By Dan Harper – The United Nations Security Council
(UNSC) has passed four resolutions since 2006 that progressively tightened
restrictions on nuclear exports to Iran and placed additional controls
on sales of weapons. These measures were in response to questions raised by the
International Atomic Energy Agency about Iran’s nuclear activities that seem
to violate its obligations under the Nonproliferation Treaty.
These multilateral sanctions add to
a long history of US sanctions against the Islamic Republic, and to a more
recent history of significant economic restrictions by diverse European and
Asian countries. In the last year, the
European Union, Australia, Canada, Japan,
and South Korea placed
restrictions of varying severity on financial dealings with Iran, and
particularly on investments in its energy sector. Also in 2010, the US Congress passed
legislation that would penalize foreign firms that invested in Iran’s energy sector or contributed to its
nuclear or military programs by denying them access to the US financial
system.
Are these sanctions achieving the
goal of persuading Iran
to negotiate an agreement that credibly and reliably stops its nuclear program
short of a weapons capability?
Sanctions on Iran’s energy sector have proved highly
effective in discouraging much-needed investment in Iran’s aging oil and gas
infrastructure. According to Iran’s Oil Minister, Iran needs $40 billion of investment
in its energy sector, and most experts think it will need far more. Yet, since March 2010, 20 out of 41 firms
previously engaged in Iran’s
energy sector have withdrawn, including all the Western companies with advanced
technologies. This leaves Iran facing the
prospect of declining oil production and the certain failure of its offshore
gas development plans.[1]
Iran’s banks largely have lost
access to international finance due to financial sanctions. Between 2006 and 2010, the Treasury
Department convinced 80 foreign banks to refuse to process transactions
involving Iranian banks, including such giant institutions as: UBS (Switzerland), Commerzbank AG (Germany), HSB (Britain),
and Deutsche Bank A.G. (Germany). (US
banks have been banned previously from doing business in Iran.)[2]
As a result, Iran
now experiences extreme difficulty processing significant transactions,
especially oil transactions customarily conducted in Euros or dollars. Indeed, there are reports that India, South Korea,
and China all owe Iran billions
for past oil sales, but cannot pay their debts due to banking
complications. The US would prefer
that countries refrain from buying Iranian oil, but buying the oil without
paying for it is even more satisfying.
Sanctions
also affect Iranian business. Restrictions on loans and credit lines,
insurance, and shipping severely hamper the business dealings of both wealthy
and middle-class Iranians. Shortages of
raw materials due to sanctions further impede the average Iranian’s ability to
run a profitable enterprise.[3] Moreover, in December 2010, President Mahmoud
Ahmadinejad reformed Iran’s
longstanding price subsidy program. To ease the transition for a population
accustomed to paying virtually nothing for gasoline, the government is making
cash payments to Iranian citizens and businesses. Outlays are projected to total $45 billion in
the next fiscal year and will represent a serious drain on the government’s
finances, adding to the vulnerability of the Iranian economy. If the government is unable to meet its
financial obligations, the regime runs the risk of serious political
instability.
Effects of
the sanctions on the nuclear program itself are harder to see. Multiple reports suggest sanctions have
retarded Iranian efforts to procure materials required for second-generation
centrifuges, for example, an advance that could dramatically accelerate Iran’s uranium
enrichment capabilities. Other reports
say that Iran
manages to bypass UN sanctions for most of its procurement needs. A few months ago, Iranian officials revealed
plans to triple 20 percent enrichment output by installing second-generation
centrifuges at a new site at Fordow.
Whether and, if so, when these plans might come to fruition remains to
be seen.
Sanctions
on military items can claim a number of high-profile successes, such as
Russia’s cancellation of a contract to sell advanced air defense missiles to
Tehran, but given the secretive nature of Iran’s military complex it is hard to
get reliable information on the status of illicit arms trade. Iran
most likely cooperates with North Korea
to secure nuclear and military technology and equipment, and might have
dealings with Pakistan
as well. Increased vigilance at
re-export hubs, such as Dubai and the UAE, is
making a difference in fighting smuggling, but illicit goods continue to enter Iran through Malaysia
and Hong Kong, among others.
