The International Atomic Energy Agency’s report detailing how Iran has conducted secret activities “specific to nuclear weapons” was a bombshell that surprised nobody.

While the report, based on the IAEA’s inspections and information from intelligence agencies of more than 10 nations, stopped short of saying that Iran had a functioning nuclear-weapons program, it made clear that the Tehran regime was up to no good -- working to adapt a Pakistani nuclear weapon design to fit its medium-range missiles, seeking to secure uranium for a secret enrichment program, using information gleaned from a Russian scientist to calibrate the explosive force of a bomb’s uranium core, trying to build detonators suitable for nuclear weapons and so on.

Given that IAEA Director General Yukiya Amano has said repeatedly that Iran hampered his inspectors, one suspects it is up to plenty more as well.

In any case, the report, combined with the alleged Iranian plot to kill the Saudi ambassador in Washington and Iran’s continued sponsorship of terrorism, demands a reaction from the U.S. and its allies.

There are three main retaliatory paths to choose among. The first is forging a deal that would allow Iran a uranium-enrichment program for peaceful energy purposes monitored by outside parties. Tehran’s record of serial duplicity does not inspire confidence in this approach, and we urge the U.S. and Europe to abandon it.

A second, terrifying option is a strike by the U.S. or Israel on Iran’s suspected nuclear and weapons sites. Although this is militarily feasible and could buy the world time, the obvious potential downsides (the Middle East engulfed in war) vastly outweigh the potential gains, at least for now.

The third path is by far the least bad: to apply enough economic pressure on the mullahs that they are forced to rethink the wisdom not only of a nuclear weapons program, but also of their foreign adventurism and terrorist support.

A call for sanctions is inevitably met with skepticism. And it’s true that Iran’s history of evading measures, the unwillingness of countries such as China and Russia to honor them, and the lure of Iran’s oil, make it impossible to shut the country out of the global economy. But the beauty of sanctions is that a total blockade isn’t necessary.

Rather, the goal is to make economic dealings with Iran such a hassle for the rest of the world that Tehran, faced with a sinking economy and unhappy populace, changes its political calculus.

The U.S. and its allies have made significant strides on this front, pushing through the United Nations four rounds sanctions since 2006 targeting individuals and corporations linked to nuclear efforts. Unilateral measures banning most financial transactions have successfully “increased the cost of doing business, limited foreign direct investment and technology transfer, and have affected international trade and financial transactions,” according to a report in August from the International Monetary Fund.

The measures have hit Iran hard: The IMF expects the inflation rate to reach 22.5 percent this year; the economy is growing at only about 1 percent a year; and, though it’s not always wise to take statements from Iranian leaders at face value, President Mahmoud Ahmadinejad complained to his parliament this month that “our banks cannot make international transactions anymore.”

What more can be done to turn the screws? Russia has said it will veto any serious U.N. measures, but unilateral steps to consider include closing a loophole in current sanctions that allows European refiners to use Iranian crude oil in gasoline exported to the U.S., expanding sanctions to Iranian commercial banks and more individuals, penalizing foreign subsidiaries of U.S. companies doing business with Iran, cracking down on shipping and other front companies registered in third-party nations but controlled by Iran, sanctioning Iran’s imports of refined gasoline, and requiring nations exporting petroleum products to the U.S. -- the plastic in Chinese consumer electronics, for example -- to prove that no Iranian oil was used in their manufacture.

In addition, diplomatic pressure could be applied on allies such as the Persian Gulf states, Japan, South Korea and Turkey to enforce some existing U.S. sanctions and to limit their business with Iran’s energy sector.

A more controversial option would be sanctions directed against the Iranian central bank, known as Bank Markazi. This would make it much more difficult for Iran to sell its crude oil and could destabilize its currency. More than 90 U.S. senators signed a letter pressuring President Barack Obama to take this step in August. It would be an extreme measure: With Iran producing about 3.6 million barrels of oil per day, and only about 2.8 million barrels per day of spare production capacity available from OPEC nations, it would risk driving energy prices significantly higher. It could also inflict severe punishment on Iran’s people.

Although the reticence of China and Russia to put pressure on Iran is unfortunate, it is important that the U.S. and European Union not turn this into a diplomatic war -- the long-term idea should be to convince Beijing and Moscow that curbing Iran’s nuclear ambitions is in their self interest. After all, it took European nations years to realize the threat that Iran posed to them and to become, finally, willing partners in the sanctions regime.

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