In the last part of this three part series, we tackle the all-important
question: should the US and the United Nations continue with sanctions on Iran,
possibly modified and strengthened, or change course?
At the outset, we should recap a few points. First, there are sanctions and
associated policies that would, with very high probability in my opinion,
destabilize the Iranian economy in quick order and put widespread pressure on
the regime to change its ways or be overthrown - from the wealthy bazaar
merchants, from the rich, from those who have saved a little for a rainy day,
and
the average person who relies on government subsidies to survive.
As important, this would bare the regime's economic failures as never before,
its total incompetence and the dismal future in store for generations of
Iranians to come.
Briefly and as discussed in
Part 2, the sanctions that can pressure the regime in Tehran are
financial. Financial sanctions today are more precise than blanket embargoes on
trade. Financial sanctions can pinpoint activities that the US wants cut off,
such as various imports; that is, they can make the cost of trade prohibitive
(with no bank willing to issue letters of credit) and pressure the mullahs into
submission.
Most importantly, additional financial sanctions that require no UN support
(just US political will to fine banks that cooperate with the mullahs) can
raise the cost of trade further (sanctioning the Iranian central bank) and
cause a financial panic (initiating a run on the Iranian currency, the rial).
An important reason for the predicted success of financial success on Iran is
the fact that the regime and its supporters are corrupt. Money is all that
matters to them; they want political power to accumulate wealth, wealth is
their ultimate target. In today's Iran there is no politics, there is only
political economy.
While the success of thoughtful and comprehensive financial measures is highly
probable, the US has taken a more timid approach. One step at a time. Appealing
to other countries and the UN. And professing the protection of average
Iranians from additional hardship. Is the US position believable? Is the US
serious? And what is the best course of action for the US and in the
longer-term interest of the majority of Iranians?
One step at a time
As with anything in life, there is a threshold level of pressure before change
can be achieved. So it is with sanctions. There has to be a sufficient level of
pressure to force a target to change its policies. In the case of sanctions on
Iran, the US has never adopted a comprehensive approach. It is all ad hoc, a
little of this now and later a little of that. Although today there is more
pressure than ever before, it is still not at that threshold level, causing
some pain but less than likely to succeed. Pain with no little likelihood of
success should never be the approach.
Let me give some examples. Why just freeze the foreign accounts of a few
prominent Iranians such as senior members of the Islamic Revolutionary Guards
Corp (IRGC)? As mentioned before, their foreign banks accounts are unlikely to
be under their real name. So why not freeze foreign bank accounts of all
Iranian residents that are in excess of a certain amount, say exceeding US$1
million or any other reasonable number.
Most Iranian residents (probably over 99%) don't have foreign bank accounts,
and a majority of those that have sizeable foreign bank accounts are members of
the regime or support it for financial gain. Yes, a few who are independently
rich and that have nothing to do with the regime may unfortunately get caught
in the net, but they are not average Iranians by any stretch of the
imagination. This may be the price of exacting change. In their cases, they can
be allowed to appeal and if their appeal is supported there accounts can be
quickly unfrozen.
Why hasn't the US sanctioned the central bank of Iran? Well, there are two
empty excuses that are often provided. It may violate the International
Monetary Fund's Articles of Agreement. But that's never bothered the US before;
just recall the unilateral abrogation of dollar conversion on August 15, 1971,
that destroyed the Bretton Woods exchange-rate system; also the central bank of
Iraq under Saddam was sanctioned.
The other reason given is that the US needs the support of other central banks
to do so. Again, the US has and continues to use threats when it really wants
to do something; if another central bank violates US sanction on the central
bank of Iran the US can threaten not to transact with them.
These are doable. They would tighten sanctions many, many notches. But the US
continues with a little here and a little there, prolonging the insufficient
pressure and getting nowhere.
UN support
The UN, China and Russia are the most convenient crutches used by the US. The
US bestows various benefits on China and Russia to get their support at the UN
Security Council for watered-down sanctions that are at best symbolic. Instead,
if the US were serious, it would use its threat of banning countries and their
companies from access to the US market and imposing large fines as it has done
with less than a handful of companies for breaking US sanctions. This has
become a powerful weapon to enforce sanctions.
Getting China and Russia aboard and going to the United Nations takes time,
costs the US something, and the results in the end are not worth very much.
Hardship on average Iranians
The US has expressed concern about the adverse effect of sanctions on average
Iranians. There are a number of problems with the US position and its
credibility.
For many Iranians, especially those that suffered in the Iran-Iraq War, the US
claim of overriding concern for average Iranians is not credible. The reason
why Iranians by and large support the regime's nuclear enrichment program is
the vivid memory of the Iran-Iraq war. The UN said little and even did less
when Iran was invaded. The US and other Western powers supported Saddam and
Iraq, even when Saddam used banned chemical weapons on Iranians. The regime
defended Iran. Iran survived as a nation. As a result the rule of the mullahs
took hold.
After this experience, Iranians do not believe in the UN and the rule of
international law. Nuclear Enrichment is an insurance policy against external
aggression. The regime in Tehran will not give up enrichment. It is just about
the only policy that the majority of Iranians support. So the only way Iran's
enrichment program may be terminated is if there is regime change and Iran
receives almost ironclad guarantees that it will not be left defenseless to be
butchered by outsiders ever again.
