A Financial Hit on Iran?

By Elaine Shannon

Ahead of this week's U.N. Security Council deadline for Iran to abandon its nuclear activities and an expected report from nuclear watchdog Mohamed ElBaradei, U.S. officials have been mapping a plan to hit the defiant regime. But the attacks will be financial, not military. The U.S. and its European allies will ask the council next month for a resolution that would pave the way for political and economic sanctions. If, as expected, Russia and China threaten a veto or stall, the U.S. intends to work outside the U.N. to isolate Tehran "diplomatically and economically," Under Secretary of State Nicholas Burns said last week. "Countries that trade with Iran ... ought to begin to rethink those commercial trade relationships."

Among the plan's first targets: Iran's accounts and financial institutions in Europe. Secretary of State Condoleezza Rice met last week with the finance ministers of Britain and Germany, where, according to a U.S. Treasury study, Iranian-government banks operate branches to handle funds generated by the oil trade. The U.S. wants non-Iranian banks to stop facilitating Tehran's money flow. A senior official involved in devising the strategy told TIME, "It's about convincing financial institutions not to deal with bad guys, because they're worried about their own reputations."

Iran has shifted some accounts from Europe to Persian Gulf countries in anticipation of a squeeze. So Under Secretary of State Robert Joseph traveled to seven countries in the Middle East earlier this month to talk with officials about "what we can do together to disrupt the proliferation activities," he said. Financial restrictions "can have an effect on Iran's ability to acquire more technology and expertise from the outside."

Another possible move is a disinvestment campaign similar to that used against apartheid-era South Africa. A study by the Conflict Securities Advisory Group, a Washington consultant hired by the State Department, found that 124 publicly traded European companies have ties to Iran and that European banks are financing significant energy and telecom projects there. A disinvestment campaign could be tough to pull off. But U.S. officials hope that while conscience may not get those firms to quit Iran, the threat of bad p.r. might.