U.S. sanctions against the Islamic Republic

Playing poker with Iran

Iran and the U.S. seem to have reversed roles with the Trump administrationʹs decision to withdraw from the 2015 nuclear deal. Iranʹs isolation before the agreement now contrasts with Americaʹs determination to swim against the global tide. By Hassan Hakimian

"The Iran sanctions have officially been cast," tweeted U.S. President Donald Trump three months after he signed an executive order in May announcing his administrationʹs withdrawal from the 2015 Iran nuclear deal. He went on to boast about the return of "the most biting sanctions ever imposed", as if sounding the death knell of the Joint Comprehensive Plan of Action (JCPOA), as the deal is officially known.

The announcement took few observers by surprise. But the irony was not lost on Wendy Sherman, the JCPOAʹs senior U.S. negotiator, who quipped recently that she had always expected "the greatest challenge to the dealʹs success would be violations by Iran, not the political machinations of the president of the United States."

Indeed, Iran and the U.S. seem to have reversed roles: Iranʹs isolation before the deal now contrasts with Americaʹs determination to swim against the global tide. Disappointment, if not disbelief, prevailed among the JCPOAʹs other parties – the European Union countries, Russia and China – whose leaders were quick to reaffirm their strong commitment to the agreement.

By contrast, U.S. officials have reiterated the Trump administrationʹs determination to rein in Iranʹs "nuclear ambitions" permanently, limit its ballistic missiles programme and scale down its regional influence. By the sanctionsʹ final stage, which kicks in on 4 November (coinciding, as it happens, with the 39th anniversary of the abduction of diplomats and staff at the U.S. Embassy in Tehran in 1979), the U.S. goal is to reduce Iranʹs oil exports "down to zero".

Are sanctions likely to be effective?

Given the long and fraught history of economic sanctions against Iran, the question looming now is whether they are more likely to be effective in changing the regime or its behaviour this time.

A gas flare on an oil production platform in the Soroush oil fields is seen alongside an Iranian flag (photo: Reuters/R. Homavandi)
De facto sanctions, regardless of their legality: "European firms will ultimately decide the outcome of the battle for secondary sanctions in cognizance of their shareholdersʹ interests – hence the significant stream of exits from Iranʹs markets already announced by Daimler and other global players. No-one is going to risk the ire of the U.S. Treasury willingly," writes Hashimian

The last time Iranʹs oil exports were reduced to negligible levels through an extensive economic boycott was in the mid-twentieth century, when Iranʹs popularly elected prime minister, Mohammad Mossadegh, nationalised the oil industry.

A British-led blockade of Iranʹs oil brought the industry to a virtual standstill, destabilised the economy and paved the way for the infamous U.S. and UK-instigated coup which restored the Shah to power in 1953.

Such has been the hangover from those tumultuous years that it took a half-century for U.S. Secretary of State Madeleine Albright to acknowledge in 2000 that the coup that ousted Mossadegh was a clear "setback for Iranʹs political development" and a key reason "why many Iranians continue to resent this intervention by America." Such remorse, if it can be considered that, did not, however, close the door on more sanctions against Iran.

Sanctions imposed by the U.S. and the EU from 2010 to 2015 had mixed results. These comprehensive measures – described by then-U.S. Vice President Joe Biden as "the most crippling sanctions in the history of sanctions" – shrank oil exports by two-thirds, to below one million barrels a day.

The resulting stagflation heaped misery on ordinary Iranians, with GDP contracting almost 6% in 2012 and inflation averaging 35% the following year. Widespread private-sector failures and growing unemployment followed.

Contrary to the sanctionsʹ principal objectives, however, the economic and political hold of the public sector and parastatal organisations strengthened. Meanwhile, Iran insisted on its sovereign right to pursue a peaceful nuclear programme. The scope for compromise seemed absent until the reformist administration of President Hassan Rouhani took over in 2013.

So whatʹs different this time? Though promising to be even more biting, the U.S. sanctions regime is not backed by UN Security Council resolutions and hence lacks international legitimacy. This means Iranʹs isolation will be far less complete, with key trading partners such as China and Turkey already announcing that they will abide by "legal" sanctions only.

The inevitable reach of U.S. economic influence

But the sanctionsʹ de facto, not de jure, status will determine their effectiveness. This is especially true of European firms, which will ultimately decide the outcome of the battle for secondary sanctions in cognizance of their shareholdersʹ interests, rather than the political machinations of their governments.

This explains the significant stream of exits from Iranʹs markets already announced by large firms. In an interconnected world where U.S. economic influence extends far and wide, it is hard even for European firms – auto manufacturers, airlines, energy companies, banks and the like – to risk the ire of the U.S. Treasury. This means that the ultimate success of sanctions is likely to depend on what others make of them as much as on what Iran does.

But domestic conditions in Iran also play a key role and it is here that the U.S. seems to be basing its confidence that sanctions will "succeed". For months, Iranian cities have been rocked by widespread protests, ostensibly against worsening economic conditions. These outbursts have weakened Iranʹs reformers by undermining their monopoly on hope.

Iranians using ATMs in Tehran on 6 August, 2018, as the first phase of sanctions, targeting Iran's banking sector, took effect (photo:picture-alliance/AA/F. Bahrami)
"The most crippling sanctions in the history of sanctions": imposed by the U.S. and the EU between 2010 and 2015, these comprehensive measures shrank oil exports by two-thirds, heaping misery on ordinary Iranians, with GDP contracting almost 6% in 2012 and inflation averaging 35% the following year. Widespread private-sector failures and growing unemployment followed. Yet, contrary to the sanctionsʹ principal objectives, however, the regime still pulled through

Hardliners, it seems, have been offered a new lease of life and can now claim their dismissal of the JCPOA was justified from the start. The economic impact has already been felt, with the Iranian currency going into freefall after speculation about a U.S. withdrawal from the deal began. The spectre of inflation is back.

Ultimately, for sanctions to succeed from the U.S. perspective, they must bring about either regime change or behavioural change. Historically, sanctions have a less-than-convincing track record (think Cuba, Myanmar and Zimbabwe) on achieving the former and whether they can pave the way for the latter, in the form of a negotiated settlement, remains to be seen. But one thing is clear: applied to Iran, the "Trump doctrine" of pushing oneʹs foes to the brink, in the hope that they will blink first, has entered uncharted terrain.

Hassan Hakimian

© Project Syndicate 2018

Hassan Hakimian, Director of the London Middle East Institute and Reader in Economics at SOAS, University of London, is a co-editor of Iran and the Global Economy: Petro Populism, Islam and Economic Sanctions.

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