The administration of US President Donald Trump this week designated the Islamic Revolutionary Guard Corps, part of Iran’s armed forces, as a Foreign Terrorist Organization. A White House statement boasted that it was “the first time that the United States has ever named a part of another government as an FTO” and declared that the “action will significantly expand the scope and scale of our maximum pressure on the Iranian regime.”

In a briefing related to the announcement of the new designation, Secretary of State Mike Pompeo told reporters that he hopes “other governments and the private sector will now see more clearly how deeply the IRGC has enmeshed itself in the Iranian economy through both licit and illicit means”.

While there is no doubt that the Trump administration is waging a self-described “financial war” on Iran, designating the IRGC as a terrorist organization has little to do with adding new economic pressure, despite the administration’s claims. As sanctions attorney Tyler Cullis has argued, the IRGC and the wider Iranian economy are already subject to a “veritable labyrinth of US sanctions” meaning that “the designation of the IRGC as an FTO has limited, if any, immediate practical consequence.”

While the new designation does introduce increased criminal liabilities for those individuals or entities that can be shown to have provided “material support” to the IRGC, legitimate businesses were adequately deterred from engaging with the IRGC because of risks stemming from pre-existing sanctions designations.

Building a sanctions wall

The new designation may have limited economic impact, but it has certainly proved politically provocative. In Tehran, leaders from across political lines were unified in their condemnation of the designation and in their solidarity with the IRGC. In Washington, officials at the Pentagon and Central Intelligence Agency reportedly consider the move counterproductive, possibility putting US military and intelligence assets in the Middle East at risk of blowback. In Paris, French President Emmanuel Macron has called for all sides to practice restraint. He also spoke to Iranian President Hassan Rouhani by phone to reassure him of European support for the nuclear deal, which the US abandoned in May 2018.

In Baghdad, Iraqi Prime Minister Adel Abdel Mahdi told reporters that his government had tried to persuade the Trump administration not to proceed with the designation, noting that any escalation “would make us all losers.”

With the future of both the Iran nuclear deal and prospects for US-Iran diplomacy at stake, a political fallout is the clear intention behind designating the IRGC a terrorist organization. In an op-ed in The Wall Street Journal published just a week before the designation, the head of the hawkish Foundation for Defense of Democracies called for the Trump administration to create a “sanctions wall” that would hobble efforts by a potential Democratic president to re-enter the Iran nuclear deal in 2021. Mark Dubowitz has been among the most vocal proponents of designating the IRGC as a Foreign Terrorist Organization.

To understand how the FTO designation helps build a “sanctions wall,” it is important to consider how such a designation fits into the recent development of US sanctions powers. Today’s financialized sanctions were largely developed in response to the “forever wars” of the US invasions of Afghanistan and Iraq and the realization that the “war on terror” could not be won through conventional military conflict.

With public sentiment turning against further military deployments, and with the threat of terrorism expanding in part because of the fallout of the US invasions in the Middle East, the Treasury Department was tasked to develop new sanctions powers intended to weaken terrorist organizations by cutting their access to financial resources. As described by Juan Zarate, who served as deputy national security adviser for combating terrorism under president George W Bush, the US sought to develop its means of “financial war,” in which sanctions would “increasingly become the national-security tools of choice for the hard international security issues facing the United States.”

By the time Barack Obama took office as president, the use of sanctions in the “global war on terror” was overtaken by a new national-security imperative: addressing the perceived threat of Iranian nuclear proliferation. Suddenly, sanctions tools that had been developed primarily to target terrorist financing were being turned against governments, in part by leaning on the formal designation of countries like Iran as “state sponsors of terror.”

Building a stigma

The application of sanctions seemed sensible – the US would leverage its primacy in the global financial system in order to block the assets of terrorist organizations and their state sponsors, while also putting their commercial enablers in legal jeopardy. Obama saw “diplomacy, backed with strong sanctions” as a direct alternative to reliance on military brinksmanship – ”a failed policy that has seen Iran strengthen its position.”

But there were unintended effects. While the US was tightening its sanctions on Iran, American officials toured the world warning companies that, despite their extensive due diligence, the opaque nature of the Iranian system meant an ever-present risk that routine commercial transactions could see funds diverted to designated groups that finance terrorism.

The stigma that arose around Iran’s economy and particularly its financial sector was so great that when Obama’s bet on diplomacy and sanctions finally paid off in the form of the historic JCPOA (Joint Comprehensive Plan of Action) nuclear deal, he ultimately proved unable to deliver Iran the economic benefits of sanctions relief promised as part of the agreement, bringing it to the brink of collapse. Even though the US lifted a large proportion of its sanctions on Iran as a matter of legal fact, companies and the banks Tehran needed remained fearful to engage, rendering the practical impact negligible.

Opponents of Obama’s nuclear deal were quick to recognize this fact. When Trump came into office having promised to tear up a “decaying and rotten deal.” some even argued that his administration could advance its anti-Iran agenda while remaining in the JCPOA on the basis that Iran was receiving no meaningful benefits. Eventually Trump did withdraw from the agreement, but as hawks opposed to engagement with Iran look to the post-Trump future, whether that future arrives in 2021 or 2025, there is a clear desire to exploit the ways in which sanctions themselves have proven a liability to diplomacy.

In this way, given the lack of practical impact, the designation of the IRGC as a terrorist organization has little to do with the activities of the corps as a military force, concerning though they may be.

Rather, by designating part of Iran’s state as a terrorist organization, a label that extends to millions of conscripts, those who wish to build a “sanctions wall” are seeking to close a political feedback loop. Not only does the FTO designation aim retroactively to justify the whole architecture of US sanctions on Iran, but even if the political circumstances between Washington and Tehran change in the future, sanctions will continue to be justified as a matter basic definitions. A future US administration seeking to lift sanctions on Iran will not merely need to argue the political expediency of that decision – it will now be forced in effect to “redefine” the most powerful force in Iranian national security, a tall order after 40 years of entrenched animosity.

What the FTO designation makes clear it that “financial war” on Iran is America’s new “forever war.”