Iran is negotiating with the wrong US officials

To understand the dynamics involved in U.S. policy on Iran, it is important to mark the difference between direct and indirect economic sanctions. Direct sanctions bar specific individuals and companies from conducting international trade, using the global banking system or traveling abroad and in some cases result in asset freezes. Most direct sanctions are established and enforced by executive order, and the president has some leeway in easing these sanctions. However, they are not the sanctions that are allegedly crippling Iran's economy.

Indirect sanctions, on the other hand, are based in U.S. law and cannot easily be offered up as bargaining chips in the current negotiations. These sanctions are sometimes called business-choice sanctions or extraterritorial sanctions. They are meant to affect Iran's overall economy rather than punish or stop illicit proliferation activities, which is the focus of direct sanctions. Indirect sanctions work by offering firms a choice between doing business with Iranian entities or exclusion from doing business with U.S. entities, with substantial penalties imposed for doing the former.

The Iran Sanctions Act of 1996 created the first indirect sanctions on Iran. These are the ones responsible for hurting Iran’s overall economy by comprehensively limiting its ability to sell oil and use international banking systems. Thanks to indirect sanctions, Iran currently sells less than 1 million barrels of oil per day (bpd) — down from about 2 million bpd in 2011. Iran's currency was devalued 50 percent just before President Hassan Rouhani's election. Although Iran wants immediate relief from these indirect sanctions, they are unfortunately not the kind the Obama administration can easily waive or revoke.

It is the way indirect sanctions work that makes them so hard to reverse. They are based in law and primarily directed at large, legitimate foreign entities — mostly in the energy, banking, transportation and insurance sectors. As long as these sanctions are part of U.S. law, businesses will be at risk of having them applied, even if Obama makes a deal with Iran and declares that he will henceforth exercise prosecutorial discretion in enforcing these sanctions or in granting waivers. To do this, he would have to justify his actions to a hostile Congress (through frequent reporting mechanisms built into the legislation).

In the current political climate, many large foreign companies are choosing not to do business with Iran even if they believe the transaction is legal. They fear that their legal analysis may be wrong, that the president may change course on prosecutorial discretion and that Congress will further tighten sanctions, putting to waste the business ties they establish. Furthermore, they may stay out of Iran because of risks to their reputations from being associated with a perceived pariah state. As long as these laws are on the books, Kerry cannot simply negotiate away the risk-avoidance choices that are being made by foreign businesses.

The Iran Sanctions Act, as amended and updated, contains a loophole that allows the president to grant limited waivers. Obama has authorized six-month waivers to 20 countries (including major Asian purchasers such as China and Japan) allowing them to procure crude oil from Iran, provided that they show progress toward reducing their dependence on Iranian oil. However, H.R. 850, as recently passed by the House, would effectively boycott sales of Iranian oil and cancel the president’s waiver authority, removing what little leeway he has to ease pressure on Iran.

So where does Congress stand on easing Iranian sanctions? Large bipartisan majorities insist that economic sanctions are an effective lever to convince Iran to shut down its nuclear program. These majorities have continually backed up their beliefs with severe legislation, despite multiple pleas from the White House to forgo new sanctions. On July 31, the House passed H.R. 850 by a whopping 400-20 vote. A recent letter to Obama signed by six Democratic and four Republican senators indicates that the Senate is ready to move on new sanctions. Such a move could torpedo any preliminary deal the White House might negotiate with Iran.

The Senate, in fact, has a few sanction bills in the works and appears ready to move one of them out of the Banking Committee soon. While the Senate's most active sponsors of sanction legislation — Mark Kirk, R-Ill.; Robert Menendez, D-N.J.; Joe Manchin, D-W.V.; and Bob Corker, R-Tenn. — showed restraint as October negotiations got under way, they may not hold off for long. Further complicating the situation is the prospect of the House and Senate's mustering enough votes to override Obama's veto. Again, despite the administration's pleas for restraint over the last two years, the recent House vote on new sanction legislation passed with 95 percent approval, and the most recent Senate resolution calling for tougher sanctions passed 99-0.

Two critical dynamics are at work here: First, to get relief, Iran must prove several negatives: that its nuclear program will not produce any weapons-grade materials, that it is no longer supporting terrorism and abusing human rights and so on. Second, it took a long time to build the international and domestic coalitions necessary to levy consistent pressure on Iran. For instance, the European Union has its own laws on the books (some of which are considered tougher than U.S. sanctions) that prevent sanctioned entities from using the SWIFT banking communication system — a key device for ensuring smooth financial transfers. Letting current sanctions ease and then return them to full strength could take years, thus giving Iran more time to operate illicit programs.

If Obama really wants to make a deal with Iran, he will first have to convince Congress that Iran can and will verifiably and irreversibly shut down enrichment activities and turn over the uranium it has already enriched above 20 percent. It could only help matters if the Iranian government invited select U.S. senators and representatives to sit down for separate talks to build up trust on that end. If Congress ultimately does not embrace rapprochement with Iran and the quid pro quo sanction relief necessary for negotiations, the promise of a groundbreaking deal will be scuttled, and tougher sanction laws may ensue.