How to get a handle on the axis
Apr 12th 2007
From The Economist print edition
THIS hasn't been the finest week for the effort to curb the nuclear ambitions of the two states which, along with Saddam Hussein's Iraq, were once consigned by George Bush to an “axis of evilâ€.
North Korea, which shocked the world with a nuclear-bomb test last October, looks like missing an April 14th deadline—agreed two months ago in six-party talks with America, China, South Korea, Japan and Russia—to shut down and seal its Yongbyon nuclear reactor, and the related facilities for extracting bomb-useable plutonium from its fuel rods.
Meanwhile, on April 9th, Iran's President Mahmoud Ahmadinejad (above), announced to much ballyhoo and the strains of a “nuclear symphony†that its technicians could enrich uranium (for reactor fuel, not bombs, he says) “on an industrial scale†at its underground plant at Natanz.
To hawkish critics of Mr Bush's readiness to negotiate with both North Korea and Iran (if only the latter would suspend its uranium and plutonium work as the UN Security Council has demanded) on nuclear matters, these setbacks are not unconnected. The two countries collude closely on increasingly far-flying missiles; some suspect them of doing joint nuclear work, too. The critics worry that an American concession to get North Korea back to the negotiating table two months ago—the unfreezing of $25m worth of North Korean funds held at a Macau-based bank, which America's Treasury Department had identified as coming partly from other illicit activities, such as counterfeiting—will incur a cost. It could make stripping Kim Jong Il of his nuclear weapons that much harder, and further embolden Iran. Yet the broader knock-on effects of America's latest moves over Macau-based Banco Delta Asia (BDA) are unclear, and it may turn out that they are not all bad.
Mr Kim was furious when America accused BDA in September 2005 of turning a blind eye to his laundering of ill-gotten gains (a charge it denies), and when he found his accounts there frozen. North Korean negotiators have been refusing to close down Yongbyon—the first step in a deal agreed in February to implement an earlier vow by North Korea to abandon its weapons programmes—until he gets his millions back. Inspectors from the International Atomic Energy Agency (IAEA), supposed to monitor the shutdown, have been cooling their heels for weeks.
The next stages of the February deal are supposed to see North Korea owning up to and eventually disabling all its nuclear-related facilities. But it is still not clear that Mr Kim intends ever to give up his bombs. His officials are said to have demanded privately that America instead recognise North Korea as a nuclear power, and treat it like India (which also built nuclear weapons to loud condemnation, but is now forging a deal with America to gain de facto recognition as a nuclear power).
For now Mr Kim, with his money tied up for months, is disinclined to press that demand. Much will depend on whether South Korea and China, which supply much food and other aid to North Korea, can calibrate their help in ways that keep Mr Kim on the right path. North Korea is also under mandatory UN economic sanctions as a consequence of last year's nuclear test and it remains to be seen if other countries will now keep up this pressure.
Yet for bankers and businessmen, whether their dealings are with North Korea or Iran, there is a moral of a different sort in the BDA story. Freeing up Mr Kim's funds at the bank, even with America's willing assistance, has proved far easier said than done. This was in part because China is nervous at allowing identifiably “laundered†funds to flow out through its banking system. It also still “deeply regrets†America's decision last month, when it agreed to see the Kim cash released, to designate BDA formally as a money-laundering concern; that obliges American banks and firms to cut all ties with it, and puts the bank's future further in doubt.
The move against BDA also deters others from doing business with Mr Kim. The hope, presumably, is that the bank's ongoing troubles will compound the deterrent effect. And it suggests that, although America does little trade with either North Korea or Iran, it still has ways of putting the squeeze on. North Korea was already fairly isolated; Iran is more deeply enmeshed in the world's trading and financial systems. That makes it a harder target for financial pressure, but not an impossible one.
Iran's announcement this week that it has mastered large-scale uranium enrichment has yet to be verified by international inspectors. But the claim alone was a raspberry aimed at last month's UN Security Council resolution, which will extend sanctions on individuals and companies involved in Iran's nuclear and missile programmes if it again fails to halt enrichment work before a 60-day deadline (a previous Security Council resolution had already been flouted).
The 3,000 centrifuge machines it now claims to have up and running at Natanz could eventually produce enough highly-enriched uranium (nuclear-power reactors require only low-enriched uranium) for about a bomb a year. Iran is thought still to be some way off being able to do all that—if bomb-making is indeed its aim. But its defiance heightens concern.
That may be Mr Ahmadinejad's intention: creating nuclear facts on the ground faster than diplomats from Europe, America, Russia and China can manage to step up international pressure against him. At the UN, the diplomacy has at times been tortuous. Outside the UN, however, things have been moving more speedily.
Taking their cue from the BDA saga, senior American Treasury and State Department officials have for months been criss-crossing the world to point out the growing risks of doing business with Iran. The message has started to sink in: several European banks have already announced they will no longer do business with Iran in dollars (and are said to be cutting exposure in other currencies too); scores of other banks and companies in Europe and Asia have cut new business there sharply.
More slowly than America would like, a number of European governments and Japan have also started to cut back export credits that finance trade. And since just under 25% of Iran's exports and over 40% of its imports are with the European Union alone, this can be expected to pinch.
Unlike America, EU countries until now have lacked the powers to bar companies and banks from doing business with Iran. But on April 19th new EU-wide regulations are to be published that will implement last December's first UN resolution, allowing sanctions to be imposed against named companies and individuals. Other restrictions are expected to follow. Iran is already finding it more costly to do business. It can count on only short-term credit. And it is having problems attracting investment for its oil and gas industries.
Will this help deflect it from its nuclear path? American officials say they will be patient and let the diplomacy, inside and outside the Security Council, take effect. But, says one senior official, the tougher countries are prepared to be on Iran now, the less likely it is in future that anyone will be tempted to reach for other options “famously on the tableâ€.
