Economic Research Forum (ERF)

Can Trump’s sanctions break Iran?

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Iran and the United States seem to have reversed roles with the Trump administration's decision to withdraw from the 2015 nuclear deal. As this Project Syndicate column explains, Iran’s isolation before the agreement now contrasts with America's determination to swim against the global tide.

In a nutshell

Given the history of economic sanctions against Iran, the question is whether this time they are more likely to be effective in changing the regime or its behaviour.

The economic impact has already been felt, with the Iranian currency going into freefall after speculation about a US withdrawal from the 2015 nuclear deal began.

Applied to Iran, the ‘Trump doctrine’ of pushing one’s foes to the brink, in the hope that they will blink first, has entered uncharted terrain.

The Iran sanctions have officially been cast’, tweeted US President Donald Trump three months after he signed an executive order in May announcing his administration’s withdrawal from the 2015 Iran nuclear deal. He went on to boast the return of ‘the most biting sanctions ever imposed’, as if sounding the death knell of the Joint Comprehensive Plan of Action (JCPOA), as the deal is officially known.

The announcement took few observers by surprise. But the irony was not lost on Wendy Sherman, the JCPOA’s senior US negotiator, who quipped recently that she had always expected ‘the greatest challenge to the deal’s success would be violations by Iran, not the political machinations of the president of the United States.

Indeed, Iran and the United States seem to have reversed roles: Iran’s isolation before the deal now contrasts with America’s determination to swim against the global tide. Disappointment, if not disbelief, prevailed among the JCPOA’s other parties – the European Union (EU) countries, Russia and China – whose leaders were quick to reaffirm their strong commitment to the agreement.

By contrast, US officials have reiterated the Trump administration’s determination permanently to rein in Iran’s ‘nuclear ambitions’, limit its ballistic missiles programme and scale down its regional influence. By the sanctions’ final stage, which kicks in on 4 November (coinciding, as it happens, with the 39th anniversary of the abduction of diplomats and staff at the US Embassy in Tehran in 1979), the US goal is to reduce Iran’s oil exports ‘down to zero

Given the long and fraught history of economic sanctions against Iran, the question looming now is whether this time they are more likely to be effective in changing the regime or its behaviour.

The last time Iran’s oil exports were reduced to negligible levels through an extensive economic boycott was in the mid-twentieth century, when Iran’s popularly elected prime minister, Mohammad Mossadegh, nationalised the oil industry. A British-led blockade of Iran’s oil brought the industry to a virtual standstill, destabilised the economy and paved the way for the infamous US and UK-instigated coup that restored the Shah to power in 1953.

Such has been the hangover from those tumultuous years that it took a half-century for US Secretary of State Madeleine Albright to acknowledge in 2000 that the coup that ousted Mossadegh was a clear ‘setback for Iran’s political development’ and a key reason ‘why many Iranians continue to resent this intervention by America.

Such remorse, if it can be considered that, did not, however, close the door on more sanctions against Iran. Sanctions imposed by the United States and the EU from 2010 to 2015 had mixed results. These comprehensive measures –described by then-US Vice President Joe Biden as ‘the most crippling sanctions in the history of sanctions’, shrank oil exports by two thirds to below one million barrels a day.

The resulting stagflation heaped misery on ordinary Iranians, with GDP contracting almost 6% in 2012 and inflation averaging 35% the following year. Widespread private sector failures and growing unemployment followed. Contrary to the sanctions’ principal objectives, however, the economic and political hold of the public sector and parastatal organisations strengthened. Meanwhile, Iran insisted on its sovereign right to pursue a peaceful nuclear programme. The scope for compromise seemed absent until the reformist administration of President Hassan Rouhani took over in 2013.

So what is different this time?

Though promising to be even more biting, the US sanctions regime is not backed by UN Security Council resolutions and hence lacks international legitimacy. This means Iran’s isolation will be far less complete, with key trading partners such as China and Turkey already announcing that they will abide by ‘legal’ sanctions only.

But the sanctions’de facto, not de jure, status will determine their effectiveness. This is especially true of European firms, which will ultimately decide the outcome of the battle for secondary sanctions in cognisance of their shareholders’ interests, rather than the political machinations of their governments.

This explains the significant stream of exits from Iran’s markets already announced by large firms. In an interconnected world where US economic influence extends far and wide, it is hard even for European firms – auto manufacturers, airlines, energy companies, banks and the like – to risk the ire of the US Treasury. This means that the ultimate success of sanctions is likely to depend on what others make of them as much as on what Iran does.

But domestic conditions in Iran also play a key role, and it is here that the US seems to be basing its confidence that sanctions will ‘succeed’. For months, Iranian cities have been rocked by widespread protests, ostensibly against worsening economic conditions. These outbursts have weakened Iran’s reformers by undermining their monopoly on hope.

Hardliners, it seems, have been offered a new lease on life and can now claim their dismissal of the JCPOA was justified from the start. The economic impact has already been felt, with the Iranian currency going into freefall after speculation about a US withdrawal from the deal began. The spectre of inflation is back.

Ultimately, for sanctions to succeed from the US perspective, they must bring about either regime change or behavioural change. Historically, sanctions have a less-than-convincing track record (think Cuba, Myanmar, and Zimbabwe) on achieving the former, and whether they can pave the way for the latter, in the form of a negotiated settlement, remains to be seen. But one thing is clear: applied to Iran, the ‘Trump doctrine’ of pushing one’s foes to the brink, in the hope that they will blink first, has entered uncharted terrain.

This article was originally published by Project Syndicate. Read the original article.

 

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