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US sees sanctions impact on Iranian politics

Friday - 6/21/2013, 5:08am  ET

FILE - In this Monday, June 17, 2013 file photo, Iranian President-elect Hasan Rowhani, places his hand on his heart as a sign of respect, after speaking at a news conference, in Tehran, Iran. American officials are hailing Rowhani's victory as the first tangible evidence that the U.S. strategy is affecting Tehran's nuclear policy after wreaking havoc on its economy. The draconian sanctions weighed heavily in the June 14 vote for Rowhani, a candidate who openly criticized how his country's leadership has handled the nuclear file. (AP Photo/Ebrahim Noroozi, File)

MARJORIE OLSTER
Associated Press

WASHINGTON (AP) -- American officials are hailing the election of an Iranian president who vows to seek relief from international sanctions as the first tangible evidence that the U.S. strategy is influencing Tehran's nuclear policy.

The draconian sanctions have wreaked havoc on the Iranian economy and weighed heavily in the June 14 vote for Hasan Rowhani, a candidate who openly criticized how his country's leadership has handled the nuclear file.

His election has opened a debate in the U.S. on whether it's time to ease sanctions and see whether Tehran shifts away from what the U.S. believes is the pursuit of a nuclear weapon. It also has set off intense discussions among government agencies on how to proceed with Iran, according to U.S. officials who spoke on condition of anonymity because they were not authorized to speak publicly on the issue.

"I think that the administration should ease off on sanctions and pressure Congress to slow the train because President-elect Rowhani has painted a picture of a more forthcoming, more flexible Iranian nuclear policy," said analyst Cliff Kupchan, director for Middle East at Eurasia Group, a U.S.-based consulting group.

Rowhani's election will have no bearing on the next round of new U.S. nuclear sanctions, set to take effect on July 1.

The U.S. officials said there will be no lifting or easing of sanctions at this time unless Iran offers something concrete in return. Washington is well-aware that hard-line Supreme Leader Ayatollah Ali Khamenei and Iran's ruling clerics -- not the president -- call all the shots in policymaking and make every major decision on the nuclear program and dealings with the West.

However, the Americans could offer other concessions to the Iranians at the so-called P5+1 nuclear talks with Iran, which include the five permanent U.N. Security Council members plus Germany.

"The question is whether the administration offers a preliminary olive branch, or they say: 'You put down the first piece of silver on the table,'" said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington. "I would think the administration would be wise to take the signs at face value and offer an olive branch. Olive branches are cheap, and we've got a lot of them in the quiver."

Iran has long insisted its nuclear ambitions are purely peaceful -- for generating power and medical research.

The U.S. and its international partners are deeply skeptical, however, and some in Congress have begun to push new legislation that would impose the harshest sanctions yet. If passed, the law would move the U.S. closer to a full oil and trade embargo than it has ever been. It is by far the biggest sanctions threat hanging over Iran now.

Kupchan said he believes Rowhani's election has dimmed the prospects for that legislation passing anytime this year. And trying to cut back more on Iran's oil exports would be complicated by the fact that the U.S. would have to persuade China and India to reduce their imports further -- a tough sell.

The sanctions starting next month target the local currency, the rial. But the rial has lost about two-thirds of its value over the past two years and analysts say there is little room left on the downside.

This round also aims to stop all transfers of gold to the government or ordinary citizens -- something that sanctions opponents cite as an example of penalties that punish the population more than its leaders. Another measure hits at Iran's auto industry, while the U.S. will also tighten existing sanctions on shipping and energy.

Round after round of sanctions by the U.S. and its international allies have wrought serious damage on Iran's economy. On top of the rial's devaluation, inflation has spiked to about 30 percent, food prices have shot up, and critical oil exports have been cut in half. International banking transactions have been virtually paralyzed.

The rial and Iran's stock market rebounded a bit after the presidential election on optimism that tensions with West may ease and Rowhani might take other measures to stabilize the economy. Managing the domestic economy is one of the main roles of Iran's president.

Despite the economic pain of sanctions, Iran has continued to defy Western demands to halt uranium enrichment, a process to produce nuclear fuel that can be used either for electricity generation or weapons production. Iran has even ratcheted it up over the past few years, as sanctions have mounted.

At a hearing early this month on sanctions, before Rowhani's election, senators grilled administration officials on why the intense economic pressure Iran is feeling has not translated into a change in Iran's nuclear calculus policy.

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