Weighing Benefits and Costs of International Sanctions Against Iran
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One obvious “opportunity cost” of sanctions is that they exclude U.S. and allied firms from potentially lucrative business opportunities in Iran.70 As global energy companies wind down or pull out of the Iranian energy development market, in order to comply with or win an exemption from the United States’ secondary sanctions,71 they are ceding the field not only to some IRGC firms, but also to firms from China, Vietnam, Belarus, Malaysia, Ukraine, and other countries willing to ignore U.S. sanctions. Iran has welcomed invest- ment from these companies,72 although most deals are said to be in preliminary stages and many of the foreign companies involved are not as technically capable as those that have withdrawn from Iran. China, in particular, stands to benefit by lining up steady supplies of Iranian oil as a result of its investments. China is now Iran’s biggest oil purchaser (although China recently has reduced its oil purchases from Iran, perhaps because of concerns about the reliability of the supply in a time of increasing sanctions), and overall, China is investing $1 billion in Tehran’s infrastructure.73 These economic relationships—some call it the “Asianization” of the Iranian economy—may have lasting negative implications for the economies of Europe, as described below.74
Expansion of Iran’s domestic arms industry. The effectiveness of sanctions in reducing Iran’s conventional military power (discussed above, under Benefits) is at least partly undermined by Iran’s increased determination to expand its domestic arms industry. Unable to purchase some armaments from abroad, Iran has been developing survivable and lethal ballistic and cruise missiles, building more small boats to use in the Persian Gulf, and acquiring additional ships and submarines, according to an April 2012 report by the U.S. Department of Defense. Previous Defense Department reports, such as one issued in 2010, were largely disparaging of Iran’s military capabilities. The revised assessment suggests that Iran might have circumvented the Resolution 1929 arms ban, to some extent, by domestic developments in arms building—or that the level of sophistica- tion of its arms industry is increasing despite the ban.58 The result is an elevated threat to U.S. forces in the Persian Gulf.
The United States has framed international sanctions as an alternative to military action—and many reluctant countries have signed on to the sanctions regime in hopes of avoiding conflict. But to Iranians whose lives are negatively affected by sanctions and who see their country being targeted for increasingly harsh treatment, the international sanctions look like hostile acts. Iranian leaders have claimed that the sanctions regime is a “declaration of war.”54 Some U.S. analysts have suggested that sanctions ought to be understood as part of a “force curve”; in this light, the function of sanctions is to “pre- cede or accompany armed hostility,” not to prevent it.55 Certainly, as suggested earlier in this paper, the United States and other states have chosen to use military force in some other instances when sanctions were perceived to have failed.56
The international sanctions, combined with threats from Israel and a U.S. mili- tary buildup in the Persian Gulf, may have heightened Iran’s readiness for asymmetrical retaliation against United States and allied interests. American intelligence suggests that Iran’s Qods force (the unit of the IRGC that operates outside of Iran’s borders) is already undertaking such action—for example, the purported Iranian plot, revealed by U.S. law enforcement in October 2011, to assassinate the Saudi Ambassador to the United States, and the IRGC’s participation in the Syrian conflict.57 Other contributors to an increased potential for conflict are Iran’s expansion of its arms industry, and threats by Iran to hamper shipping through the Strait of Hormuz.
As comprehensive sanctions take their toll over the longer term, Iran’s hardline factions are likely to flourish, and the United States risks losing the admiration of many of Iran’s people—including the younger generation.52 Resentment over the hardships caused by sanctions could reduce the prospects for improving or normalizing U.S. and Iranian relations over time, even if the current Iranian regime were to be replaced.
The Iranian uprising in 2009—called the Green Movement—was initiated by young Iranians who came out to the streets to protest fraudulent elections. As the crowds grew in cities throughout the nation (at their peak, nonviolent mass protests involved millions of Iranians), protesters began to demand greater political freedoms. This reform movement has been repressed, but not crushed or eliminated.53 We suspect that the young activists in the Green Movement represent a broader population of Iranians who admire American freedoms and want to live in an Iran where they have some of the same kinds of rights. The sustained imposition of crippling sanctions on Iran risks alienating Iranians under 30 years of age (nearly two-thirds of the entire Iranian population), as well as older Iranians. Reform-minded Iranians might decide that their first priority is to support their country and its government against the outside enemy.
In addition, sanctions have made it even more difficult for Iranian students and others to visit the United States or participate in cultural exchange programs—activities that the Iranian government has already done much to suppress.
2.1 Enfranchising and enriching powerful factions, including the IRGC. As Iran’s oil revenues fall and its hard currency reserves are depleted, the government will have limited ability to meet the needs of Iran’s people, many of whom depend on govern- ment agencies for public services and social welfare benefits. Iranians increasingly may be forced to turn to influential family and factional connections who are in positions of power. This is enhancing the influence of the IRGC and the other, more conservative and repressive factions that have control over financial resources. These trends will signifi- cantly worsen official corruption and lack of accountability.44
Already, IRGC-controlled firms have acquired large stakes in key economic sectors, including telecommunications, banking, transportation, and energy (where sanctions have forced global companies to abandon some projects to IRGC-linked companies).45 IRGC enterprises now have the potential to start investing in other countries, including in markets that are antagonistic to U.S. interests.
