How Sanctions Can Reduce U.S. Leverage: The Case of Iran
Attention has increased recently to sanctions against Iran and relief from sanctions under the terms of the agreement, known as the Joint Comprehensive Plan of Action, to limit Iran's nuclear program. As usual whenever this set of subjects comes up, commentary in the United States reflects different agendas, some of which are not congruent with U.S. interests or the interests of international security. Also as usual, there is much exploitation of misunderstanding of what economic sanctions can and cannot do.
Relief from sanctions clearly was an important part of getting Iran to agree to the severe restrictions and unprecedented degree of international monitoring and inspection provided for in the JCPOA. Although Iranian leaders evidently had already decided that their country faced a better future as a state without nuclear weapons than as a nuclear-armed pariah state—and their acceptance of the agreement would make no sense if they had not so decided—they would not have signed on to an agreement as far-reaching as the JCPOA, which subjects Iran to limits and scrutiny beyond what any other country is subjected to, unless significant relief from the economic punishment of sanctions were involved. The sanctions relief and prospective economic improvement were a critical part of the case that President Rouhani and Foreign Minister Zarif made to sell the agreement to skeptics and opponents in Tehran.
In short, if you want the kind of restrictions on Iran's nuclear activities that assure there will be no Iranian nuclear weapon, then significant relief from sanctions, with the economic improvement that comes from that relief, is necessary. Besides, getting Iran to agree to restrictions on its nuclear activities was what the sanctions in question were supposed to have been about to begin with. It was only after those who are determined to kill the agreement were scrambling for every rhetorical weapon they could use against it that we started hearing about supposed additional reasons to keep sanctions in place that were not part of their original purpose of curbing the Iranian nuclear program. And anyone who doubts that significant sanctions relief is needed to achieve that purpose need only recall the years of fecklessly piling on ever more sanctions, in the absence of any negotiations offering a channel for relief from those sanctions—years that failed to bring about any positive result on the Iranian side as the Iranians continued to expand their nuclear program and to enrich ever more uranium.
A reason for renewed attention to the issue right now is that, even though Iran promptly complied with its obligations under the JCPOA regarding curtailment of uranium enrichment and all of the other measures it was required to take under the agreement, it has yet to see significantly increased trade and investment despite the formal removal of the nuclear-related sanctions by the United States when the agreement was implemented earlier this year. The chief reason Iran hasn't seen such improvement concerns the size, complexity, and outright ominousness of the structure of sanctions that have been erected against it over the years. If the purpose of that sanctions edifice was to scare foreign commercial and financial institutions away from doing business with Iran, it has served that purpose very well. The prospect of heavy fines from the United States and of being shut out of the U.S. financial system—the system that owns the currency that is still the world's principal reserve currency and in which much international trade is denominated—has scared stiff those foreign institutions, especially European banks, that might otherwise be involved in facilitating payments for trade with Iran.
They are still scared. Even though U.S. officials have traveled abroad to instruct the foreigners on exactly what changed with implementation of the JCPOA and what is and is not allowed today, the complexities of this system of sanctions piled upon sanctions still engenders fear of inadvertently stepping over a line into what is impermissible. As a matter of business risk, the risk of accidentally taking that step and getting hit with more huge fines and exclusion from the United States appears greater than the reward from engaging in any new business with Iran.
This case illustrates how whatever leverage and influence the United States may get from economic sanctions depends in equal importance on two things: not only the punishment that occurs when another government does not conform with U.S. wishes, but also relief from that punishment when it does conform. Without assurance of the latter, there is no incentive for the other government to change its policies.