In short, sanctions on Iran are
weakening the country’s economy, hurting its prospects for economic growth by
impeding the development of its oil and gas resources, and limiting its access
to critical nuclear materials and military equipment. The sanctions’ economic effects will
increase with time. So far, however,
they have not persuaded Iranian leaders to negotiate limits on the country’s
nuclear program.
Sanctions alone cannot stop Iran’s march to
acquire the ability to build nuclear weapons, should it choose to do so. What sanctions can accomplish is slowing the
process while harming Iran’s
economy, potentially making the political costs to the regime
unacceptable. If combined with renewed,
positive diplomacy that makes clear to Iranian leaders the benefits of ending
their estrangement from the international community, the combination might
permit the emergence of a new ruling coalition in Tehran,
one prepared to negotiate an agreement that can assure that Iran’s nuclear program is – as Iran has always
said – intended solely for peaceful purposes.
[1]
Government Accountability Office, Firms
Reported in Open Sources as Having Commercial Activity in Iran’s Oil,
Gas, and Petrochemical Sectors (August
3, 2011): (https://www.gao.gov/new.items/d11855r.pdf).
[2] Kenneth Katzman, Iran Sanctions (Congressional Research
Service, June 22, 2011): https://www.fas.org/sgp/crs/mideast/RS20871.pdf
[3]
Farnaz Fassihi, “Iran’s Economy Feels Sting of
Sanctions,” Wall Street Journal (October
12, 2010): https://online.wsj.com/article/SB10001424052748703735804575535920875779114.html.
Photo Credit: Tom Chambers, Flickr https://www.flickr.com/photos/snapshot/3705888592/sizes/z/in/photostream/
Are the Iranian Sanctions Working?
Nonproliferation
By Dan Harper – The United Nations Security Council
(UNSC) has passed four resolutions since 2006 that progressively tightened
restrictions on nuclear exports to Iran and placed additional controls
on sales of weapons. These measures were in response to questions raised by the
International Atomic Energy Agency about Iran’s nuclear activities that seem
to violate its obligations under the Nonproliferation Treaty.
These multilateral sanctions add to
a long history of US sanctions against the Islamic Republic, and to a more
recent history of significant economic restrictions by diverse European and
Asian countries. In the last year, the
European Union, Australia, Canada, Japan,
and South Korea placed
restrictions of varying severity on financial dealings with Iran, and
particularly on investments in its energy sector. Also in 2010, the US Congress passed
legislation that would penalize foreign firms that invested in Iran’s energy sector or contributed to its
nuclear or military programs by denying them access to the US financial
system.
Are these sanctions achieving the
goal of persuading Iran
to negotiate an agreement that credibly and reliably stops its nuclear program
short of a weapons capability?
Sanctions on Iran’s energy sector have proved highly
effective in discouraging much-needed investment in Iran’s aging oil and gas
infrastructure. According to Iran’s Oil Minister, Iran needs $40 billion of investment
in its energy sector, and most experts think it will need far more. Yet, since March 2010, 20 out of 41 firms
previously engaged in Iran’s
energy sector have withdrawn, including all the Western companies with advanced
technologies. This leaves Iran facing the
prospect of declining oil production and the certain failure of its offshore
gas development plans.[1]
Iran’s banks largely have lost
access to international finance due to financial sanctions. Between 2006 and 2010, the Treasury
Department convinced 80 foreign banks to refuse to process transactions
involving Iranian banks, including such giant institutions as: UBS (Switzerland), Commerzbank AG (Germany), HSB (Britain),
and Deutsche Bank A.G. (Germany). (US
banks have been banned previously from doing business in Iran.)[2]
As a result, Iran
now experiences extreme difficulty processing significant transactions,
especially oil transactions customarily conducted in Euros or dollars. Indeed, there are reports that India, South Korea,
and China all owe Iran billions
for past oil sales, but cannot pay their debts due to banking
complications. The US would prefer
that countries refrain from buying Iranian oil, but buying the oil without
paying for it is even more satisfying.
