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Weighing Benefts and Costs oInternational Sanctions Against Iran


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Weighing Beneits and Costs oInternational Sanctions Against Iran

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weighing beneits and costs o international sanctions against iran2 3weighing beneits and costs o international sanctions against iran

Signed and Endorsed by:Signed and Endorsed by:

William G. Miller, Amb.

Thomas R. Pickering, Amb.

Faraj Saghri

James Walsh

Lawrence B. Wilkerson, Col.

Frank G. Wisner, Amb.

Vali R. Nasr

Paul R. Pillar

Karim Sadjadpour

Paul A. Volcker

John C. Whitehead

Timothy E. Wirth, Sen.

Paul H. O'Neill George Perkovich

William A. Reinsch

Hamid Biglari

Joseph Cirincione

Edward P. Djerejian, Amb.

Leslie H. Gelb

Lee H. Hamilton

Stephen B. Heintz

Joseph P. Hoar, Gen.

Frank Kearney, LTG.

Ellen Laipson

Stephen A. Cheney, BrigGen.

Suzanne DiMaggio

James Dobbins

Chuck Hagel, Sen.

Michael V. Hayden, Gen.

Carla A. Hills

Gary C. Hufbauer

Daniel C. Kurtzer, Amb.

William H. Luers, Amb. Anthony C. Zinni, Gen.

Jessica T. Matthews Richard T. McCormack, Amb.

Gregory S. Newbold, LtGen. Sam Nunn, Sen.


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5weighing beneits and costs o military action against iran4

EXECUTIVE SUMMARY

Weighing Benets and Costs oInternational Sanctions Against Iran

A Paper rom The Iran Project

INTRODUCTION

The United States and the international community have used sanctions or nearly

three decades to pressure Iran to adopt dierent oreign and domestic policies.

The sanctions regime now in place, including sanctions imposed by the United

Nations Security Council, demonstrates the ability o the United States to work

eectively with allies and other concerned nations to build a common strategy on

Iran. At its core, the sanctions regime reects the commitment o many key

nations to preventing Iran rom becoming a nuclear-armed state.

Sanctions against Iran have been perceived in diverse ways, by U.S. policymakers

and legislators: As a means or getting Iran to the negotiating table; as bargaining

chips in negotiations over Irans nuclear program; as a tactic or slowing the de-

velopment o Irans nuclear program; as a counterterrorism measure designed to

constrain Irans support o organizations such as Hezbollah and Hamas; as a way o

orcing Iran to change domestic policies that violate the human rights o its citizens;even (in the minds o some) as a tool or bringing about regime change in Iran.

Whatever the purpose or combination o purposes associated with a particular set o

sanctions, the benefts o the sanctions have oten been taken as given, since the im-

position o sanctions is widely considered to be the most powerul alternative to military

action. Precisely because sanctions oer the possibility o achieving important objectives

without the human and fnancial costs o armed conict, the costs o sanctions them-

selves are not routinely addressed in the public or policymaking debate.

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Ronald Reagan

weighing beneits and costs o international sanctions against iran


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7weighing beneits and costs o international sanctions against iran6

and analyses that inorm the debate on sanctions against Iran, particularly

with regard to achieving our objectives on Irans nuclear program.

We have based our analysis and judgments on careful review of the excellent

research available on the topic o U.S. and U.S.-led international sanctions against

Iran. We have tried to give ull credit to the work o others in the endnotes to this

paper. Our own proessional judgments, when oered, are clearly identifed as such.

We are mindful of the challenges of evaluating what constitutes a benet and a

cost o the sanctions against Iran. The U.S.-led international sanctions regime

is still evolving and its longer-range eects are not ully apparent. Nonetheless, we

believe that insights from the past thirty years of experience with sanctions against

Iran can serve as a reasonable basis or thinking through uture outcomes.

HIGHLIGHTS FROM THE PAPER

The assessments highlighted below are treated in greater detail and with ample

source citations in the paper.

1. The complexity o the sanctions regime.

The sanctions regime has evolved over almost three decades and reects several

unique stages in the troubled history o U.S.Iran relations and international con-

cerns about Iran. Many decision makers in Washington may not recall the history

of the sanctions or fully grasp their complexity. In summary form at the start of our

paper, and in a detailed Primer on Sanctions Against Iran, Including Potential Future

Sanctions and Provisions or Liting the Sanctions, we attempt to disaggregate

these multiple layers of sanctions, in order to provide a clearer context within

which to weigh sanctions benefts and costs.

