Iran Says Diplomatic Path Closed After U.S. Sanctions Khamenei

Golnar Motevalli
Iran Says Diplomatic Path Closed After U.S. Sanctions Khamenei

(Bloomberg) -- Iran said the path to a diplomatic solution with the U.S. had closed after the Trump administration imposed sanctions against its supreme leader and other top officials, raising tensions days after the downing of an American drone brought the Middle East to the brink of war.

President Donald Trump on Monday unveiled sanctions on Ayatollah Ali Khamenei, Iran’s top ruler and a spiritual guide for many Iranians, and eight senior military commanders, with the goal of denying them access to financial resources. Treasury Secretary Steven Mnuchin said financial restrictions would also be introduced against Iran’s Foreign Minister Javad Zarif later this week.

“The futile sanctions against the Iranian leader and the country’s chief diplomat mean the permanent closure of the diplomatic path with the government of the United States,” Foreign Ministry spokesman Abbas Mousavi was quoted as saying by semi-official Iranian Students News Agency. “The Trump government is in the process of destroying all the established international mechanisms for maintaining global peace and security.”

Treasury futures pushed higher and most Asian stock markets slipped as increasing tensions rattled investors. Oil steadied after rallying almost 8% in three days as investors weighed mixed signals from the White House on Iran and signs that an extension of the OPEC+ production cuts may not be assured.

Trump last week abruptly canceled planned air strikes against Iran for shooting down the drone. The administration also blames Tehran for recent attacks on oil tankers near the Persian Gulf.

Tensions have spiked in the Gulf since May, when the Trump administration revoked waivers on the import of Iranian oil, squeezing its economy a year after the U.S. walked away from the landmark 2015 deal meant to prevent the Islamic Republic from developing a nuclear weapon. Since then, a spate of attacks on oil tankers near the Strait of Hormuz shipping choke point have raised the specter of war and pushed up oil prices.

The new penalties are unlikely to have a significant impact on a country that’s already in recession due to stringent U.S. sanctions on its oil sector and has been largely shut out of the global financial system. The U.S. has sanctioned more than 80% of Iran’s economy, according to Secretary of State Michael Pompeo, who is in Saudi Arabia and the United Arab Emirates this week to rally a front against Iran.

Trump has coupled his “maximum pressure” campaign of sanctions with invitations to sit down with Iranian leaders. In an interview that aired Sunday on NBC’s “Meet the Press,” the president said that he thinks Iranian leaders want to negotiate and he’s willing to talk with no preconditions except that the outcome must be Iran acquiring no nuclear weapons.

His national security adviser, John Bolton, said on Tuesday that Iran had an “open door” to negotiations on a revised nuclear deal as he met Israeli and Russian officials for talks on the Iranian presence in Syria. But he said that any talks would have to “completely and verifiably eliminate Iran’s nuclear weapons program, its pursuit of ballistic missiles delivery systems, its support for international terrorism, and its other malign behavior worldwide.”

Iran has rejected renegotiating the nuclear deal and has denied involvement in the tanker incidents. President Hassan Rouhani said on Tuesday that his country’s airspace was a “red line” and characterized the White House as having “a mental disorder.”

“You say let’s talk and then you sanction the foreign minister. This clearly shows that you’re lying,” he said in a speech carried live on Iranian state TV. “Today, you get a sense from the government in the U.S. and in the White House that there’s a massive amount of confusion and frustration. The expectation they had was to tear apart the country within two or three months but they have seen it has become more resistant.”

Russian Foreign Minister Sergei Lavrov warned of the danger of the “deeply personalized” sanctions against Khamenei, saying events remind him of the run-up to the U.S. invasion of Iraq in 2003.

“We’re very concerned at what’s going on,” Lavrov told reporters in Moscow. The latest U.S. punitive measures “send the signal that the situation is moving in a very bad direction.” Russia is a signatory to the nuclear deal and an ally of Iran’s in Syria’s civil war.

Annoy the Iranians

The new restrictions serve as symbolic reprimand for the recent attacks, according to former Treasury officials.

“It will have an effect because it will annoy the Iranians and make negotiations hard to pull off if the supreme leader is sanctioned,” said Brian O’Toole, a senior fellow at the Atlantic Council who previously worked in the U.S. Treasury Department’s sanctions unit.

At the United Nations on Monday, Iran’s Ambassador Majid Takht Ravanchi ruled out one-on-one talks with the U.S., urging Secretary-General Antonio Guterres to help organize regional talks instead. “You cannot start dialogue with someone who is threatening you, who is intimidating you,” Ravanchi told reporters.

Outside a session of the Security Council called by the U.S. -- where Iran wasn’t invited to participate -- U.K. Ambassador Karen Pierce told reporters that “there’s a lot of desire to see de-escalation and to look for diplomatic solutions. At the same time, one has to take very seriously the sorts of attacks that have occurred on the tankers, which is dangerous for international shipping, dangerous for regional security.”

French Foreign Minister Jean-Yves Le Drian said on Tuesday that European nations were attempting to convince Tehran to continue abiding by the nuclear accord after Iranian officials warned the country would breach the deal’s cap on stockpiles of low-grade uranium by June 27.

Khamenei’s Wealth

Khamenei, who was initially elected president of the nascent republic in 1981, has “possessions” valued at an estimated $200 billion, according to a Facebook post by the U.S. embassy in Baghdad in April. He’s backed by the Islamic Revolutionary Guard Corps and has survived an assassination attempt and front-line combat.

The U.S. Treasury Department said Monday those sanctioned also include eight officials of the Guard Corps who supervised “malicious regional activities,” including its ballistic missile program and “harassment and sabotage” of commercial ships in international waters.

Skilled Diplomat

Mnuchin said the U.S. will impose financial restrictions on Zarif “later this week.” Typically, the U.S. doesn’t announce sanctions in advance against individuals so they don’t hide assets before penalties take effect.

Zarif, viewed as Iran’s most skilled diplomat, was lead negotiator in the multi-party nuclear accord reached in 2015 under the Obama administration that Trump has since rejected.

Any financial institution that knowingly assists with a financial transaction for those who were sanctioned could be cut off from the U.S. financial system, according to the Treasury.

--With assistance from Henry Meyer.

To contact the reporter on this story: Golnar Motevalli in Tehran at gmotevalli@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Amy Teibel, Mark Williams

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