Funds halted for Iran quake relief, water projects

U.S. sanctions closed channels normally used by World Bank

by Steven R. Weisman, New York Times - November 4, 2007

The World Bank, newly caught up in the Bush administration's campaign against Iran, has had to suspend payments for earthquake relief, sanitation and other projects there in response to new U.S. sanctions on leading Iranian banks, World Bank officials say.

Officials said $5.4 million in payments has been suspended for four projects, involving earthquake relief, water and sanitation, environment management and urban housing. They do not expect the suspensions to be permanent.

But the bank has no plan to resume payments because it is having trouble finding banks in Iran through which to route them now that the United States has barred dealing with four of Iran's largest banks, accusing them of involvement in terrorism, or nuclear or missile programs.

"At this point, the World Bank is looking for alternate ways to support these projects," said a bank official, who spoke on condition of anonymity. "It is unknown how difficult that might be. It is not that easy to find alternatives. We have no answer on how or when at this point."

U.S. officials said they hope the decision by the World Bank will increase pressure on Iran, not necessarily by stopping humanitarian projects but by dramatizing the country's economic isolation in light of its refusal to suspend uranium enrichment and negotiate with the West over its nuclear program.

The World Bank step, while small, illustrates the extraordinary reach of U.S. sanctions, even though they were imposed unilaterally after the United States was stymied in its recent efforts to get the U.N. Security Council to approve wider penalties.

The payments for the World Bank projects have all gone through Bank Melli, one of Iran's largest banks, but Bank Melli was accused last month by the United States of being involved in nuclear proliferation and terrorism. Also listed were two other institutions, Bank Mellat and Bank Saderat. Bank Saderat had already been listed by the United States as being involved in financing terrorism.

Some congressional critics of the administration's Iran policies have called on the United States to block World Bank aid programs for Iran altogether. The World Bank has nine active projects in Iran and, by last year, had financed 48 operations worth about $3.4 billion, according to the bank's Web site.

The effect of the United States' listing these major Iranian banks is that no American bank is allowed to facilitate any dollar-based transaction between them and any other bank in the world.