Oman’s Dangerous Double Game

The sultanate, a U.S. ally, seems to be helping Tehran wage a proxy war against Saudi Arabia in Yemen.

The Mutrah Corniche seafront in Muscat, Oman. Photo: Christopher Pike/Bloomberg News
By Jonathan Schanzer and Nicole Salter
June 10, 2018 1:35 p.m. ET

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The Obama administration sought to help Iran cash in on the 2015 nuclear deal, a Republican-led Senate investigation revealed last week. The report also raises questions about the role played by Oman, a strategically located if little-known sultanate.
During the run-up to the deal, administration officials promised that Iran would never get access to the U.S. financial system. But Team Obama was desperate to ensure that Iran, a pariah in the banking community, saw some material benefits from the deal. Among other things, they sought to convert $5.7 billion of Iranian-held Omani rials, a decidedly illiquid currency, into euros.
The problem was that the rials first had to be converted into U.S. dollars. Under the sanctions regime, this required a license from the U.S. Treasury. According to the Senate report, Treasury issued the license, then asked two American banks to work with Bank Muscat to process the transactions. But the American banks balked, fearing the legal and reputational risks of doing business with Iran. Oman then resorted to buying small amounts of euros that it could transfer to Iran. It’s unclear if Iran has received all $5.7 billion.

Why Oman? Between 2012 and 2015, the country was the site for talks between Iran and the other parties to the nuclear agreement. The Obama administration lauded Oman’s contributions to the deal, but some of the sultanate’s neighbors view its policy toward Iran as too accommodating. The Omanis, less powerful and less oil-rich than other Gulf Arab states, have long argued they have no choice but to play peacemaker. But that doesn’t explain some of Oman’s recent behavior.
In 2016 Reuters reported that Iran was smuggling arms through Oman to the Houthi rebels fighting the Saudi-backed government in Yemen. The shipments allegedly included antiship missiles, surface-to-surface short-range missiles, small arms, explosives, and unmanned aerial vehicles. All shipments of weapons to the Houthis violate a 2015 United Nations Security Council arms embargo.
In March 2017, Conflict Armament Research, a U.K.-based nongovernmental organization, reported that UAVs used by the Houthis entered Yemen through Oman. In a January 2018 report, the Security Council’s panel of experts on Yemen asserted that a land route through Oman was the “most likely” explanation for how Burkan-2H missiles had arrived in Yemen. The second likeliest explanation, according to the report, was that Oman’s Salalah port was used as a transshipment point, due to its lax inspection protocols. Local Yemeni authorities also seized a pickup truck on May 9, 2017, at the border crossing with Oman. The truck contained $3.42 million in foreign currency and gold.
Perhaps most troubling, the Syrian airline Cham Wings began flying between Damascus, Syria, and Muscat, the Omani capital, in 2015. Treasury imposed sanctions on Cham Wings in 2016 for terrorism and arms proliferation. It’s possible that the airline has been bringing weapons, parts, personnel or cash into Oman from Syria for transshipment to Yemen. It isn’t clear why else this air bridge was established. As Treasury Undersecretary Sigal Mandelker recently observed, “People do not go on vacation in Syria.”
There is no evidence that Omani authorities directly engaged in illicit activities on behalf of Iran. But U.S. officials have conveyed their concerns to Omani authorities several times since 2016. The Saudis, Yemenis, Emiratis and Israelis have also expressed concerns. Omani officials emphatically deny that there is a problem at all.
While most Americans probably couldn’t point to Oman on a map, the country plays an important role in preserving U.S. interests in the Middle East. Oman has allowed the U.S. to use its military bases since 1980. The country is also crucial because Oman, along with Iran, controls the crucial oil-shipping lanes in the Strait of Hormuz.
President Trump has executed a near-total reversal of American policy toward Iran. Oman is in the unenviable position of having to adjust to this new reality. American officials should be sympathetic, but not if Muscat is turning a blind eye to Iranian weapons smuggling on its soil.

Mr. Schanzer, a former terrorism-finance analyst for the U.S. Department of the Treasury, is senior vice president at Foundation for Defense of Democracies, where Ms. Salter is a project manager and Oman analyst.

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