Sanctions against Iran have been imposed through Executive Orders and legislation

in the United States; resolutions passed by the United Nations Security Council; and

actions taken by oreign governments. Dierent sets o sanctions rely on dierent

criteria, guidelines, and implementation vehicles. They also aim at a variety o outcomes,

including achieving a negotiated agreement on Irans nuclear program; restricting Irans

ability to acquire materials or that program; slowing the development o Irans nuclear

program; ensuring that Iran discontinues unding o Hezbollah and Hamas; requiring

Iran to respect the human r ights of its citizens; limiting Irans ability to exert inuence

in the region; and, or some in Washington, producing a change in Irans government

(regime change or a undamental change in the Iranian governments policy and orien-

tation), although this latter objective has been disavowed by the U.S. government. The

sanctions regime also includes a complicated mix of criteria and provisions for lifting or

easing the sanctions currently in place, should that be warranted by Iranian actions.

EXECUTIVE SUMMARY

THE PURPOSE OF THIS PAPER

The authors and signers of this paper are senior experts from the national security

and oreign policy communities who believe that a careul assessment o the

costs as well as the benets o sanctions will enhance the quality o debate

about the sanctions regime and the role o sanctions in overall U.S. policy

toward Iran.

This report is not an advocacy document, or or against sanctions. It does not oerpolicy recommendations. Like our recent report,Weighing Benefts and Costs o

Military Action Against Iran, this paper is balanced and act-based. But while the

paper on military action sought to evaluate the benefts and costs o an action not

yet taken, this paper on sanctions ocuses on a course o action to which the United

States is already committed. Given the United States international leadership

on sanctions as a strategy or pressuring Iran, this paper not only provides

our assessment o the benets and costs o the sanctions regime, but also

oers some refections that might help the United States and its allies to

get maximum advantage rom sanctions against Iran, while minimizing the

potential or negative consequences.

SHARED UNDERSTANDINGS

The authors o this paper brought to their task some shared understandings that

provided our diverse group with a common perspective.

We recognize that Irans actionsparticularly with regard to its nuclear

programpose complex and dangerous challenges to U.S. interests and security,

as well as to the security o Israel and possibly to stability in the Middle East. These

challenges are serious and demand a response. That is the context within which

we examine the benets and costs of sanctions.

This paper focuses on the sanctions regime and does not consider complementary

elements o U.S. policy toward Iran, such as the threat o military action or the pursuit

o a negotiated settlement. In choosing to ocus on the sanctions element o U.S.

policy, we have oregone opportunities to weigh the benefts and costs o sanctions

as part o a larger strategy or dealing with Iran. In a subsequent paper, The Iran

Project will ocus on a negotiating strategy or resolving tensions with Iran.

While there is a large body of literature on the pros and cons of sanctions as a

policy tool, we make only occasional reerences to that broader debate. Nor do we

attempt to assess the role that sanctions have played in recent U.S. and internation-al eorts to aect the policies o states other than Iran. Our goal is to provide acts

EXECUTIVE SUMMARY

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9weighing beneits and costs o international sanctions against iranweighing beneits and costs o international sanctions against iran8

Sanctioning states are aced with the question o whether increasing sanc-

tions or maintaining them indenitely will achieve the desired objectives

or whether there is instead a point at which the addition o more sanctions

or the infexible application o existing sanctions might backre or become

counterproductive. Sanctioning states might get the maximum advantage from

sanctions by recognizing when an optimal degree o pressure has been reached,

and beginning to convert a purely conrontational strategy into a strategy that

combines pressure with a calibrated series o positive signals, thereby creatingmomentum toward negotiations.

Easing or lifting some sanctions: The complex mix of processes and

criteria required to lit the sanctions that are now in place may make it challenging

or an American administration to chart a clear and calibrated response to

progressive changes in Irans policies and actions. While the American President

generally has a high degree o discretion to reduce sanctions on any country,

including Iran, the act that so many o the U.S. sanctions against Iran have been

enacted into law limits the Presidents discretion. In some cases, easing sanctions

would require coordination with other nations and the UN Security Council.

Political realities and the diverse objectives reected in the current sanctions regime

also are likely to complicate the progressive easing o economic pressure on Iran.

Even i Iran were willing to reach an agreement on the nuclear issues, many sanctions

that were imposed or other reasons would likely remain in place. Some members o

the United States Congress are committed to maintaining sanctions indefnitely as one

means, among others, o hastening the demise o the Iranian regime, and it could be

difcult politically or the American president to begin liting sanctions, even though

doing so may be within his legal authority in some cases. One extreme reading of

the current sanctions regime is that Iran would need convincingly to reorient its entire

foreign policy and many of its domestic policiesand perhaps change its leader-

shipin order to achieve a complete lifting of U.S. sanctions.

