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Do Iran's security goals trump its economy?

Image credit: Mohammad Akhlaghi (Creative Commons: Wikimedia)

On 5 November this year, the US reimposed sanctions previously lifted under the nuclear agreement signed in 2015. The agreement, known as the Joint Comprehensive Plan of Action (JCPOA), imposed limits on Iran’s nuclear capabilities. Whilst, the International Atomic Energy Agency says that Iran has so far abided by the agreement, President Trump has repeatedly railed against the agreement, calling it the ‘worst deal ever made’.

Although the original purpose of the JCPOA was to halt Iran’s pursuit of nuclear weapons, President Trump has sought to vastly expand this purpose to include stopping Iranian foreign policy endeavours in Gaza, Yemen, Syria and Lebanon. Whether this is achieved or not depends on the resolve of Iran to endure economic hardship in pursuit of its foreign policy and security goals.

Historically, changes in wealth have had little impact on Iran’s regional policy. Instead, sanctions may risk a rallying effect, strengthening hardliners in the regime and encouraging Iran to resume large-scale uranium enrichment. Sanctions did not stop Iran from offering Syrian president Bashar al-Assad’s regime $US3.6 billion and $US1 billion in credit in 2013 and 2015 respectively. Ultimately Iran’s regional behaviour is driven by perceptions of threat rather than economic imperatives.

The Trump administration may hope that sanctions will cause internal turmoil by hitting Iran’s already sluggish economy. Indeed, the underlying logic behind most sanctions is generally creating either political instability or regime change. Nikolai Marinov, of Yale University, finds that sanctions increase the likelihood that an incumbent will lose power by 28 per cent. Certainly, unrest has been growing in Iran. In 2017, protests erupted around the country in which 25 people died, sparked by an increase in the price of eggs.

Moreover, Iran’s currency, the rial, has recently hit a new low of 128,000 rials to the US dollar, pushing up prices of imports such as food and medicine. Sanctions are estimated to have cost Iran $US160 billion from 2012 to 2016 alone. Thanks to the JCPOA, Iran regained access to more than $100 billion of assets frozen overseas and was able to start resume selling oil on the world market and once again had access to the world financial system.

Sanctions also cause long-term changes to the economy by creating special interests. For instance, the Iranian Revolutionary Guards Corps (IRGC) has significant business interests in virtually all areas of the economy. With the return of sanctions, it will be able to benefit from its monopolies in certain industries and will raise money from its smuggling operations. This creates the perverse incentive for the IRGC to encourage foreign adventurism and prolong sanctions.

Sanctions have traditionally been considered a middle ground between diplomatic protest and military force. To work, the costs of sanctions to Iran should outweigh the costs of conceding to American demands. Targeted states are generally highly motivated and difficult to influence, whereas sanctioning states usually have weaker motivations and disparate interests amongst themselves. For example, the EU has indicated it intends to set up a mechanism to assist EU companies to continue to do business with Iran. This creates a backdoor and reduces the bite of American sanctions.

Unilateral sanctions have a poor record of success. Globalisation means that sanctions by one country are rarely robust enough to change behaviour. Trade can simply be diverted elsewhere. Moreover, sanctions can be overcome clandestinely, especially if the goods are high value and generic such as oil. The case of the oil-for-food scandal in Iraq is a case in point.

Sanctions also need to have obvious and immutable targets. Iraq initially complied with most of the demands of the United Nations Security Council requiring it to withdraw from Kuwait and halt its weapons program. But when Saddam Hussein realised that these would not be reciprocated as long as he remained in power, he had little incentive to continue making concessions.

The type of sanctions that are used is an important determinant of legitimacy to the US, which is already seen as having acted in bad faith for breaking the agreement. ‘Smart’ sanctions, such as travel bans or targeting financial assets of particular individuals, were developed following the realisation that targeting elites in power would be more likely to yield results, as elites in autocratic states are often sheltered from the negative effects of sanctions.

Smart sanctions also tend to be more humane, targeting those (generally unelected) persons directly responsible for violating international standards of behaviour, rather than the target state’s civilian population. European and American sanctions on Russia are intended to do just this. The sanctions imposed on Iran however, are far less targeted and therefore risk affecting vulnerable civilians.

In terms of political systems, autocracies appear better able to resist sanctions efforts than democracies. Iran’s hybrid political system has so far induced a change at the ballot box to bring Hassan Rouhani to the presidency, in large measure because of his support for making a deal that would bring sanctions relief. It is unclear whether the Iranian public would be willing to support further concessions given their compliance with the deal.

Sanctions work best when backed up by the threat of military force. Unless the Trump administration is willing to use military force against Iran, it is doubtful whether Iran will refrain from its foreign policy adventurism. From the Iranian perspective, nuclear weapons are essential to regime survival. The Iranian leadership believes its enemies, the US and Israel, could conduct nuclear strikes on Iran. The cases of Libya and North Korea serve as a warning to Iran. Libya gave up its nuclear ambitions with the result that al-Gaddafi was sodomised with a bayonet and shot. North Korea did not, and now Kim Jong-un is meeting with the American president.

Jeremy Rees is the Trade and Investment Fellow for Young Australians in International Affairs.

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