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Seeing Sanctions Straight

By Ilan Berman
National Strategy Forum Review
October 3, 2012


When it comes to American policy toward the Islamic Republic of Iran, one approach has tended to crowd out all others. Over time, economic sanctions have come to be seen as something of a catch-all—a panacea of sorts for the West's nagging problem with the Iranian regime and its persistent nuclear ambitions. As a result, policymakers in Washington, as well as their counterparts across the Atlantic, have invested tremendous time and energy in crafting an elaborate framework of economic pressure against the Iranian regime.

Yet today, it is patently obvious that sanctions—while somewhat successful at imposing marginal costs on the Iranian regime for its nuclear endeavor—have fallen short of applying the "crippling" pressure needed to truly cause Tehran to change strategic course. That they haven't is very much a function of the misconceptions that abound regarding sanctions within the Washington Beltway, and beyond it.

Process, Not Progress
The idea of sanctions as a tool of behavior modification in the case of Iran is hardly new. The United States has attempted to leverage economic pressure against the Iranian regime for more than a decade-and-a-half, ever since the Clinton administration signed the Iran-Libya Sanctions Act into law back in 1996. Throughout that time, successive administrations have applied a host of economic restrictions on the Iranian regime, with one common objective: to ratchet up the cost of Iran's pursuit of weapons of mass destruction to the point that Tehran's enthusiasm for those capabilities is chilled.

The Obama administration has followed the same trajectory since taking office. Since mid-2010, on the heels of its failed attempts at diplomatic "engagement" with Iran's ayatollahs, the current White House increasingly has made economic sanctions the centerpiece of its approach to Iran. The opening salvo was the passage, in July 2010, of the Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA)—an omnibus bill that focused on Iran's economic Achilles' heel: its need to import refined petroleum from foreign sources.[1] This was followed by a series of other Executive Branch efforts, including an April 2011 Executive Order targeting Iran's Revolutionary Guards (IRGC) for providing support to the regime of Bashar al-Assad in Syria[2], an October 2011 designation by the Treasury Department of IRGC members implicated in the attempted assassination of Saudi envoy Adel al-Jubeir[3], and a November 2011 Executive Order proscribing international financial institutions from conducting transactions with Iran's Central Bank.[4] Most recently, in July 2012, the White House and Treasury Department both announced new measures taking aim, respectively, at Iran's petrochemical sector and international financial institutions implicated in trading with Iran.[5]

Congress, meanwhile, has been busy crafting new pressure of its own. Having originally formulated CISADA to target Iran's energy sector and gasoline dependence, it has more recently proposed broader legislation—the Iran Sanctions, Accountability and Human Rights Act of 2012—to both expand pressure on Iran's energy economy and to penalize it for its human rights violations.[6]

These unilateral efforts have been buttressed by international ones. Pressure from the U.S. and European nations led the Society of Worldwide Interbank Financial Telecommunication, or SWIFT, to blacklist dozens of Iranian banks in March 2012—thereby effectively cutting Iran off from most international commerce.[7] Equally significant was the European Union's imposition in mid-2012 of a ban on the importation of Iranian oil by member states, who until then had accounted for nearly a fifth of Iran's crude exports.[8]

Cumulatively, it would be fair to say that these measures have had a real and tangible effect on Iran's economic fortunes. The Islamic Republic is now losing an estimated $133 million daily in revenue.[9] Inflation in Iran is soaring (estimated as of this writing at upwards of 30% and rising[10]), and the cost of food staples such as bread and meat has risen dramatically in recent months, progressively outpacing the ability of ordinary Iranians to pay for them.[11] Iran's economic horizons, too, have constricted considerably. In large part as a result of the European Union's July 2012 oil ban and the attendant difficulties of obtaining insurance for oil shipments from the Islamic Republic, a number of major Iranian crude consumers have drawn down their purchases significantly. As a result, Iran's oil exports are now estimated at 1 million barrels per day—the lowest figure in years, and just a fraction of the 2.5 million barrels the Islamic Republic was exporting daily just a few years ago.[12]