As important is the fact that the most effective sanction strategy would
principally hurt regime insiders and its wealthy collaborators. To the extent
that average Iranians are affected, the regime would do all it could to reduce
suffering for its own survival (more on this below).
Moreover, for average Iranians the question is whether they prefer many more
years of economic and social deprivation under this regime or a change for a
better future, even if it means a little more short-run sacrifice. If the US
truly pursues sanctions with no pain except to a few regime insiders then it is
either naive or does not appreciate the workings of most sanctions.
Sanctions are not precise instruments. Invariably, average Iranians will be
somewhat affected, be it directly or indirectly. If by this class of sanctions
the US means freezing the accounts of senior IRGC members, then its claim that
it wants to avoid adverse effects on average Iranians may be true but so is the
fact that such sanctions achieve absolutely nothing. It is at best US
grandstanding.
What next? We must stress an important fact. It is difficult to believe
that the principal US goal is to reach an agreement on nuclear enrichment with
the regime in Tehran. First, any agreement with the Tehran regime, be it with
the Supreme Leader or with President Mahmud Ahmadinejad or both, will not be
worth the paper it is written on. No reasonable person can believe that this
regime will honor such an agreement. So, it makes little sense to strive for
such a piece of paper.
Moreover, if Iranians believe this to be the US goal, then they have no reason
to pressure the regime to change its policies and one of the major venues for
affecting change is lost. Iranians want economic prosperity, opportunities for
a better future, human rights, freedom to express their views, free press and
free elections. An agreement to end nuclear enrichment does little to support
these aspirations.
The only goal that makes sense is to affect regime change. Not with force or
with outside interference, but at the hands of the people of Iran. To this end,
the US should adopt a realistic approach to support the Iranian people.
First, the US should reduce its rhetoric about stopping Iran's enrichment
program and support the aspirations of the Iranian people. The US should stress
the failures of the regime to achieve economic prosperity and human rights. The
regime has failed the people of Iran, not only the present generation but also
future generations to come. That is why the young educated class is leaving in
droves. Iran's economic failures are self-inflicted and are a result of
mismanagement and corruption. Iran has fallen behind its neighbors and other
countries around the world. There is no glimmer of hope as long as this regime
stays in power. This should be the drumbeat of the US.
Second, the US should stress that in the past errors were made in relations
with Iran, in the overthrow of Mohammad Mossadeq and in supporting Saddam
during a senseless war that should have been ended immediately by the UN. Today
is a new day. The US pledges that such errors will not be repeated. At the same
time, the regime in Tehran has not served Iran well. Iranians should determine
their own future. But the US will not collaborate and reconcile with a regime
that does not honor basic human rights, defies the will of its people and
threatens its neighbors.
Third, in the quest to enable Iranians to choose their own leaders, the US will
do what it can to force the regime to honor the will of its people, to allow
free and open elections. Surely this quest was at the foundation of the Iranian
Revolution but has been buried by the current regime in Tehran.
To these ends, the US should adopt a comprehensive set of measures to force the
regime in Tehran to honor the will of its people. These measures would be
calibrated to achieve a certain threshold of pressure on the regime:
The US should freeze all foreign bank accounts with a balance of over $1
million that are owned by residents of Iran; Iranians, not only those belonging
to key regime figures, but also those belonging to rich merchant class. This
would threaten the financial interests of all who benefit from the regime, not
those of average Iranians. Targeting a few bank accounts does nothing because
most of the individuals targeted by the US have accounts under false names or
in their partners' names.
The US should further tighten Iran's isolation from the international financial
system by sanctioning every Iranian financial institution, including the
central bank of Iran. Again, any financial institution that does not cooperate
would face US fines and exclusion from the US market. Cutting off the central
bank and all Iranian financial institutions would basically increase the cost
of Iranian imports because Iran could not use letters of credit but would have
to rely on barter or cash to buy what it needs. Either regime insiders would be
forced to forego their own economic interests or finance basic necessities to
keep prices from soaring and resulting in a popular uprising.
The US could spark a financial panic by motivating Iranians, as well as
expatriates residing in the US and worldwide, to liquidate their assets in Iran
and to convert them into foreign currency (dollars, euros, pounds, Swiss francs
and yens) and take their money out of Iran. The wealthy would rush to liquidate
their assets in Iran and to take their money out, fearing a collapse in asset
prices and in the value of the Iranian currency, the rial. The regime would
have no choice but to block the outflow of funds from Iran; the black market
exchange rate would jump; import prices and eventually inflation would soar. A
week ago, a minor panic devalued the Iranian currency by 20%. These US actions
should cause a collapse of the rial.
These measures - the financial sanctions and initiatives to spark a financial
panic in Iran - should be adopted simultaneously so as to have the maximum
effect; adopting them one by one would not inflict the needed level of pain on
the regime and its supporters.
This is about the only viable approach for the US. The ongoing sanction
strategy and the singular goal of reaching an agreement with the Tehran regime
to end nuclear enrichment is not a policy that will bear fruit. If the US
cannot adopt a new approach, for instance the one elaborated here, then it may
be better to do nothing at all.
Hossein Askari is professor of international business and international
affairs at George Washington University.
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