key Iranian shipping line. In many cases, officials said that rather than impose new sanctions, they would need only to tighten enforcement of existing rules and regulations. Indeed, the key architect of President George W. Bush's effort, Treasury Undersecretary Stuart Levey, was retained by President Obama to ensure continuity in a possible squeeze on Iran.

In the case of the insurance industry, the administration would extend a prohibition against providing the "transfer of financial resources or services" to aid Iran's nuclear and missile programs, currently enshrined in U.N. Security Council Resolution 1737, to include insurance companies, export credits, and the like.

Iran has raised tensions in the region with two days of missile tests, including yesterday's test of medium-range missiles believed capable of striking Israel, U.S. military targets in the Middle East, and parts of southeastern Europe.

The tests were previously scheduled but came just days ahead of Thursday's meeting in Geneva, Switzerland, of Iranian diplomats and representatives of major powers, including the United States. The administration is pressing for Iran to provide international inspectors immediate access to a second uranium-enrichment facility that was made public last week and to agree to serious talks to rein in its nuclear ambitions.

"Toward the end of the year, we'll be able to calculate how much progress" has been made in those talks, State Department spokesman P.J. Crowley said yesterday. "If they continue to fail to answer the questions, then obviously there will be implications and consequences to that, as well."

The administration has sought to display a united front with its partners in the talks - Britain, France, Germany, Russia, and China. But Russia and China are especially wary of imposing more sanctions beyond those contained in three Security Council resolutions aiming at deterring Iran.

Russia and China have veto power on the Security Council, and reluctance by either to support additional sanctions would make it extremely difficult and time-consuming to erect additional international measures. But many European and Asian countries demand the cover of a U.N. resolution before taking economic action against another country. As a result, administration officials are focused on measures that they can argue are already authorized under existing resolutions.

"Ninety percent is enforcement," said Patrick Clawson, deputy director for research at the Washington Institute for Near East Policy. "Ten percent is new rules. They have the mechanisms in place."

Already, Levey has pressured more than 80 banks around the world to cut their ties to Iran.

Insurance is the lifeblood of the shipping industry, but insuring cargo often consists of several layers. One critical aspect is reinsurance, in which an insurance company spreads the risk of a deal to dozens of other companies around the world. If the pool of potential reinsurers for Iranian goods shrinks because of international pressure, it would become increasingly difficult and costly for Iran.