Yet it is equally clear that Western pressure has fallen short of dissuading Iran's leaders from their pursuit of the "bomb." Iranian president Mahmoud Ahmadinejad said as much this spring when he blustered that Iran can withstand an oil blockade of the type envisioned by Europe for "2-3 years"—by which time his country ostensibly already will have crossed the nuclear Rubicon, and sanctions would be obsolete.[13] More recently, Iran's Supreme Leader, the Ayatollah Ali Khamenei, confirmed this outlook, calling for an "economy of resistance" that would allow the Iranian regime to remain afloat—and on its current nuclear course—despite Western pressure.[14]

Understanding Sanctions... and Their Limits
Where does the United States go from here? Sanctions are far from a spent force, in policy terms. Much more can yet be done to ratchet up the costs of the Iranian regime's nuclear endeavor—from expanding market and reputational risk to those companies currently doing business in Iran, to targeting Iran's vast natural gas trade with the international community. Whatever the specifics, however, future U.S. economic pressure on Iran will need to be informed by three broad realizations.

The first is that, in and of themselves, sanctions are not a strategy. In order for economic pressure to be effective in changing the calculus of the Iranian regime, it must be married with other tactics—military, ideological, and informational—into a comprehensive approach designed to deny Tehran the bomb.

That pointedly isn't the case today. The Obama administration may continue to intone that the military option remains "on the table" as a potential U.S. response to Iran's nuclear progress. But, because of a variety of issues—the American electoral cycle, looming fiscal austerity and the global energy markets, to name just a few—no one currently believes that to be true, least of all the Iranians. As a result, the Iranian regime currently doesn't believe that continued nuclear progress will carry more severe consequences.

Nor are we effectively communicating with the Iranian people. Iran's 78 million person population is overwhelmingly young (two-thirds are under the age of 35), educated and Westernoriented. Iran's ruling ayatollahs, by contrast, are both aging, infirm and out of touch with the aspirations of their people. This disparity represents the fundamental fault-line within the Islamic Republic today, and the one which to a large extent will dictate the country's future course. Yet successive administrations have systematically chosen to neglect Iran's "human terrain." In its second term, the Bush administration authorized a paltry $215 million for all diplomatic programs dealing with Iran, and of that only a small fraction (some $38.6 million) was dedicated specifically to democracy promotion.[15] The Obama administration has done even less; in its first year, it allocated some $40 million for the unfortunately named Near East Regional Democracy Fund (which encompasses Iran). But, due to the White House's persistent efforts to engage the Iranian regime, these funds have remained largely unused—lest U.S. support for pro-democracy forces within the Islamic Republic undermine prospects for an elusive "grand bargain" with its leadership. As a result, we have neglected to use our political and economic influence to weaken the Iranian regime's ability to persecute its captive population, and to help to empower the Iranian pro-democracy activists that will ultimately bring change to the Islamic Republic.

Second, there are limits to what sanctions can accomplish. As Mark Dubowitz of the Foundation for Defense of Democracies puts it, sanctions are only "silver shrapnel" that can wound the Iranian regime—not a "silver bullet" that is guaranteed to kill it.[16] Indeed, it is far from clear that sanctions can in fact derail Iran's drive toward nuclear status. Iran's leadership may simply be too determined to cross the nuclear threshold to be stopped by anything short of force. What is exceedingly apparent, however, is that the economic pressure levied by the Obama administration so far has not had anything resembling the breadth and diligence needed to make sanctions matter to Iran's ayatollahs.

Finally, and most crucially, there is no substitute for seriousness on the part of the Executive. History shows that U.S. sanctions policy, however well-intentioned, has suffered from a consistent—and fatal—failing: successive administrations, regardless of political stripe, have tended to prioritize trade over international security. As a result, they have repeatedly shied away from truly imposing harsh economic penalties on Iran's trading partners. The countries and companies that serve as Iran's economic lifeline thus haven't truly been asked to choose between their dealings with Iran and their relationship with the United States. And because they haven't, these entities continue to harbor a "business as usual" approach to the Islamic Republic.

Little has changed today. Although President Obama can be credited for passing the most sweeping sanctions ever levied against the Islamic Republic, the reality is that most of that pressure remains unused. Instead, leery of roiling relations with vital international trade partners and worried about imperiling America's fragile economic recovery, the Obama administration has shied away from seriously harnessing the economic tools at its disposal. To date, the Obama administration's flagship sanctions effort, the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, has been applied in just a handful of cases, and against only marginal economic players (the most prominent among them Venezuela's state oil company, PDVSA). The end result is a U.S. sanctions regime that, while robust on paper, is flimsy in practice—systematically underutilized by an Executive skittish over its potential adverse consequences.