Escalating international sanctions may help the Iranian regime, including an ever-more-powerful Iran Revolutionary Guard Corps (IRGC), to rally public support for the government by portraying sanctions as U.S.-led aggression, even “economic warfare.”47 Iran’s leaders used international sanctions to encourage voter turnout in the parliamentary elections of March 2012, claiming that Iranian citizens had a duty to show their solidarity at a time of heightened international threat. After the elections, the regime hailed a purported turn- out of nearly 65%, calling it evidence of public support for Iran’s defiance of international pressure.48 (Other explanations for a high turnout are also possible, including public displeasure with the regime’s domestic policies.)
According to some analysts, Supreme Leader Ali Khamenei believes that overturning the Islamic revolution of 1979 is the true intent of the United States. Regime propaganda claims that sanctions are aimed at regime change, not at pressuring Iran to negotiate on nuclear and other issues. The longer sanctions go on, the harder it becomes for anyone in power to tell a different story.
The United States’ determination to build a broad coalition around the sanctions regime has had some political costs. Differences with Russia, China, and other countries—in- cluding India, Turkey, South Korea—have widened as the sanctions escalate. Russia and China oppose U.S.-led efforts to pressure Iran’s leaders by harming Iran’s civilian economy. Sanctions-related tensions between the United States and Russia and China complicated U.S. efforts to achieve Security Council unity on assistance to the opposition movement in Libya, in 2011. Taken together, differences on sanctions and on Libya have contributed to the inability of the Security Council to enact a resolution on international action in Syria.
It is considered highly unlikely that Russia and China would agree to any ad- ditional sanctions against Iran. The reluctance of countries such as Russia, India, Turkey, and China to adhere to the full sanctions regime provides Iran a lifeline to key traders. Meanwhile, the U.S. government is expending considerable political capital on efforts to get Russian and Chinese agreement on sanctions against Iran, when the United States could be using its political capital to seek cooperation on other issues where the U.S. needs Russian or Chinese support.
U.S. intelligence officials testified before Congress in 2012 that Iran has not yet made the decision to pursue development of a nuclear weapon.39 Even so, the threat of stiffer sanctions does not appear to have stopped Iran from taking steps in its nuclear program that alarm the international community. The Supreme Leader’s calculus may change in the future––but the nuclear program is a major national priority, and other factors may be more important than sanctions in affecting his decisions about it (ranging from the Supreme Leader’s own fatwa, or religious decree, forbidding the building or use of nuclear weapons, to concern that the decision to build a nuclear weapon would trigger military action by the United States and other nations). If the Supreme Leader believed it was in the regime’s interest to modify Iran’s nuclear policy, that might also change his calculus; at present, he is thought to believe that the nuclear issue is just a pretext for regime change, and that sanctions will remain in place no matter what Tehran does.
3.3. Regional military balance shifting against Iran. The ban on heavy weapons sales to Iran, imposed by UN Security Council Resolution 1929 in 2010, has limited Iran’s ability to modernize its armed forces at a time when its neighbors are getting U.S. assis- tance in upgrading their military forces (see below). This relative decline in Iran’s conven- tional weapons strength may have reduced somewhat Iran’s capacity for regional power projection. Iran’s last major round of heavy arms purchases (tanks, combat aircraft, large patrol boats) took place in the early 1990s, and UN Resolution 1929 prohibits countries from selling Iran spare parts or providing maintenance services for those weapons. While Iran is now able to manufacture most of this basic military hardware domestically, sanc- tions are preventing Iran from obtaining or developing high-tech military equipment. Russia has interpreted Resolution 1929 as barring delivery of its sophisticated S-300 air defense system to Iran, and has canceled its contract with Iran for that system. So far, no significant violations of the sanctions on heavy weapons sales have been detected.34
In contrast, Iran’s neighbors in the Persian Gulf are becoming better equipped militarily, as they purchase large volumes of sophisticated weaponry from the United States. The armed forces of all the Gulf States combined are smaller in number than Iran’s armed forces, but sophisticated modern equipment is helping to compensate for this deficiency. In fact, the Gulf States have been investing heavily in modern military equipment for years, and already outclass Iran in this arena. Missile defense systems acquired from the United States have the potential to neutralize the Iranian missile threat.36
In the absence of imported weaponry, though, Iran has been concentrating on developing more sophisticated missiles and rockets. According to Israeli intelligence and other sources, Iran’s new missiles are inaccurate; but they are still considered to be a threat.37 Moreover, we assume that Iran’s retaliatory or even offensive strategies rely less on conventional forces and more on asymmetrical warfare—covert operations, attacks by Shia surrogates, use of small boat attacks, and terrorism tactics.
Proponents of sanctions have argued that as sanctions cause Iran’s oil revenues to decline and disrupt its trade with neighboring states, Iran may be constrained in its ability to interfere in or influence states such as Iraq, Afghanistan, Syria, Lebanon, or the Persian Gulf countries. With diminished revenues and currency reserves, the United States and its allies hope that Iran may have to become more parsimonious in its financial support to movements such as Hezbollah. In addition, sanctions are changing the region’s military balance in ways that do not favor Iran. And as sanctions reduce Iran’s oil exports, in the short to medium term, Iran’s influence as a global energy player is diminishing somewhat.
So far, at least in some respects, sanctions do not seem to have limited Iran’s ability to exert its influence in the region. Iran continues to provide support, including money and weapons, to Lebanese Hezbollah, Shiite militias in Iraq, and militants in Afghanistan.17 Iran apparently has sent members of its Islamic Revolutionary Guard Corps (IRGC) to advise and even fight alongside the government of Bashar Al Assad in Syria, against his domestic opposition.18 To some extent, Iran’s influence and strength in the region and the allegiance Iran enjoys from some violent non-state groups depend, not on financial realities, but rather on geographical realities and cultural, religious, historic, and ideological ties.
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