Obama’s Iran Loopholes    WSJ 7-3-2

In Istanbul Tuesday, U.S. and Iranian nuclear negotiators meet for the fourth time in four months, with the classic diplomatic assignment of talking about whether to hold future talks. They’ll likely agree to do so, but the real news happened under the radar last week: Though economic sanctions still haven’t slowed or stopped Iran’s nuclear drive, the Obama Administration has decided to make them even weaker. The Iran sanctions regime is looking like the U.S. tax code—filled with loopholes.

It’s so weak, in fact, that all 20 of Iran’s major trading partners are now exempt from them. We’ve arrived at a kind of voodoo version of sanctions. They look real, insofar as Congress forced them into a bill President Obama had to sign in December. The Administration has spoken incantations about their powers. But if you’re a big oil importer in China, India or 18 other major economies, the sanctions are mostly smoke.

This is possible because, thanks to lobbying by the Obama Administration, the sanctions law contained several loopholes you could drive a warhead through. One provided that if a country “significantly reduced” its oil imports from Iran, the State Department could exempt it from sanctions for a renewable period of six months. Naturally, the definition of a significant reduction was left to the Administration’s discretion.

As of last week, we know that its definition is trifling: India earned a free pass after merely pledging to cut its Iran imports by 11%, and Japan earned one after cutting 22% of its Iranian business in 2011. Then there’s China, the Islamic Republic’s biggest customer, which is now exempt after cutting Iran imports by 25% between January and May (measured year-over-year).

The problem is that China’s reduction is an apparent fluke, not a dedicated effort to reduce trade or isolate Iran economically. Imports fell by about 50% in February and March because a Chinese oil giant delayed the start of a contract over a price dispute. Once that was resolved, imports shot back up—by 34% between April and May, and again by 35% between May and June.

All this “is completely legitimate and justified,” said a Chinese Foreign Ministry spokesman, and “does not violate any U.N. Security Council resolutions or undermine the interests of a third party or the international community.” So much for the Obama Administration’s assertion last week that China-Iran trade shows “the success of our sanctions policy,” as Beijing “supports our dual-track approach of diplomacy and pressure.”

This fantastic claim follows years of Chinese troublemaking—via open opposition to U.S. and European Union sanctions, sales of sensitive nuclear-related technologies and materiel, currency schemes to avoid banking restrictions and more.

To be sure, Iran is feeling some pressure these days. The EU, which a few years ago accounted for almost one-fifth of Tehran’s oil business, has instituted a total embargo. South Korea has said it will zero out imports, too. All told, Iran’s exports have plunged 40% this year compared to last, according to the International Energy Agency. As Hillary Clinton noted last week, this will cost Iran about $8 billion per quarter, or 10% of GDP. Throw in hyperinflation and stagnant growth, and Iran is suffering real economic pain.

But enough pain to stop the 30-year nuclear drive of a revolutionary regime built around a messianic cult of martyrdom? A regime with foreign currency reserves between $60 billion and $100 billion, and which would net more than $40 billion in oil revenue even with a 40% drop in sales?

We’ve never considered sanctions likely to persuade Iran to drop its nuclear program, but it’s dangerous to pursue them half-heartedly while claiming progress and keeping the international temperature down as Iran’s centrifuges spin. That’s been the Obama Administration’s consistent approach, and it’ll probably continue at least through Election Day in November. It’s a good way to comfort adversaries in Tehran and Beijing while undermining friends in Jerusalem and beyond.

A version of this article appeared July 3, 2012, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: Obama’s Iran Loopholes.