So ar, neither the United States nor the UN Security Council has stipulated the pre-

cise criteria that Iran must meet to trigger the liting o sanctions, or the sanctions

that would be lifted in exchange for Irans actions. There is no action-for-action plan

that all parties understand. Our analysis suggests that the process o unwinding some

o the sanctions will be difcult but not impossible. While we make no specic

recommendations in this paper about a process or sequence or easing

sanctions in response to Iranian cooperation, we do underline the value

and importance o the United States having a plan or such an eventuality.

EXECUTIVE SUMMARY

2. Making sanctions work.

Reecting on three decades of experience with sanctions against Iran, as well as

on the nature o sanctions as a oreign policy tool, we oer several general obser-

vations about how the United States and its international allies might get the great-

est possible advantage rom the sanctions imposed against Iran, while minimizing

potential negative impacts. All o these observations, in one way or another, make

the point that the eectiveness o sanctions against Iran will depend not

only on the sanctions themselves, but also on the negotiating strategyassociated with them.

The objectives of sanctions: The multiple objectives embedded in the

sanctions regime will complicate eorts to determine whether and/or when sanc-

tions have achieved their desired results. Dierent parties, with dierent agendas,

can make conicting claims about the eectiveness o sanctions. We believe

the United States might be better able to gauge and maximize the eec-

tiveness o recent sanctions i the objectives that are most relevant and

pressing today could be disentangled rom other objectives that have

been linked with sanctions. Or, to put this dierently: Sanctions alone are not

a policy. I resolving the nuclear issue is now the most important objective o the

sanctions regime, then sanctions strategiesand the negotiating strategy associ-

ated with sanctionsshould be assessed in terms of their effectiveness or likely

eectiveness in achieving that objective.

Assumptions about inuencing the decisions of Irans leaders: The

diverse sanctions now in eect against Iran share an underlying assumption about

the ability o sanctions to produce changes in the policies o Iranian leadership by

escalating the economic pressure on Irans economy, institutions, private business

community, and people. But while the pain o recent sanctions may well help bring

Iran to the negotiating table, it is not clear that these sanctions a lone will result in

agreements or changes in Iran ian policies, much less changes in Irans leadership.

The Iranian government is engaged in its own ongoing calculation o costs and

benets, and may conclude that its interests are best served by digging in

especially i the regime believes that sanctions will remain in place no matter what

Tehran does. I Iran were to signal its willingness to modiy its nuclear program and

to cooperate in verifying those modications, Iranian negotiators would expect the

United States and its allies, in turn, to oer a plan or easing some o the sanc-

tions. Absent a calibrated, positive response rom the West, Irans leaders would

have little incentive to move orward with negotiations.

EXECUTIVE SUMMARY


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EXECUTIVE SUMMARY

essential parts is hurting some manuacturing sectors. This year, Iran cut imports

o non-essential goods. While Irans economy appears to be acing severe problems

today, we are cautious about extrapolating longer-term trends from discrete statis-

tics. It is difcult to estimate the extent of the impact of sanctions over time or the

ability o Iran to adapt to the new environment. Sanctions also have driven a sub-

stantial amount o commerce underground and into the black market, which urther

complicates eorts to gauge economic activity within and across Irans borders.

Regional military balance increasingly unfavorable to Iran. The ban on

heavy weapons sales has limited Irans ability to modernize its armed orces at a

time when Irans neighbors have been getting U.S. assistance in upgrading their

militaries. While Iran is now able to manuacture most basic military hardware

domestically, sanctions are preventing Iran rom purchasing or developing hi-tech

military equipment. We assume, however, that in the event o conict, Irans retalia-

tory and even its oensive military strategies would rely primarily on asymmetrical

warare rather than conventional orces.

Elite distress and public unhappiness over economic conditions. Both

elites and the general public in Iran are eeling the eects o the economic deteriora-

tion produced by the sanctions regime. President Ahmadinejad has been criticized

within elite circles or his mismanagement o the economy, but it is difcult to judge

whether debate has also been stimulated over Irans oreign policy, including whether

Iran should make some concessions on its nuclear program in order to achieve sanc-

tions relie. Certainly, the threat o stier sanctions does not appear to have stopped

Iran rom taking steps in its nuclear program that alarm the international community.

(The Supreme Leader, who would make the fnal decision about whether Iran should

pursue a nuclear weapon, is thought to believe that the nuclear issue is just a pretext

or regime change, and that sanctions will remain in place no matter what Tehran

does.). Public discontent with economic conditions and domestic policies is growing.

