The U.S.-led financial-sanctions campaign currently under way against Iran is biting, but it isn’t enough. To change the Iranian regime’s nuclear calculus, the administration and the international community need to act urgently to pressure Tehran along multiple lines.
To be sure, the latest escalation of sanctions and financial isolation is hurting the regime. Legitimate banks, insurance and shipping companies, and energy firms are abandoning business with Iran for fear of sanctions and risk to their reputations. The most recent round of sanctions — those set in motion by the United States along with the European Union’s most severe measures against Iran to date after the passage of U.N. Security Council Resolution 1929, which in turn built on prior efforts starting in 2006 — increased the pressure on Iran’s economy by targeting its dependence on refined-petroleum imports and closing correspondent relationships between Iranian banks and those in other countries. And more nations are adding their voices to this chorus. Significantly, Japan and South Korea, two of Iran’s largest trading partners, just announced that they would impose harsh sanctions and target designated Iranian entities.
The U.S. Congress recently passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, which has created fear of secondary sanctions against non-American companies still doing business with Iran. Lloyd’s of London has announced it will stop insuring or reinsuring refined-petroleum shipments into Iran. European insurance giants Allianz, Munich Re, and Hannover Re have committed to ending business ties with Iran. Multinational firms including Total, Repsol, Royal Dutch Shell, BP, Eni, Petronas, Reliance, Glencore, Trafigura, and Vitol have all ended their refined-petroleum trade or energy investments in Iran. In July, Iran’s gasoline imports were down 50 percent from May, according to the International Energy Agency, and according to Reuters they were down 90 percent in August from the previous year. The State Department estimates that $50 to $60 billion in upstream energy-development projects (i.e., exploration and production) have been terminated or put on hold over the last several years.
These sanctions work because they are triggered by Iranian activity, which is growing less transparent and more suspicious, thus causing further reluctance by the private sector to do business with Iran. As Iran’s financial isolation grows, Iranian ventures — especially those controlled directly by the regime — will seek to hide their activities in order to evade scrutiny and sanctions, causing the private sector to worry further about business with Iranian entities. In June, the Treasury Department issued a financial advisory for precisely this reason.
Another factor is the growing and visible role of the harsh and repressive Islamic Revolutionary Guard Corps (IRGC) in Iran’s economy. The sanctions target IRGC leaders and front companies, which may account for the withdrawal from the South Pars gas-field development (the world’s largest, and shared between Iran and Qatar) of Khatam al-Anbia, the IRGC’s engineering company. All this fuels the suspicion of the legitimate financial and commercial worlds and is amplified by the Iranian regime’s electoral illegitimacy and human-rights violations, along with the growing evidence of duplicity regarding its nuclear program. This pressure will increase stress on an Iranian economy already battered by profound mismanagement, years of growing isolation, and the global economic downturn. It also appears to be exacerbating tensions within the regime, which were already serious enough to threaten its stability.
Unfortunately, the sanctions campaign alone won’t be enough to stop Iran’s march toward nuclear-weapons capability. Though Defense Secretary Robert Gates and Secretary of State Hillary Clinton have described sanctions as a tool to change the Iranian regime’s thinking about its weapons program, CIA director Leon Panetta has admitted that they will not achieve this goal, and that the emergence of a nuclear-weapons-capable Iran is possible within two years. Karim Sadjadpour, an Iran expert from the Carnegie Endowment, has emphasized this point, noting that Tehran’s hardliners are hard-wired to oppose the United States and to resist compromise in the face of direct pressure. Time is running out, the threat of an Israeli strike on Iranian nuclear facilities is increasing, and the administration is at a loss to decide what’s next.
It has hamstrung itself by talking about the utility of sanctions in maximalist terms. Secretary Gates explained that the point of sanctions is to “persuade the Iranians that they . . . will undermine their security by pursuit of nuclear weapons, not enhance it.” Biting sanctions can achieve important objectives, though those objectives may sometimes be peripheral to the Iranian regime’s nuclear calculus. As stated above, they can exacerbate internal regime fissures and increase the isolation of the regime; they can also buy time by delaying supplies Iran needs for its nuclear program, interrupt flows of funds sent to terrorist proxies, and serve as a diplomatic chip if the regime ever comes to the table. But we need to use this pressure as a starting point, and use multiple lines of pressure at once against Tehran.
The administration has framed its engagement with Iran as a step-by-step diplomatic dance, with an ascending scale of confrontation. Sanctions and financial pressure come in the middle of that dance — after engagement and before other options (presumably military). Aside from giving Iran more time by dismissing the diplomatic engagement that occurred before January 2009, this framework constrains the administration’s ability to think about financial pressure as one part of a much broader campaign, with multiple approaches pursued simultaneously, to build leverage against the regime. Such leverage could help at the negotiating table or could lead to regime change. But the mullahs know the steps to this dance, and their diplomatic maneuvers (such as making insincere offers of negotiations, with unrealistic conditions attached, that the administration will have to follow up on) can buy them more time. The strategic ambiguity of “all options on the table” is undermined by the tactical predictability of the Obama administration’s strategy.
Most troubling, the administration has seen a potential dialogue with the regime as a goal in and of itself. This way of thinking has foreclosed opportunities to build multiple sources of leverage. A case in point: the administration’s muted response to the Green Movement opposing last year’s fraudulent election. Obama’s temporizing made clear that he saw the movement as a complication to be avoided rather than a strategic opportunity.