A number of news reports have come out recently indicating that bilateral trade between Indonesia and Iran reached more than $1 billion USD in 2010; an increase of more than 20% over the previous year. There is some speculation by members of the Indonesian Government that this could increase further if energy was included. Currently the numbers only reflect foreign commodity trade.

There have discussions between the two countries related to increasing trade and overcoming problems arising with bank transactions which to this point have been mostly carried out in an informal matter. The commodities being traded include exports to Iran of rubber and rubber products, steel products, food, palm oil, footwear, textile and textile products. On the other hand, Iran exports to Indonesia asphalt, minerals, pipes, construction materials, carpets and building material.

There have been rumors from inside the Indonesian Government that the trade has been implemented by way of third party countries, such as Turkey, U.A.E., and Malaysia. The reason for this indirect trade is because of the U.S. trade sanctions administered by the United States Department of the Treasury Office of Foreign Assets Control (OFAC). OFAC currently administers the Iran sanctions program, which virtually prohibits all trade between the U.S. and Iran without an OFAC license. The fear from the Indonesian side is that if there ties to Iran become too strong, then they may also endure the wrath of OFAC sanctions.

So does the Indonesian Government truly have cause for concern? Maybe, but probably not. There is no specific sanctions program or regulation which calls for imposition of sanctions against those foreign nations or parties trading with an OFAC blocked country, such as Iran. However, it would not be out of the realm of possibility for OFAC to target certain Indonesian exporters or government officials, if they deem those parties to be involved in activity which could potentially be deemed as the provision of material assistance to Iran’s military, support of terrorist organizations, human rights abuses, or nuclear weapons program. For example, if Indonesian exporters begin exporting articles critical to Iran’s proliferation of weapons of mass destruction, I could easily see those exporters being designated as Specially Designated Nationals (SDNs) on the OFAC SDN List.

In the end, however, I do not believe OFAC will impose sanctions over all of Indonesia. The U.S. government and OFAC have moved away from country based sanctions programs recently and they seem to be more interested in using target based programs which target for SDN designation specific individuals and entities. As such, I think an Indonesian OFAC sanctions program is unlikely.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.