02/21/2012 05:34 pm ET Updated Apr 22, 2012

Sanctions, the Dollar and American Foreign Pollicy

It may appear to the unobservant that an attack on Iran has faded somewhat into the background but the level of back-and-forth threats, PR maneuvering and back-channel messaging continues to intensify on a fast and furious track with fears of a repeat of 2003 mistakes as the U.S. stumbles into new terrain -- all of it unnecessary and avoidable.

During the "Threats to National Security" hearing on January 31st before the Senate Select Intelligence Committee, National Intelligence Director James Clapper made the statement that the "plot to assassinate the Saudi Ambassador shows that some Iranian officials are now more willing to conduct an attack in the United States." Say what? Did he say "attack in the United States"?

Clapper was referring to Attorney General Eric Holder's allegation that a bankrupt used car dealer in Mexico was intent on hiring a Mexican drug cartel operative to blow up the Saudi Ambassador. Former CIA Middle East expert Robert Baer shot down the assertion with ABC that Holder's charge was 'not credible' and conservative commentator Pat Buchanan in a CSPAN interview labeled it a 'sting operation.'

Committee Chair, Sen. Dianne Feinstein (D-Calif) and CIA Director David Petraeus, who also testified, reported that they had both been briefed recently by Mossad agents raised questions about the influence of a foreign military intelligence lobby diminishing the independent judgment of US officials.

More recently, as the Obama Administration has backed off its earlier enthusiasm for military action, Clapper appeared before the Senate Armed Services Committee exhibiting a less bellicose approach along with Lt. General Ronald Burgess, who serves as the Director of the Defense Intelligence Agency. Both were unequivocal with Clapper, who is headed to Israel this week, stating that Iran is 'more than capable of producing enough highly enriched uranium for a weapon IF its political leaders ... choose to do so" and Burgess added DIA's assessment that Iran is "unlikely to initiate or intentionally provoke a conflict" and that it "may launch missiles in the region IF it is attacked."

All this may suggest the Administration is headed in the right direction but the country is not out of the woods yet when it comes to U.S. foreign policy being based on America's interests first. As if sending mixed messages might be a useful diplomatic tool, unnamed State Dept and Pentagon officials are now publicly stating that sanctions probably won't deter Iran and that the US will ultimately be forced to attack.

Obama's desire to give sanctions an opportunity to work after sanctions of the last thirty years have failed miserably may be more of a delay strategy than any real expectation of success. Not only are sanctions an indication of diplomatic failure and war the ultimate foreign policy dysfunction, history has shown that sanctions are not effective in moderating a country's behavior.

In its rush to apply stiff penalties, it is unclear whether the Administration anticipated that Iran's largest customers, India and China, would boycott Iranian oil with Russia opposed to the sanctions and Turkey and Japan requesting exemptions. In addition, did the Administration consider that as the price of petroleum increases on the international market, Iranian profits will soar as will the price of gasoline at the American pump -- and then there's the impact of rising gasoline prices on the price of food and ultimately, the economic recovery.

Also what should be of special concern is the message that India and the Iranians have agreed to trade oil in rupees rather than dollars with a Feb. 8th Teheran Times editorial predicting that Iran's oil exchange, the third largest reserve in the world, will start trading in currencies "other than the dollar" on March 20th.

The editorial also pointed out the coincidence that Saddam Hussein's announcement that Iraq would no longer accept dollars for oil purchases in November, 2000 was followed with the U.S. invasion in March, 2003. It had already been suggested that Libyan President Omar Gaddafi's proposal for a single 'gold dinar' currency for pan-African Arab countries may have been a powerful incentive for his recent demise. In any case, a sudden move away from the U.S. dollar as the world's reserve currency for oil payments would be a dramatic shift in the world's economic balance with serious consequences for the global financial system.

As if all that were not enough to give the President second thoughts, the recent Trilateral Summit that brought the leaders of Afghanistan, Pakistan and Iran together objecting to "foreign interference in its internal affairs" was especially significant since Iran, with a Shia majority, does not have a history of being chummy with either Afghanistan or Pakistan, both of which have Sunni majorities. With its relationship with both Afghanistan and Pakistan on shaky ground, the fact that the three have come together should give the Administration sufficient reason to take a deep breath and rethink where its Mideast policy is headed.

At the same time, an Iranian letter addressed to the European Union's foreign policy representative indicating an interest in reopening talks brought a sour response from Clinton that "if we make a decision to go forward, we must see a sustained effort by Iran...until we have reached an outcome with Iran in compliance with international obligations."

Before it can claim the moral high ground, U.S. interests in the Middle East will benefit from a shift in its foreign policy objectives by encouraging Israel to abide by UN Resolution 242, adopted unanimously by the Security Council in 1967 which requires withdrawal from the occupied territories, to allow IAEA inspections on-site and to sign the Nuclear Non-Proliferation Treaty.