Sanction Iran

April 2, 2010 Topic: Security Region: Persian GulfMiddle East Tags: Iranian Revolution

Sanction Iran

Obama can act unilaterally. If he does this well, the regime might collapse in less than a year. What is he waiting for?

It is easy to become cynical when reading and listening to pronouncements on Iran sanctions in Washington.

Are our officials really talking about "economic" sanctions? If so, do these experts have some economic training? Some familiarity with how economic sanctions are supposed to work? Some first-hand knowledge of Iran's economic vulnerabilities?

Why does Washington flip-flop, one day espousing "crippling" sanctions on Iran and the next day saying that sanctions cannot work because of Chinese and possibly Russian opposition? Is America impotent? The next day we read that either the "Green Movement," or the broader Iranian opposition, or even Iranian Americans are against crippling sanctions because they would only hurt the poor in Iran and turn the citizenry against the United States. Has America outsourced its foreign policy to the Chinese, the Greens or to Iranian Americans? How have the Greens, or for that matter anyone else, come to speak for the poor and the disenfranchised Iranians?

Let's cut to the chase. The Obama administration does not want to impose sanctions that could overthrow the clerical regime in Tehran. China is a convenient excuse. The suffering of Iranians is another excuse. Accepting the "Greens" as the legitimate voice of the majority of Iranians and adopting their pronouncements as America's national policy is yet another pretext for avoiding effective sanctions. But we could institute effective sanctions that don't require China's support. These sanctions would largely target regime supporters and accentuate Tehran's monumental economic failures. The poor would suffer hardly any more than they are already suffering right now. The mullahs would be threatened as never before. Yet neither the Obama administration nor Congress encourages rational debate between those who advocate and those who oppose sanctions.

To change Iran's objectionable policies or possibly overthrow the clerical regime, U.S. rhetoric against the regime should focus on Tehran's policies that Iranians do not support. And the United States must adopt economic sanctions that inflict sufficient direct pain on the Iranian government and/or cause average Iranians sufficient economic distress for them to threaten the regime's survival.

The White House should shift the focus of its rhetoric from the nuclear issue and instead direct it against the clerical regime. Iranians have overwhelmingly supported the quest for nuclear enrichment as a matter of national pride and security. America's obsession with nuclear enrichment can only encourage support for the mullahs. What should be highlighted instead are the regime's illegitimacy, un-Islamic behavior, human-rights record, disastrous economic mismanagement and corruption.

After changing its rhetoric, the United States should adopt a three-pronged sanction strategy that, in my opinion, would threaten and so utterly cripple the regime that it would collapse in less than a year.

First, the United States should freeze many of Iran's bank accounts, not only those belonging to the Revolutionary Guard and key regime figures, but also those belonging to rich Iranian merchants and businessmen living in the country. This would threaten the financial interests of all who benefit from and support the regime. The bazaar strike of businessmen against the shah's regime was the key catalyst to toppling his government during the 1979 revolution. The United States does not need China's blessing to pull off a similar feat. Washington should threaten any bank that refuses to cooperate, both by imposing fines that would be even stiffer than the $536 million paid by Credit Suisse at the end of 2009 for dealing with Tehran, and with exclusion from the U.S. market. Few banks would choose Iran over the US and any that did would charge so much to do business with Iranians that regime insiders would have a heart attack!

Second, the United States should further tighten Iran's isolation from the international financial system by sanctioning every Iranian financial institution, including its central bank. Again, any country or financial institution that did not cooperate would face American fines and exclusion from the U.S. market. Commercial banks around the world are already increasingly reluctant to do business with Iran after the record fines paid by Credit Suisse. Cutting off the central bank and all Iranian financial institutions would basically increase the cost of Iranian imports because Tehran could not use letters of credit-instead, it would either have to resort to cash, literally in suitcases, to buy what it needs or rely on barter. The cost of trade would soar in time, crippling the Iranian economy and demonizing the regime.

Third, the Obama administration could spark a panic by motivating Iranians, as well as expatriates residing in the United States and overseas, to liquidate their assets in Iran and to withdraw their money from the country. The wealthy would rush to take their money out, fearing a collapse in asset prices and in the value of the Iranian currency, the rial. The regime would have no choice but to block the outflow of funds from Iran; the black-market exchange rate would jump; import prices and eventually inflation would soar.

All these measures-the financial sanctions and initiatives to spark an economic panic in Iran-should be adopted simultaneously so as to have maximum effect; adopting them one by one would not inflict the needed level of pain on the regime and its supporters.

While it would be best to have these financial sanctions adopted on a multilateral basis by the United Nations Security Council, the Obama administration could immediately and unilaterally adopt them and threaten financial institutions that circumvent them with stiff fines.

The primary impact of such initiatives would be on regime insiders and their backers in the bazaar-not on average Iranians. Many will abandon the regime if their wealth is threatened; and many may join the opposition to regain their financial freedom and restore their business interests. The impact on the average Iranian would be largely through higher food prices. While this may cause short-term hardship, it would also erode support for the regime among the poor-something Tehran would try to avoid. Most important, is it not better to suffer for a few months and to have a good chance of overthrowing this illegitimate regime than to suffer for years to come? Some may be against sanctions in the belief that further U.S. pressure will unite Iranians behind the regime. I believe that those with this opinion are frozen in the past-one before the June 2009 election.


Hossein Askari is the Iran Professor of International Business and International Affairs at the George Washington University.