The US on Monday designated Iran's Revolutionary Guard Corps a foreign terrorist organisation, an unprecedented declaration against a foreign government that may prompt retaliation and make it harder for American diplomats and military officers to work with allies in the region.
It is the first time that the US has designated an entity of another government as a terrorist organization, placing a group with vast economic resources that answers only to Iran's supreme leader in the same category as al-Qaida and the Islamic State.
"This unprecedented step, led by the Department of State, recognizes the reality that Iran is not only a state sponsor of terrorism, but that the IRGC actively participates in, finances and promotes terrorism as a tool of statecraft," President Donald Trump said in announcing the measure.
Secretary of State Mike Pompeo said the designation is intended to increase pressure on Iran, isolating it further and diverting some of the financial resources it uses to fund terrorism and militant activity in the Middle East and beyond. But, in addition to the potential for Iranian retaliation, it complicates a delicate balance for US personnel in at least two key countries.
No waivers or exceptions to the sanctions were announced, meaning US troops and diplomats could be barred from contact with Iraqi or Lebanese authorities who interact with Guard officials or surrogates.
The Pentagon and US intelligence agencies had also raised concerns about the impact of the designation if the move did not allow contact with other foreign officials who may have met with or communicated with Guard personnel.
Those concerns have in part dissuaded previous administrations from taking the step, which has been considered for more than a decade.
Critics of the hardline policy also see it as a prelude to conflict.
"This move closes yet another potential door for peacefully resolving tensions with Iran," said Trita Parsi, the founder of the National Iranian American Council. "Once all doors are closed, and diplomacy is rendered impossible, war will essentially become inevitable."
The designation could also open hundreds of foreign companies and business executives to US travel bans and possible prosecution for sanctions violations.
It blocks any assets that IRGC entities may have in US jurisdictions and bars Americans from any transactions with it. When it takes effect next week, it will allow the US to deny entry to people found to have provided the Guard with "material support" or prosecute them for sanctions violations. That could include European and Asian companies and business people who deal with the Guard's many affiliates.
"It makes crystal clear the risks of conducting business with, or providing support to, the IRGC," Trump said. "If you are doing business with the IRGC, you will be bankrolling terrorism."
Pompeo said the action should serve as a warning to corporate lawyers to ensure any business their companies do in Iran is not with any entity affiliated with the Guard.
"If you're the general counsel for a European financial institution today, there is more risk," he said.
The IRGC is a paramilitary organization formed in the wake of Iran's 1979 Islamic Revolution to defend the government. The force answers only to Iran's supreme leader, operates independently of the regular military and has vast economic interests across the country.
The US estimates it may control or have a significant influence over up to 50 per cent of the Iranian economy, including non-military sectors like banking and shipping.
The State Department currently designates more than 60 organisations as "foreign terrorist organisations." But none of them is a state-run military.
Iran immediately responded to the designation with its Supreme National Security Council designating the US Central Command, also known as CENTCOM, and all its forces as terrorist, and labeling the US a "supporter of terrorism".
The Council denounced the U.S. decision as "illegal and dangerous" and said the US government would be responsible for all "dangerous repercussions" of its decision.
It defended the IRGC, which has fought Islamic State fighters, as being a force against terrorism.
The US special envoy for Iran, Brian Hook, and the State Department's counter-terrorism coordinator, Nathan Sales, said the decision was reached after consultation with agencies throughout the government but would not say in a news conference if the military or intelligence concerns had been addressed.
"Doing this will not impede our diplomacy," Hook said, without elaborating.
Reaction from those who favour tougher engagement with Iran was quick and welcoming.
"Thank you, my dear friend, US President Donald Trump," Israeli Prime Minister Benjamin Netanyahu said in a tweet, a day before what could be a close election.
"Thank you for answering another of my important requests that serves the interests of our countries and of countries in the region."
Sen. Ted Cruz, R-Texas, called the action an "overdue" but essential step that should be followed by additional sanctions.
Rep. Michael McCaul of Texas, top Republican on the House Foreign Affairs Committee, said the designation "ends the facade that the IRGC is part of a normal military.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)