The Buzz

The Sanctions Delusion

The United States is overestimating its leverage with sanctions in negotiating a nuclear agreement with Iran—a gamble bound to fail. A second deadline has slipped without a comprehensive agreement between the P5+1 and Iran, and hawkish rhetoric in the U.S. underscores a growing pessimism for successful negotiations by the next deadline in June 2015. Calls to strengthen sanctions highlight waning Congressional support for the talks, and buttress a narrow and unrealistic narrative that economic deprivation will force concessions. Any new sanctions, especially those proposed under the draconian Nuclear Iran Prevention Act, threaten to derail negotiations while providing cannon fodder for Iran’s hardliners.

A growing narrative in Washington, which attributes Iran’s willingness to negotiate entirely to sanctions, argues that the Joint Plan of Action (JPA) extension undermines U.S. negotiating leverage and provides Iran with ample opportunity to revive its declining economy. The JPA, which was signed over a year ago, provides Iran with access to approximately $700 million per month in oil revenues, which will continue through the seven-month extension.

True, sanctions against Iran’s oil and banking industries have caused inflation to soar amid declining oil exports, and there is little doubt that Iran is looking for relief. At the same time, other factors are contributing to Iran’s economic malice, including former President Mahmoud Ahmadinejad’s economic mismanagement and declining oil prices.  Furthermore, despite relatively poor economic indicators, the International Monetary Fund predicts almost two percent GDP growth for Iran in 2014, primarily from non-oil exports, conservation of currency reserves, and growth in domestic manufacturing. All of these began before the harshest sanctions went into effect, and well before Iran reaped any benefits from the JPA.

Similarly, although Iranian businessmen acknowledge sanctions’ biting sting, they still remain connected to global commerce, albeit with increased transaction costs. Sanctions evasion, like water, will always find the path of least resistance. Moreover, sanctions have allowed Iran’s state-owned enterprises, which mostly benefit the Supreme Leader and connected members of the regime, to enjoy non-competitive domestic growth and indigenization. Strengthening sanctions at this point only serves to further concentrate economic power within Iran’s political elite and weaken U.S. leverage to negotiate a successful agreement.

U.S. sanctions against Iran weave punitive and preventive measures across an array of statutes, executive orders, and regulatory actions. Iran will likely demand the most severe of these sanctions-- those enacted since 2012 that target the financial, energy, shipping and insurance sectors-- be lifted first. It is unlikely, however, that President Obama will waive the most damaging sanctions without firm assurances that Iran is in compliance on its nuclear program. He will also likely keep in place those enacted to address terrorism and humanitarian issues. This, of course, leaves room for Iranian hardliners to capitalize on the narrative that sanctions are unrelated to the nuclear issue, and will persist even if the negotiations are successful.

More than thirty years of trade embargos and financial sanctions are failing to produce Iranian concessions on its nuclear program, and despite almost complete financial isolation, Iran continues to demonstrate a surprising level of resilience. Entertaining a narrative about further strengthening sanctions only emboldens Iranian hardliners, isolates global financial institutions, and damages the legitimacy of the nuclear negotiations.

Aaron Arnold is an Associate of the Project on Managing the Atom at Harvard University’s Belfer Center for Science and International Affairs.

Image: State Department