Sanctions
also affect Iranian business. Restrictions on loans and credit lines,
insurance, and shipping severely hamper the business dealings of both wealthy
and middle-class Iranians. Shortages of
raw materials due to sanctions further impede the average Iranian’s ability to
run a profitable enterprise.[3] Moreover, in December 2010, President Mahmoud
Ahmadinejad reformed Iran’s
longstanding price subsidy program. To ease the transition for a population
accustomed to paying virtually nothing for gasoline, the government is making
cash payments to Iranian citizens and businesses. Outlays are projected to total $45 billion in
the next fiscal year and will represent a serious drain on the government’s
finances, adding to the vulnerability of the Iranian economy. If the government is unable to meet its
financial obligations, the regime runs the risk of serious political
instability.
Effects of
the sanctions on the nuclear program itself are harder to see. Multiple reports suggest sanctions have
retarded Iranian efforts to procure materials required for second-generation
centrifuges, for example, an advance that could dramatically accelerate Iran’s uranium
enrichment capabilities. Other reports
say that Iran
manages to bypass UN sanctions for most of its procurement needs. A few months ago, Iranian officials revealed
plans to triple 20 percent enrichment output by installing second-generation
centrifuges at a new site at Fordow.
Whether and, if so, when these plans might come to fruition remains to
be seen.
Sanctions
on military items can claim a number of high-profile successes, such as
Russia’s cancellation of a contract to sell advanced air defense missiles to
Tehran, but given the secretive nature of Iran’s military complex it is hard to
get reliable information on the status of illicit arms trade. Iran
most likely cooperates with North Korea
to secure nuclear and military technology and equipment, and might have
dealings with Pakistan
as well. Increased vigilance at
re-export hubs, such as Dubai and the UAE, is
making a difference in fighting smuggling, but illicit goods continue to enter Iran through Malaysia
and Hong Kong, among others.
In short, sanctions on Iran are
weakening the country’s economy, hurting its prospects for economic growth by
impeding the development of its oil and gas resources, and limiting its access
to critical nuclear materials and military equipment. The sanctions’ economic effects will
increase with time. So far, however,
they have not persuaded Iranian leaders to negotiate limits on the country’s
nuclear program.
Sanctions alone cannot stop Iran’s march to
acquire the ability to build nuclear weapons, should it choose to do so. What sanctions can accomplish is slowing the
process while harming Iran’s
economy, potentially making the political costs to the regime
unacceptable. If combined with renewed,
positive diplomacy that makes clear to Iranian leaders the benefits of ending
their estrangement from the international community, the combination might
permit the emergence of a new ruling coalition in Tehran,
one prepared to negotiate an agreement that can assure that Iran’s nuclear program is – as Iran has always
said – intended solely for peaceful purposes.
[1]
Government Accountability Office, Firms
Reported in Open Sources as Having Commercial Activity in Iran’s Oil,
Gas, and Petrochemical Sectors (August
3, 2011): (https://www.gao.gov/new.items/d11855r.pdf).
[2] Kenneth Katzman, Iran Sanctions (Congressional Research
Service, June 22, 2011): https://www.fas.org/sgp/crs/mideast/RS20871.pdf
[3]
Farnaz Fassihi, “Iran’s Economy Feels Sting of
Sanctions,” Wall Street Journal (October
12, 2010): https://online.wsj.com/article/SB10001424052748703735804575535920875779114.html.
Photo Credit: Tom Chambers, Flickr https://www.flickr.com/photos/snapshot/3705888592/sizes/z/in/photostream/