US cautions Europe on Iran investment

Although bankers say they are governed by business calculations, not US political pressure, the two may not be unconnected. Growing qualms about Iran's nuclear program and financial support for Hizbullah mean there are greater risks for firms doing business there. As Georg Soentgerath of Credit Suisse says: "It was our decision, made in the light of the increase in political, financial, and reputational risk."

Levey says this is what the US is trying to get at. Recently, he noted that even financial institutions not formally bound to follow US law closely observe US financial measures directed at individuals, key regime members, front companies, financial institutions, and corrupt charities.

"Keeping a few customers that we have identified as terrorists or proliferators is not worth the risk of facing public scrutiny or a regulatory action that may impact on their ability to do business with the United States or the responsible international financial community," he said.

But however many Europeans the US manages to enlist to its "coalition of the shilling," it may not be enough. Iranian leaders have begun moving assets away from European banks to alternative repositories in the Gulf, experts note.

Ali Ansari, with London's Chatham House think tank, argues that the only way to make financial sanctions bite "is if you have much greater international coordination, including with other countries in the Middle East and Asia."

"The Americans talk about economic and financial sanctions a lot because they don't have much at stake" in Iran, he adds. "EU countries are more anxious not to lose that business. And the Iranians are saying, 'You are more scared than we are because of our oil. We guarantee you will lose more than we will lose.' "

Experts say international sanctions have never really had the desired impact. "They have almost never been very successful in getting governments to change behavior," says Geoffrey Underhill, of Amsterdam University. South Africa was an exception, he says, as it was a partial democracy with a business community sensitive to outside pressure. But in Iran, "you are talking about an authoritarian regime that is very good at diverting the effects of sanctions so that the regime doesn't pay."

"If the Europeans are not convinced, any sanctions are going to be less effective," he adds.

"If you can get the whole world against Iran, then you have a chance," says Professor Askari. But persuading even allies like Germany and Japan, with formidable investments in Iran, will be tough. Then, there is the wider Muslim world, through which Iran is thought to be funneling its petrobillions. "I don't think you'll get a Muslim coalition. Everyone knows this, so they'll be reluctant to join sanctions they know are going to be ineffective."

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