But here, too, it is difcult to judge whether public unhappiness will lead to pressure

for a change in foreign policy or national leadershipor to public fearfulness,

passivity, and accommodation under a more harshly repressive state.

Enhanced sanctions might change Irans nuclear negotiating strategy.

As international sanctions have increased in severity and comprehensiveness, the

United States has seen some indications o a greater willingness on the part o

Iranian leadership to negotiate seriously. So ar, though, little actual progress has

been made toward achieving agreement on any o the outstanding issues. It seems

doubtul to us that the current severe sanctions regime will signifcantly aect the

decision making of Irans leadersany more than past sanctions didbarring some

EXECUTIVE SUMMARY

3. Benets and potential benets o sanctions.

Targeted (or smart) sanctions have reduced Irans ability to acquire material that

could be used or a nuclear weapons program and its ability to modernize its armed

orces. Recently imposed comprehensive (or crippling) sanctions have sent a clear

message to Irans leadership about the economic cost o continuing to ignore the

demands o the United States, the UN Security Council, and others. Sanctions have

worked to constrain some Iranian activities as well as to damage Irans economy

and urther isolate Iran rom the international community. The test now is whetherthe sanctions will ultimately work to change Iranian policies and behavior.

Among the benefts and potential benefts o sanctions are the ollowing:

A basis for coalition building. Sanctions have proved to be a way or many

nations to demonstrate a unifed purpose and the seriousness o their concerns

about Irans nuclear intentions and support or violent non-state actors such as

Hezbollah and Hamas, without going to war. The severity and comprehensiveness

o the sanctions regime has also reassured riendly states in the region that the

United States understands their security needs.

Slowing the expansion of Irans nuclear program. U.S. government

ofcials and other experts have said that targeted sanctions are slowing the expan-

sion o Irans nuclear program, including the production o centriuges. Some have

even argued that without sanctions and other pressures, Iran would already have a

nuclear weapon. We disagree with this judgment, however, since U.S. intelligenceofcials have stated with a high degree o confdence that the decision to build a

nuclear weapon has not yet been taken by Irans Supreme Leader. Sanctions are

thought to have been largely eective in reducing the importation o dual-purpose

materials that would enable Iran to move orward with any plans or the develop-

ment o missile-delivery systems and other aspects o a nuclear weapons capability.

According to recent International Atomic Energy Agency (IAEA) reports, however,

Irans capacity to enrich uranium continues to expand, and Irans stockpile of

low-enriched uranium (enriched to the level o 3.55%) has continued to grow.

This raises doubts about whether sanctions have had a signifcant eect on an

aspect of Irans nuclear programuranium enrichmentthat is central to the

creation o a nuclear weapon.

Weakening the Iranian economy. Sanctions are cutting into Irans oil

revenues and disrupting its trade with neighboring states. Irans economy appears

to have been signifcantly weakened (corruption and mismanagement are endemic

problems as well). Ination and unemployment are high; the inability to purchase


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willingness on the part o sanctioning countries to combine continued pressure with

positive signals and decisions on matters o great interest to Iran.

4. Costs and potential costs o sanctions.

The decision to make international sanctions a centerpiece o its Iran strategy has

had some geopolitical costs or the United States, and ault lines are developing in

the alliance, potentially giving Iran some options or osetting the impacts o the

sanctions. Sanctions designed to weaken Irans economy and put pressure on Iranianleadership are having some eect, but they also are having some unintended negative

consequences. And while the tightening sanctions seem to be having a modest eect

on Irans nuclear negotiating strategy, they also risk undermining other long-term

U.S. policy objectives vis--vis Iran and or regional peace and stability.

Among the costs and potential costs o sanctions are the ollowing:

Disputes with allies and other countries. Dierences with Russia, China,

and other countriesincluding India, Turkey, and South Koreahave widened as

more comprehensive sanctions take eect that aim to pressure Irans leaders by

harming the civilian economy. Sanctions-related tensions among the United States

and Russia and China have complicated U.S. eorts to achieve Security Council

unity on international action in Libya and Syria.

Increased corruption and control of the economy by unaccountable

actions. Iranians who depend on cash-strapped government agencies or public

services and social-welare benefts may be orced to turn to inuential amily and

actional connections who are in positions o power. This is likely to enhance the

inuence o conservative and repressive actions (such as the Iranian Revolutionary

Guard Corps, or IRGC) that have control over fnancial resources. IRGC-controlled

frms have acquired large stakes in key economic sectors, including telecommuni-

cations, banking, transportation, and energywhere sanctions have forced global

companies to abandon some projects to IRGC-linked companies. The longer

sanctions persist, the more economic transactions will be controlled by the Iranian

leadership through black-market channels.

