Iran divestment: questions of impact and motivation
With the Iranian nuclear threat increasingly in the limelight, Massachusetts fully divested its pension funds from Iran before the New Year. But what are the implications beyond Massachusetts?
President Barack Obama recently signed into law economic sanctions on Iran’s central bank as part of the National Defense Authorization Act, but did so while expressing misgivings, citing “serious reservations with certain provisions” of the legislation that he said could infringe on his “constitutional authority to conduct foreign relations by directing the executive to take certain positions in negotiations or discussions with foreign governments,” according to reports.
Obama waited until New Year’s weekend to sign the sanctions—which were passed by the U.S. Senate 100-0 on Dec. 2—and added that he would treat them as “non-binding” if they interfere with his constitutional authority. The President is also able to waive the sanctions if he determines that such a move is in the national security interest of the U.S.
Contrasted with indecision in the White House,, the Massachusetts Pension Reserves Investment Management Board announced on Jan. 3 that it finalized the divestment of all its holdings in companies with major ties to Iran’s energy industry on Dec. 30, 2011, becoming “among the first state pension funds to fully divest,” said Treasurer Steven Grossman, former president of the American Israel Public Affairs Committee (AIPAC).
Citing the fact that there were 17 companies on Massachusetts’s divestment list several years ago but only six companies in question after the latest external audit commissioned by the state, Grossman said that he credits Iran divestment legislation around the U.S. “for having changed the behavior of some international energy companies.”
“I think there are quite a number of international oil companies and energy companies that have concluded that doing business in Iran and with Iran was too risky, and there’s documentation for companies having decided ‘We’re not going to do this anymore,’ because the headline risk and the business risk make it an untenable proposition,” Grossman told JointMedia News Service.
While state divestment is “an important adjunct to the type of federal action that’s taking place with regard to sanctions, via Congress and the executive branch,” however, it is also a local indication of how weak national governmental policy is on Iran, said Ilan Berman, vice president of the Washington, DC-based American Foreign Policy Council.
“Divestment obviously can’t be the tip of the spear when it comes to putting economic pressure on Iran,” Berman told JointMedia News Service. “Over the last six years or so, it has been a grassroots reaction from concerned citizens who are worried about Iran and worried that the U.S. government isn’t doing enough to take matters into their own hands. So it is, I think, properly seen as a reflection of the U.S. government not doing enough.”
Some reports had Massachusetts as the first state to fully divest its pension funds from Iran, but Grossman wasn’t ready to take that credit. He said that Florida and Georgia have made similar divestitures, and that other states were close to full divestment before the end of 2012. Therefore, he “did not want to claim that we were third [in the country to fully divest] because there may be one or two others that did what we did pretty much around the same time.” Berman agreed, saying that the record on which states have actually fully divested is “fairly muddled.” Nonetheless, Massachusetts has set a leadership example.
The finalization of total divestment in Massachusetts fulfilled the mandate of an existing state law designed to put pressure on Iran, and Grossman said he hopes “every state in the country will do this as quickly as possible, because I think that anything we do collectively puts more pressure on the international oil and gas industry to seriously question how much they want to do business in Iran.”
In Florida, the “Scrutinized Companies” bill became law in July 2011, adding to the state’s 2007 divestment legislation for companies that invest with Iran and Sudan. When the Jewish Federation of South Palm Beach County began working with then State Senator and now U.S. Rep. Ted Deutch on divestment, there was “very little being done on a national level,” recalled Rabbi David Steinhardt, chair of the local Jewish Community Relations Council (JCRC).
Steinhardt said he has “thought a lot” about whether or not state divestment is a direct local expression of concern over the U.S. administration’s Iran policy, and concluded that the national response “is in fact having an effect on the Iranian economy.” Steinhardt doesn’t believe that all the critique of the administration is valid, given that the U.S. “can’t do everything possible at the moment without considering the possible global implications.”
Ilan Berman said the White House should embrace divestment and harness it as part of its economic warfare package against Iran
“If you’re serious about waging economic war against the Iranian regime, you have to look at all the tools at your disposal, and companies that are heavily leveraged in energy trade that abuts Iran’s energy economy are a good place to start,” Berman said. “But, doing that in isolation, doing that not in a synchronized fashion and doing that in lieu of doing other things, is I think the wrong approach.”
Divestment actions, alone, also “simply don’t move fast enough and aren’t sweeping enough to actually make a real difference,” Berman said.
Grossman, on the other hand, stressed the “meaningful” and “chilling” effect of economic pressure on Iran. When divestment legislation was first on the table in Massachusetts, more than $300 million in state pension funds were in question. But as of Jan. 1, 2011 that number was closer to $100 million, Grossman said, meaning that money managers “had already made some investment decisions because they were concerned that these investments [in Iran] could be less productive than others, and they could switch money to other international oil and gas companies.”
Changing corporate behavior is one thing, but what will actually change Iran’s behavior?
“I don’t see what’s going to change Iran’s behavior, frankly,” Grossman said. However, the “next best thing” is changing the behavior of oil and energy companies, he said.
President of AIPAC from 1992-96, Grossman explained that while “Israel has been threatened time and time again by [President Mahmoud] Ahmadinejad and the Iranians,” the real inspiration for divestment in Massachusetts came from elected officials’ sense of responsibility “to uphold the constitution of the United States as well as the constitution of Massachusetts.”
“[Legislators’] principal concern is ‘How does this affect the United States of America?’ And I think that any objective analyst would agree that Iran’s possession of nuclear weapons, leaving aside the threat to Israel and the Middle East, and leaving aside the threat of a nuclear umbrella over the entire region, is a clear and present danger to the national security of the United States of America, and that’s the reason why this is a big issue for legislatures of states all over the United States,” Grossman said.