Why the Iran Sanctions Don't Work

April 3, 2013 Topic: EconomicsPolitical EconomySanctionsTrade Region: Iran

Why the Iran Sanctions Don't Work

Nobody's happy about the bad economy, but Tehran isn't changing direction anytime soon.

The United States has used its leverage over the international financial system to create the most comprehensive unilateral sanctions regime in history. The move against Iran has played a key role in convincing the European Union to implement its own set of unilateral sanctions—all with the central objective of changing Tehran’s nuclear calculus and forcing it to agree to a deal that it otherwise would refuse.

Those associated with the regime openly acknowledge that sanctions are having a devastating impact on the Iranian economy, but they have not achieved their stated objective: shifting Iran’s nuclear stance. For this to happen, the regime’s stakeholders must start building narratives that enable such policy shifts, and subsequently lobby the government for those shifts.

In a new report published last week (Never Give in and Never Give Up)—which relies on over thirty in-depth, vetted and anonymous interviews with senior Iranian political officials, analysts and members of the business community—we show that neither phenomenon has emerged within the Iranian elite in a measurable or impactful way.

Supreme Leader Ali Khamenei’s narrative, which portrays the West as a brutal, immoral group out to “get” Iran and keep it dependent on foreign powers, continues to dominate the discourse within the elite. It is unchallenged during internal debates and further consolidated by continued external antagonism. And while deep divisions plague the Iranian elite, little evidence has emerged to suggest that political infighting has softened Iran’s nuclear stance.

This dynamic has also carried over into Iran’s private sector. While deeply unhappy with the negative impact of sanctions and government policies, private lobbying campaigns by the business community have tended to focus on securing domestic economic concessions for themselves, rather than pushing for nuclear concessions to the West.

Iran’s responses to sanctions come in three separate but mutually reinforcing categories:

1. Adapting its economy to bend but not break.

Iran’s negative economic trajectory has led it to adopt a so-called “economy of resistance.” Over the short to medium term, this has taken shape in several ways, including maintaining a positive balance of trade through import controls and a positive balance of payments through utilizing domestic financial resources in funding projects; relying on foreign-exchange reserves; reducing the state budget’s reliance on oil revenue while boosting revenues from taxes and privatization; and increasing domestic refining capacity in order to use excess crude at home while shifting domestic energy consumption to free up gas for exports. At the same time, trade patterns have been forced to move away from official banking to unofficial financial networks, and merchants have been compelled to resort to barter trade.

2. Increasing efforts to target Western and Israeli interests around the world.

Iran’s efforts to work against Western and Israeli interests have increased over the past four years, though not necessarily successfully.

Tehran has boosted its support for Hamas and Islamic Jihad. When Israel attacked Gaza this past November, it was Iran that transferred technology for the construction of missiles that brought major Israeli cities within range for the first time. On this point, the head of Iran’s parliament, Ali Larijani, was unequivocal: “We proudly say we support the Palestinians, militarily and financially…The Zionist regime needs to realize that Palestinian military power comes from Iranian military power.” Iran also appears to have invested more resources into its security and intelligence operations outside the country, as demonstrated by the alleged 2011 plot to assassinate the Saudi Arabian ambassador in Washington, and no less than six targeted bombings against Israelis.

Another telling example emanating from Tehran is the recent uptick in cyber attacks. Targets have been high-profile and intentional: major U.S. banks, the world’s largest oil company, and the world’s largest natural-gas field.

3. Creating new facts on the ground with regard to its nuclear program.

No data suggests that Iran’s nuclear program overall has slowed down over the course of the past four years. Its stockpiles of low-enriched uranium and medium-enriched uranium, as well as its installation of first- and second-generation centrifuges, have increased.

The program’s trajectory appears at best entirely unaffected by the sanctions and at worst partly driven by them: escalating sanctions as a bargaining chip gives Iran an incentive to advance its program to create bargaining chips of its own. Perhaps more importantly, these measures seem to have increased Iran’s commitment to its program and reinforced the domestic political immunity it appears to enjoy.

Elements within the Iranian government contend that the continuation and acceleration of the program has also been in response to sanctions, serving three purposes: convincing the UN Security Council that sanctions are futile; raising the cost for the West’s alleged refusal to deescalate the conflict; and compelling the West to accept Iran’s right to enrich uranium.

As the country's domestic dynamics indicate, it is not impossible to produce narratives that compete or even clash with Ayatollah Khamenei's. For example, senior politician Habibollah Asgaroladi's stance on releasing opposition leaders Mir Hussein Moussavi and Mehdi Karroubi from house arrest is an alternative approach in domestic affairs. But the fact that Iranian stakeholders have not produced an alternative approach in nuclear policy is a direct consequence of the absence of meaningful, proportionate sanctions relief on the table, at least until the latest round of talks in Almaty.

Decision makers in the P5+1 should be careful not to assume that mere dissatisfaction at the elite level will put pressure on the regime in Tehran to change its nuclear policy. This is particularly true when the dissatisfied elements don't believe that a change of policy will remedy their pain.

Unless sanctions are used as the bargaining chips they originally were claimed to be, it is unlikely that the regime will succumb to greater pressure. Their narrative remains unchallenged, key figures are not visibly lobbying for policy shifts, and capitulation is seen as a threat to the regime’s survival—one even greater than a military confrontation with the United States.

Bijan Khajehpour is a co-founder and manager of Atieh International. Reza Marashi is director of research at the National Iranian American Council. Trita Parsi is founder and president of the National Iranian American Council.

Image: Wikimedia Commons/Mardetanha. CC BY-SA 3.0.