The Islamic Republic of Iran Shipping Lines (IRISL) is running out of countries to flag its ships in its increasingly futile efforts to avoid U.S. sanctions on the company. Even Tuvalu, the fourth smallest country in the world, deregistered 44 IRISL oil tankers recently. (That’s rather like being ejected from an Olive Garden restaurant in Dothan, Alabama.)

A Wall Street Journal article (subscription required) that appeared on September 28 details IRISL’s current woes in using the flags of convenience of two land-locked countries, Mongolia and Moldova, the latter a country most-renowned for its frequent utility as an obscure crossword puzzle entry. Moldova had begun to cancel IRISL registrations but those ships quickly obtained registrations from Mongolia. Now Mongolia is announcing that it will deregister the ships.

Of course, an IRISL vessel is subject to sanctions no matter what flag it is flying, but IRISL is hoping to confuse people by using flags of convenience rather than an Iranian flag for the ships. An IRISL spokesman is quoted by the Journal on the company’s rather quaint theory of reflagging its ships:

“When you push someone from a room, he should find a door,” said Ali Ezzati, Irisl’s manager for strategic planning and international affairs, on the sidelines of a shipping conference in Xiamen, China. “If he can’t find a door then he should try to find a small hole.”

I suppose that his choice of metaphors here was uninformed by the fact that small holes are the way that rats and cockroaches get into a room. I think I would have gone for window.

And, as is often the case when journalists not normally on the sanctions beat try to tackle sanctions issues, the Journal story has an amusing whopper about the Iran sanctions. The article explained that the Iran sanctions “are tied to money transactions with bank and trade services.” Er, no. All transactions with Iran are prohibited (with the exception of certain otherwise authorized transactions such as those involving food, medicine and informational materials) whether or not any money is paid and whether or not they involve “bank or trade services.” I wonder how many people will read the article and figure that the regulations don’t prohibit dealings with Iran if no payments are made. Sigh.

ABOVE: Pharmacy in Iran

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The Washington Post reprinted on Tuesday a Financial Times report that indicated that U.S. sanctions on Iran were making it difficult for Iranian doctors and hospitals to provide health care to sick patients.

The tightening of U.S. banking sanctions against Iran over its nuclear program has had an impact on all sectors of the economy but is increasingly hitting vulnerable medical patients as deliveries of medicine and raw materials for Iranian pharmaceutical companies are either stopped or delayed, according to medical experts.

But, but, you ask, how can that be? Doesn’t U.S. law permit exports of medicine to Iran even under the new sanctions? Well, yes, in theory, but in practice, maybe not. The article points out difficulty in delivering raw materials to pharmaceutical factories in Iran as one factor, but U.S. law has only permitted exports of medicines, not raw products for medicines, so there’s nothing new here.

Perhaps it’s this:

“We hold a license from the OFAC, but our imports have dropped by more than half while we pay much more than before,” one importer said.

“The exemption of medicine from sanctions is only in theory,” said another. “International banks do not accept Iran’s money for fear of facing U.S. punishment.”

It seems reasonable to conclude that U.S. sanctions have a chilling effect which extends beyond their actual scope. Even if banks might be permitted under General License A to deal with certain Iranian financial institutions in connection with exports of medicine, banks may well decide that parsing the General License, and the risk of punishment if mistakes are made, makes the enterprise more trouble than it’s worth. Not to mention, of course, that this General License would only cover licensed exports of medicine from the U.S. to Iran and not exports of medicine to Iran from other destinations.

And even if the sanctions that can be imposed on foreign banks under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”) seem limited to specific situations that don’t involve financing medical exports, the recent action by OFAC in blocking two foreign banks for their dealings with Iran may make banks worry about the risk. In that instance, OFAC appeared to be saying that transactions in the petroleum sector could be seen as aiding Iran’s nuclear program, which is one of the bases for imposing CISADA sanctions. By that logic, all transactions with Iran might be seen as aiding the nuclear program, so what bank is going to want to run the risk of financing any exports to Iran?