By Jay Solomon And William Mauldin
WASHINGTON--Iran's economy is now "fundamentally" incapable of
recovery without a nuclear accommodation with the West, increasing
Washington's leverage in final negotiations with Tehran, said the
Treasury Department's outgoing sanctions czar David Cohen.
"They're stuck. They can't fix this economy unless they get
sanctions relief," Mr. Cohen said in an interview with The Wall
Street Journal about sanctions policy around the world. "I think
they are coming to the negotiations with their backs to the
wall."
Mr. Cohen is leaving his post to assume the No. 2 spot at the
Central Intelligence Agency next month, where he'll continue to
spearhead U.S. efforts to contain Iran, Russia, North Korea and
other American adversaries. Mr. Cohen has been a central player at
Treasury over the past decade in developing targeted financial
sanctions to pressure countries and extremist organizations, such
as Islamic State.
In Washington, many see Mr. Cohen's rise to the post of deputy
CIA director as underscoring the importance the White House now
assigns to financial intelligence.
"I think it would be accurate to say that the importance of
financial tools in our national security toolbox has steadily
increased over the past five to 10 years," Mr. Cohen said. "Had
that not been the case...I would have never gotten on the radar
screen of somebody like John Brennan," the CIA's director.
The administrations of Barack Obama and George W. Bush have both
touted the U.S. financial campaign against Iran as a model for
weakening Washington's adversaries. Mr. Cohen and other senior U.S.
officials say they believe that Tehran's decision in 2013 to
negotiate over its nuclear program resulted from the sanctions
damage to the economy.
The Treasury Department calculates the Western sanctions have
cut Iran's oil exports by more than half in three years, while
denying Tehran $40 billion in revenues last year alone. Recent
declines in oil prices, according to Mr. Cohen, could cost Iran
another $11 billion over the next six months.
Republican and Democratic critics of the White House still
accuse the U.S. of not going far enough. A bi-partisan bill now
being negotiated in Congress would call for new sanctions against
Iran if an international agreement curbing its nuclear program
isn't reached by July.
Some critics also maintain the administration relies too heavily
on sanctions alone, without a broader policy of addressing global
problems.
"Sanctions are not the policy and they should not serve as a
cover-up for a lack of policy," said Slovakia's foreign minister,
Miroslav Lajcak, in an interview. Mr. Lajcak, whose country has
suffered fallout from the sanctions against Russia, says he doesn't
question the need for economic penalties, but also favors greater
support for his neighbor, Ukraine.
Some economic analysts disagree with Mr. Cohen, saying the
decision by the White House last year to suspend some sanctions to
advance the diplomacy has breathed new life into the Iranian
economy.
"Iran's new budget shows that the authorities see no urgent need
for relief from the current sanctions," Patrick Clawson of the
Washington Institute for Near East Policy, told a congressional
hearing this week. "They correctly feel that they have learned to
live with those sanctions."
Mr. Cohen said that imposing new sanctions on Iran now could
destroy the international coalition imposing them. He voiced
skepticism that escalating sanctions alone, without diplomacy,
could cause Tehran to capitulate on the nuclear issue.
"Who knows what would have happened had we continued on with
sanctions, whether they would have careened to disaster," Mr. Cohen
said. "I think that's unknowable."
Targeted sanctions in response to Russian President Vladimir
Putin's Ukraine incursion have contributed to a 50% drop in the
value of Russian ruble over the past six months and slashing of
economic growth forecasts.
Anders Aslund of the Peterson Institute of International
Economics said Russian output could tumble 10% this year. Last
week, Standard & Poor's Ratings Services cuts its credit rating
on Russia to junk-level.
Mr. Cohen also said the U.S. and its allies have made gains in
cutting off the financing of Islamic State fighters in Iraq and
Syria. Pentagon warplanes have destroyed much of the organization's
oil infrastructure, used by the organization for income and
donations for the group from Persian Gulf sympathizers also have
diminished under U.S. pressure, according to U.S. officials.
Still, Mr. Cohen said Islamic State, which is also known as ISIS
or ISIL, continues to earn revenues from crime and kidnapping.
"We don't pay ransoms to hostage-takers, especially not to
terrorist organizations that are hostage-takes," Mr. Cohen said,
without commenting on current hostage dramas. "ISIL gets a material
amount of its funding from ransom payments. And it would be to all
of our mutual benefit to cut off that source of funding."