Global Insight Perspective
Significance	The United Nations Security Council (UNSC) has adopted Resolution 1803, slapping a third set of sanctions on Iran because of its refusal to halt uranium enrichment and clear up outstanding questions regarding previous nuclear weaponisation studies.
Implications	New sanctions will extend the list of key nuclear, security, and regime personnel to suffer travel bans and asset freezes, as well as broaden the number of Iranian institutions and companies on the international financial blacklist. The sanctions package also calls for inspections of shipments as well as further reinforcing Iran's financial isolation.
Outlook	With occasional domestic gas shortages and rapidly declining oil production, Iran is in need of advanced technology and investment to bring gas onstream and begin vital export projects. This will now be even trickier, as the financial sanctions will make business increasingly hard and expensive, while shipping inspections will delay and hinder imports.

Security Council Negotiations

For the first time in the process of censuring Iran over its alleged nuclear weapons programme, the United Nations Security Council (UNSC) failed to reach a unanimous vote as a third round of sanctions was passed against the Islamic Republic. While the support for the measure from all veto-wielding members was clear from the outset of the resolution's introduction into the chamber, as was the likelihood of it receiving the required number of votes from non-permanent member states, several other non-permanent members—chiefly from the non-aligned movement—opposed further sanctions. With the failure to reach a unanimous vote seen as undermining the legitimacy of the resolution, hard negotiations over this past weekend have ultimately managed to secure affirmative votes from Libya, Vietnam, and South Africa, with only Indonesia abstaining in the end.

Iran has not heeded previous UNSC resolutions calling it to halt uranium enrichment, not has it fully responded to the International Atomic Energy Agency (IAEA) over all the allegations of nuclear weaponisation with which it has been confronted. The lack of UNSC unity this time, however, comes as some of the outstanding charges against Iran are being debated. One particular case involves the so-called "Green Salt Project", found by U.S. intelligence on a laptop allegedly seized from Iranian intelligence operatives some years ago, but whose provenance and source has been called into question. Indeed, for quite some time Iran had not been allowed to see specific content related to those accusations for reasons of protecting the initial sources, something which it says has impeded its ability to defend itself. Nevertheless, the UNSC's support for further sanctions has been broad and the veracity of the contended allegations has not, significantly, been challenged openly by veto-wielding permanent members Russia and China, which otherwise have been favouring a line of more diplomacy and less coercion when dealing with Iran's nuclear file at the UN.

New Sanctions

The new sanctions adopted against Iran by the UNSC will broaden the number of individuals deemed to be tied to Iran's nuclear establishment and missile programme, as well as including some higher state and security functionaries. More definitively, it will allow international inspection of shipping to and from Iran and urges states to "exercise vigilance" in entering into new commitments for public-provided financial support for trade with Iran, including the granting of export credits. It also urges vigilance in dealing with "all banks domiciled in Iran, in particular Bank Melli and Bank Saderat and their branches and subsidiaries based abroad."

The scope of new shipping inspections will have the potential to disrupt and delay trade, in particular making imports of certain advanced technologies used in the energy industry highly problematic. These include liquefaction technology, drilling and reservoir management software, and enhanced oil recovery (EOR) techniques, which all fall under U.S. unilateral sanctions. Having said that, it is the financial sanctions that are bound to disrupt Iranian trade the most.

International financial institutions have already been leaving Iran in droves since mid-2007. Most European banks have closed their offices, or alternatively are running their remaining operations on a shoestring basis, just to maintain a presence if the climate should shift, but actually turning business away. Since the latter part of last year, effective U.S. threats of sanctions against banks dealing with Iran have made Asian and even Persian-Gulf-based banks turn down Iranian contacts, leaving the country with a declining amount of generally small banks acting as channels to the outside world. Codifying greater "vigilance" in dealing with Iranian financial institutions within UN resolutions will speed up the isolation and make it much harder for Iranian businesses—or international businesses in Iran—to transfer funds, get letters of credit issued, or finance projects, as no business generally wants to be seen flouting UN sanctions.

Iran's opaque business environment, where financial due diligence is very difficult for outside businesses to carry out, will continue to make international banks overcautious when dealing with Iranian counterparts. It is certainly a tricky task to assess the extent of business networks tied to the state, or the Iranian Revolutionary Guards, or indeed other U.S.- or UN-blacklisted entities. This is particularly true of the oil and gas business, where the different politico-security-based business networks have profited from lucrative supply and service contracts in the past years. Naming Iran's largest business banks explicitly in the sanctions resolution will naturally put Iran's finance industry into an even deeper freeze.

Outlook and Implications

High oil prices have aided Iran by giving it a much greater resilience against the sanctions than would have been the case just a few years ago. Nevertheless, Iran suffers deeper structural problems. Inflation and unemployment are bound to be high on the agenda during this month's parliamentary elections, although President Mahmoud Ahmedinejad's faction will try to blame it on international animosity. However, another problem, which will probably not figure, is Iran's deepening oil and gas development breakdown. The absence of international investment during the past eighteen months or so has halted much of the upstream gas development in the country and made the import of expensive and advanced liquefaction technologies impossible. What upstream and downstream gas development there is, has to a large extent gone towards injection into Iran's ageing oilfields in order to keep oil production rates up. This has meant that too little gas has been diverted to the country's domestic gas system, which has grown slower than demand. In the last winter months this has resulted in dramatic shortages, exacerbated by an import price dispute with Turkmenistan.

Following the loss of momentum behind the drive for tighter sanctions in December last year, when a combined U.S. intelligence agency assessment of Iran undermined claims about the country having studied nuclear weaponisation after 2003, Iran has managed to attract some Chinese, Malaysian, and Indian companies to negotiate vast contracts. Nonetheless, as far as these are concerned no actual funds have been committed and there is no work being carried out at present. With a new round of UN sanctions making financial transfers to and from Iran particularly difficult and costly, it seems likely that the new arrivals will employ the same tactics as the European oil and gas companies have done in the past: stall on negotiations and drag out studies, so that they will not lose the contracts, yet will not have to start work or commit funds just yet.