Sanctions have been effective at changing Iran's behavior
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At the same time, the sanctions regime does not appear to be weakening: Iran’s best efforts to circumvent U.S. financial sanctions have failed to provide it with much relief.27 Admittedly, Iranian oil exports were on the rise in the first months after the JPA, however more recently this trend has reversed. A further easing of oil sanctions in future interim agreements, as we suggest above, should also prove comparatively stable. Unlike many other sanctions, the oil-related sanctions currently in place against Iran are comparatively easy to restore once they are waived should Iran renege on the deal. Oil imports can be cut immediately and––given the current energy market––importers should be able to switch to competing suppliers. In addition, with the exception of China, all of the main importers of Iranian oil are U.S. allies (India, Japan, South Korea, Taiwan, and Turkey), which should facilitate U.S. diplomacy. The threat of continued sanctions and their re-imposition should continue to provide Iran with the motivation to pursue a negotiated settlement.
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To be sure, a prudent assumption would be that Iran could eventually make a nuclear weapon on its own, even if it got no additional foreign technology or equipment, although the publicly available evidence is inconclusive on this point. Even if Iran were able to make a primitive nuclear weapon, technology export controls could prevent or at least slow Iranian efforts to produce large numbers of nuclear warheads for its Shahab-3 missiles. Dual-use sanctions primarily offer the prospect of slowing the nuclear program; they are unlikely to persuade Iran to abandon its nuclear program. But if sanctions on dual-use items do slow Iran's program to a crawl, they could buy time for other forms of pressure to influence Iran's nuclear calculus. Indeed, at some point, Iran may decide the effort is not worthwhile -- especially if its self-confidence were to slip because its overall geostrategic situation became less favorable.
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Iran's economy has been boosted by high oil prices, which raised oil and gas exports from $23 billion in 2002-2003 to $55 billion in 2006. The oil exports have allowed much higher government spending, much of it off-budget and therefore particularly prone to manipulation for political gain of the hardliners. Despite this short-term windfall, Iran is vulnerable to international economic pressure for two basic reasons. First, the country suffers from deep structural economic problems. Having pegged his reputation on his ability to help the ordinary man, Ahmadinezhad faces serious problems delivering. He has the daunting task of living up to the high expectations of Iranians, who remember when their economic situation was much better than it is today and who realize how badly their country has slipped under the Islamic Republic. The International Monetary Fund (IMF) forecasts that even if oil prices remain at their present high level, unemployment will steadily increase in years to come. In its 2003 report, the usually sober and understated World Bank summed up the 'daunting unemployment challenge' with strong words: 'Unless the country moves quickly to a faster path of growth with employment, discontent and disenchantment could threaten its economic, social, and political system.'
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Despite the high price of oil in the past few years, economic impairment may be our most powerful tool short of force. The CIA Factbook describes the Iranian economy as "marked by a bloated, inefficient state sector, over reliance on the oil sector, and statist policies that create major distortions throughout." Public debt is 25 percent of GDP, and inflation is running at 16 percent. By focusing all our attention on the Iranian nuclear program, we are allowing the Iranian government to divert attention from its inability to provide economic opportunities. Part of our argument should be that Iran is a country that ought to be rich and inventive and engaged in the international economy, but its government prevents those things.
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The key is for the United States and its allies to compel the Iranians to choose between their nuclear program and their highest priority-their economic well-being. How? Briefly, this would involve a multilateral sanctions regime that would gradually shut down Western investment in Iran, particularly its gas and oil sectors, in response to continued Iranian recalcitrance. Even with oil prices above $60 per barrel, Iran is desperate for Western investment capital because corruption is sucking the oil revenues out of the system, thus reducing their impact on the overall economy. Despite the claims of some that Russia and China could make up for any loss of capital from Europe and Japan, their economies are still roughly a decade away from being in a position to do so.
President Mahmoud Ahmadinejad's government, already faced with growing opposition from competing political forces within Iran, is confronting new pressure brought on by severe economic problems, including some triggered by international sanctions.
The sanctions, intended to push the country to abandon its nuclear program, are not yet crippling the Islamic Republic, economists and analysts say. But they are causing prices to rise and making it increasingly difficult for Iranian companies to work internationally.
U.S. officials have noted recently that the sanctions are having an impact, and also acknowledged the confluence of challenges. "This all comes at a time when Iran is especially vulnerable because of its government's economic mismanagement and narrowed political flexibility," Stuart Levey, a senior U.S. Treasury official, said in a Sept. 20 speech.
"We are already receiving reports that the regime is quite worried about the impact of these measures, especially on their banking system and on the prospects for economic growth," Levey said. "And, as pressure increases, so has internal criticism of Ahmadinejad and others for failing to prepare adequately for international sanctions and for underestimating their effect."
International sanctions are limiting Iran’s ability to acquire items for its nuclear and ballistic missile programs, a UN report evaluating sanctions against Iran said.
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