Empowering anti-reform voices and disempowering civil society.

Comprehensive international sanctions against Iran may be enhancing the politi-

cal power o repressive leaders and ultra-conservative actions by enabling them to

portray sanctions as U.S.-led aggression, even economic warare, and by causing

the regime to repress opposition elements more harshly than ever. To the extent

that ultra-conservatives increase their control over the Iranian system, room or

political dissent and civil society will continue to shrink.

Long-term alienation between the United States and Iran. As compre-

hensive sanctions take their toll on the quality o lie in Iran, the United States risks

losing the admiration of many of Irans peopleincluding the younger generation.

Resentment over the hardships caused by sanctions could reduce the prospects or

improving or normalizing U.S. and Iranian relations over time, even i Iranian leader-

ship were to change.

Increased potential for conict.The international sanctions, combined with

threats rom Israel and a U.S. military buildup in the Persian Gul, may have height-

ened Irans readiness or asymmetrical retaliation against U.S. and allied interests.

In addition, according to the U.S. Deense Department, Iran has responded to the

limits on its arms purchases by expanding its own arms industrydeveloping

ballistic and cruise missiles, building more small boats to use in the Persian Gul,

and acquiring additional ships and submarines. The sanctions, and especially the

partial oil embargo against Iran, have also caused Irans leaders to threaten action

to close the strategic Strait o Hormuz.

Potential humanitarian effects. Sanctions have the potential to produce

human suering that could be morally repugnant and that could undermine inter-

national support or sanctions, hurt the United States global image and credibility,

and contribute to urther alienation o the Iranian public. The comprehensive sanc-

tions introduced in 2010 have lowered the standard o living and wellbeing o Irans

population, including by reducing the availability o ood, medicine, and other basic

human requirements. Some hardships are an inevitable result o sanctions cutting

deeply into the economy or long periods o time. In addition, while the United

States Treasury Department permits the export of humanitarian goods to Iran, U.S.

frms are not always willing to undertake the licensing process that is required, and

oreign frms and banks may hold back rom any transactions with Iran or ear o

U.S. penalties and volatility in the value o Irans currency. Inadvertently, a widely

accepted principle o sanctionsthat the availability o ood and medicines should

not be affectedis at risk of being violated. Meanwhile, as the number and complex-

ity o sanctions on Iran have increased, humanitarian relie groups complain that it

is increasingly difcult for U.S. citizens to donate to relief efforts in Iran (for example,

ater the August 2012 earthquakes in Northern Iran).

Detrimental economic effects on the United States, its European

allies, and the region. The sanctions now in place are creating new international

patterns o trade that are potentially detrimental to the U.S., European, and regional

economies. The eects o the most crippling sanctions are not yet visible in the

available economic data, and a combination of factorsincluding exemptions of

EXECUTIVE SUMMARYEXECUTIVE SUMMARY


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various kinds, the expansion of black market trading, and non-compliance by

some partiesmakes it difcult to calculate precisely the economic impacts of

sanctions on the United States, the European Union (EU) countries, and countries

in the Middle East. But one obvious opportunity cost o sanctions is that they

exclude U.S. and allied rms from potentially lucrative business opportunities in Iran.

Goods rom China and India, two o the countries that have sought to avoid sanc-

tions on Iranian banks by bartering or oil, are taking hold in the Iranian market, and

it may prove difcult to realign trade patterns to include the EU countries (or whichIran was a airly signifcant market in the past). The Gul Cooperation Council

countries, which had enjoyed a blossoming o trade activity with Iran beore tight-

ened sanctions took eect, ear the loss o that income. Meanwhile, the rapid

expansion of unofcial, black-market trade between Iran and Afghanistan, Iraq,

Pakistan, and Turkey is distorting and undermining the economies o those states

and the region.

Detrimental effects on the global energy supply and the stability of the

global energy market. In the past, a rise in tensions between Iran and the interna-

tional community has oten produced a jump in world oil prices. While that volatility

may be reduced somewhat nowdue to the relatively soft market for oil and the

calculation that Irans share of the global oil market is in declineworld oil prices

remain sensitive to such tensions. Even i the EU oil embargo were to be terminated

as part o a nuclear deal, Irans oil felds will have deteriorated and Irans presence in

the global oil market will diminish, at least over the mid-term. And sanctions have

aected Irans ability to supply liquefed natural gas to the global market, by

preventing Iran from using any patents or accessing international expertise to

develop a capacity to export liqueed natural gas.

EXECUTIVE SUMMARY

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