Conflict—Economic or Otherwise
Even under the best of conditions, the success of economic warfare directed against the Iranian regime and its nuclear effort is far from assured. But under their current, disorganized state, the failure of sanctions is not only possible but probable.

Altering this trajectory requires that the United States and its allies truly get serious about economic warfare against the Iranian regime, and soon. Unless and until they do, the United States and its allies will face a stark choice in the not-too-distant future: either learning to live with an Iran that has become a nuclear power, or resorting to force in order to stop it from becoming one.

NOTES:

[1] Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, H.R. 2194, 111th Congress, June 25, 2010, http://www.govtrack.us/congress/bills/111/hr2194/text.
[2] "Blocking Property of Certain Persons with Respect to Human Rights Abuses in Syria," Federal Register 76, no. 85, May 3, 2011, http://www.treasury.gov/resource-center/sanctions/Programs/Documents/13572.pdf.
[3] U.S. Department of the Treasury, Office of Foreign Assets Control, "Anti-Terrorism Designations; Iran Revolutionary Guard Corps Related Designations," October 11, 2011, http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20111011.aspx.
[4] White House, Office of the Press Secretary, "Message to Congress — Iran Sanctions," November 21, 2011, http://www.whitehouse.gov/the-press-office/2011/11/21/message-congress-iran-sanctions.
[5] Julian Pecquet, "Administration Orders New Sanctions on Iran," The Hill, July 31, 2012, http://thehill.com/blogs/global-affairs/middle-east-north-africa/241331-white-house-announces-new-iran-sanctions-.
[6] Iran Sanctions, Accountability and Human Rights Act of 2012, H.R. 1905, 112th Congress, May 13, 2011, http://www.govtrack.us/congress/bills/112/hr1905.
[7] Corey Flintoff, "New Sanction Severely Limits Iran's Global Commerce," NPR, March 19, 2012, http://www.npr.org/2012/03/19/148917208/without-swift-iran-adrift-in-global-banking-world.
[8] "EU Ban on Iranian Oil: What You Need to Know," BBC, July 2, 2012, http://www.bbc.co.uk/news/worldeurope-18655438.
[9] Anthony DiPaola and Isaac Arnsdorf, "Iran Loses $133 Million A Day on Embargo, Buoying Obama," Bloomberg BusinessWeek, August 2, 2012, http://www.bloomberg.com/news/2012-08-01/iran-loses-133-million-a-day-fromsanctions-as-oil-buoys-obama.html.
[10] See "Deepening Economic Malaise At Home..." Iran Democracy Monitor no. 122, August 10, 2012, http://www.afpc.org/publication_listings/viewBulletin/1642.
[11] Robert Tait, "Iran's Food Costs Soar and Unemployment Spirals as Nuclear Sanctions Begin to Bite," Telegraph (London), July 1, 2012, http://www.telegraph.co.uk/news/worldnews/middleeast/iran/9368117/Irans-food-costssoar-and-unemployment-spirals-as-nuclear-sanctions-begin-to-bite.html.
[12] Osamu Tsukimori and Chen Aizhu, "Asian Oil Buyers Help Iran Stave Off the Worst, for Now," Al-Arabiya, August 13, 2012, http://www.alarabiya.net/articles/2012/08/13/231957.html.
[13] "Ahmadinejad: We Can Manage Iran if We Don't Sell Oil for 3 Years," FARS (Tehran), April 10, 2012, http://english.farsnews.com/newstext.php?nn=9101141229.
[14] "Iran Leader Calls for 'Economy of Resistance,'" Agence France-Presse, August 23, 2012, http://news.yahoo.com/iran-leader-calls-economy-resistance-134523014.html.
[15] White House, Office of Management and Budget, "Iran All-Spigot Funding Chart," July 18, 2008.
[16] As cited in Peter Goodspeed, "Sanctions against Iran May Destabilize, Topple Regime by 'Ratcheting Up Hassle Factor': Expert," National Post, January 28, 2012, http://news.nationalpost.com/2012/01/28/sanctions-against-iranmay-destabilize-topple-regime-by-ratcheting-up-hassle-factor-expert/.


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Related Categories: Terrorism; Radical Islam; Iran Freedom Initiative; Iran; Economic sanctions/warfare

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