Sanctions have not been effective at changing Iran’s behavior
Reviewing the impact of economic sanctions on Iran, analysts have concluded while they did have an effect on their overall economic output, the ruling elite were shielded for the most part from the economic costs and were therefore not compelled to change their behavior or policies.
As you could probably guess, Iran is one of the most sanctioned countries in the world. And it has gone through this and kind of limped along. But for the longest time, until President Clinton came along, Iranian refined products were coming into the United States. U.S. oil companies and others were bringing Iranian crude into the Caribbean islands, refining it, and then bringing it into the United States. And so we weren't really serious. Where we started getting very serious was in 1996, with the Iran Libya Sanctions Act [later modified to the Iran Sanctions Act, or ISA]. Then we started on oil, which really didn't do much, and we started on all kinds of exports to Iran--everything was basically banned. But Iran always found a loophole. [Banned products] could go through third countries like Dubai and Canada. Iranian vegetables, canned vegetables, lots used to come in, but most importantly, there was a demand for oil. And Iran could always sell its oil.
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Another question is whether sanctions have weakened Iran’s ability to accomplish its foreign policy objectives. To date, neither sanctions nor oil prices that have fallen nearly 50% since June 2014 appear to have materially reduced Iran’s ability to arm militant movements in the Middle East and to provide military equipment and advisers to the embattled governments of Syria and Iraqi. In December 2014, one of Iran’s Vice Presidents stated that Iran’s economic support for Syria would continue uninterrupted despite the fall in oil prices since June 2014.62 Iran reportedly has continued to export arms to the Shiite rebel Houthi faction in Yemen and to militant Palestinian Islamist factions, and has sought to supply arms to radical Shiite factions in Bahrain. Iran’s assistance might have helped the Houthis expand their control of Yemen’s capital, Sanaa, in January 2015 and force the removal of President Abd Rabbu Mansur Al Hadi. Iran’s arms exports contravene Resolution 1747.63
. Congressional Research Service: Washington, D.C., April 21, 2015 (76p). [ More (5 quotes) ]
Whenever you impose sanctions on a country and you want to change a policy, it is much more likely to succeed if the population of that country is also against that government policy, in this case nuclear enrichment. But the people of Iran are not against that. So that makes it very, very difficult. Namely, the people of Iran are not telling the government to abandon enrichment. They actually approve of enrichment. And so in that, it makes it more difficult to squeeze Iran.
As Secretary Kerry explained in front of the Senate Foreign Relations Committee, sanctions did not stop Iran from advancing its uranium enrichment program. In fact, Iran’s number of centrifuges increased from a few hundred in 2006 to over 18,000 by 2014, and some of the largest increases occurred when Iran was under under the heaviest sanctions. In reality, it was the change in the balance of power in Iran’s political system, resulting in the election of president Hasan Rouhani, that brought Tehran to the negotiating table. This nuance is important: imposing coercive economic measures (i.e., sanctions) can weaken political will in the target country, but does not necessarily force change. To be sure, history is replete with examples. Some have attributed the U.S. anti-apartheid sanctions against South Africa, which forced the country to become more inward-looking, as a contributing factor in its decision to build seven nuclear weapons and invest in developing an advanced industrial military capacity. Comprehensive sanctions against Iraq in the 1990s helped Saddam Hussein shore-up political power by exploiting sanctions, and divert revenues from the oil-for-food program into weapons programs.
Iran will always have loopholes. As with any market system, if I want to buy something or Iran wants to buy something and it is sanctioned, somebody will be willing to sell it to them. Iran has reportedly bought critical parts for its enrichment and missile program on the black market and most recently it reportedly bought sophisticated Russian air defense missiles in the same way. We should recall that Iraq under Saddam Hussein bought French Exocet missiles on the black market. That is a feature of markets. You can get most things through third parties as long as you are willing to pay the required higher price. But as the sanctions get tighter, the price will be much higher. The main thing these sanctions will do is increase the cost of imports for Iran. Iran's cost of trade is going to go up, in turn effectively reducing Iran's foreign exchange resources.
The misconception that the most recent Iran nuclear deal is an insufficient alternative to the multilateral sanctions to which Iran has been subjected is another common misperception promoted by news organizations and politicians. In order to understand just how effective the nuclear deal will be compared to previous sanctions, it is essential to know the goals of the sanctions and how well those were met. One of the scenarios that the United States and its allied countries had in mind when instituting sanctions against Iran was essentially to bleed the country dry and prevent any further nuclear proliferation by cutting off funds. If sanctions were in place long enough, there would be no choice but for Iranian leaders, seeing the destitute state of their people, to halt their nuclear progress. But even if this scenario did not play out, proponents still thought the sanctions could work. They believed that if the Iranian government did not give in to U.S. demands, the general public would. Driven to horrible poverty by the sanctions, Iranian citizens would revolt against their unyielding government and nuclear proliferation would be halted.
Neither of these situations panned out; Iranian leaders continued with nuclear proliferation, despite the country’s increasing poverty, and the Iranian people saw the United States as the one to blame—not their government. However, sanctions did have success in their primary goal, one separate from these two scenarios: bringing Iran to the negotiating table. But it’s crucial to recognize that if continued, sanctions would augment Iranian nuclear proliferation more than the new nuclear deal ever could by making leaders double down in their efforts to gain a bargaining chip against the United States.
There was not the political will to do that. [On the central bank issue], we've been very reluctant because by sanctioning the central bank, we would be in conflict with the IMF Articles of Agreement. If my memory is correct, we have only done this in the case of Iraq leading up to the first Gulf War. This is, in some sense, the "nuclear" option when it comes to financial sanctions. [On sanctioning Iranian expatriates], there are potentially two million Iranian Americans, and there are also many abroad in Europe, and if they were penalized for transferring money to Iran, for buying real estate or generally engaging in business activities in Iran, for failing to report their Iranian bank accounts and avoiding U.S. taxes, they would strenuously object that this affects ordinary Iranians as opposed to regime insiders. The U.S. Treasury has not enforced existing laws, which in fact restrict such activities, because Iranian Americans have become a strong lobby in the United States, especially in California. It would be an important channel for further reducing Iran's access to foreign exchange and initiating a run on the Iranian riyal, leading to its collapse.
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In this context, several observers have suggested that it might be necessary to undertake strategic economic pressure against Iran as we have done to deal with the nuclear program. I think that this is probably unnecessary and potentially a mistake. First, we already have applied strategic economic pressure on Iran and did not meaningfully change its regional approach. Though the sanctions we applied on Iran from 2010-2013 were nuclear in focus, Iran felt no distinction. Nor did it respond by making accommodations on the terrorism front, as it did on the nuclear program. I believe this is because both the causes to which Iran is dedicated in the region are too dear to it to abridge and the financial requirements for the support of terrorism are relatively meager. To get the kind of economic pressure that would be required to get Iran to discontinue its financial support for terrorism – rather than reduce it, as probably did take place – we would have to establish the same kind of sanctions regime against Iraq in the 1990s, reducing Iran to a starvation diet. It is highly doubtful that our most important sanctions partners would support us in such an endeavor and the risk of sanctions leakage would be significant. But, even if they did, for how long would we prepared to keep such a regime in place? For, if we relaxed the pressure at some point, it is doubtful that Iran would abandon future support for terrorism. Ultimately, in my view, such a path leads us to requiring regime change, with all the complications that this would bring.
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Second, existing measures have done little to undermine Tehran’s ability or willingness to further its nuclear weapons program, even considering some of the demonstrable effects U.S. and other countries’ penalties have had on Iran. Many of the individual regime officials targeted for asset freezes have little or no assets in the United States. More broadly, the Iranian regime has used correspondent banks, shell companies, barter and other methods to sidestep existing sanctions, and would likely be able to transfer Central Bank accounts to new institutions, rely more heavily on bartering or simply rename existing accounts if the United States and its international partners were to enforce tougher sanctions. These inconveniences have pushed Tehran to try to impose tighter credit terms and higher prices on future oil contracts with Asian customers, causing Japan and South Korea to look elsewhere for supplies.74 All such countermeasures impose costs on Iran, but are not unbearable.
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It is certainly true that Iran will continue to support terrorism and activities that we oppose throughout the region. No level of sanctions could stop them from doing so. This is a government that has, after all, funded and armed radical elements since the fall of the Shah of Iran in 1979, through the Iran-Iraq War, and after the intensification of crippling sanctions in 2010. Tehran continued to invest in the Assad regime, despite the immediate loss of over a quarter of its 2012 oil revenues from sanctions imposed in December 2011, and $60 billion in potential revenues from that point forward. Likewise, Iran has assisted Shiite militants in Iraq, the Taliban in Afghanistan, and is now supporting the Houthis in Yemen, despite major economic crisis at home. Clearly, money is no consideration for the Iranians when it comes to support for terrorism.
Trita Parsi questions the assumptions that underly the debate about the nuclear deal with Iran, specifically the idea that it was sanctions and pressure that brought Iran to the table finding instead that "the negotiations took off because the pressure path was leading to a dead end— a war neither side wanted."
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