International Affairs

The Self-Limiting Success of Iran Sanctions

Reprinted by permission of INTERNATIONAL AFFAIRS, November 2011.

Since the 1979 revolution that ousted Iran’s pro-American monarchy and replaced it with a theocratic regime hostile to the West, the United States has sought to temper Iran’s geopolitical ambitions through a combination of tough rhetoric and economic sanctions. After more than 30 years, the cycle is as unsurprising as it is ineffective: the United States and its allies orchestrate stringent economic measures through the United Nations, and then await concessions that somehow never materialize. Indeed, as UN proscriptions have amassed and Iran’s trade with its traditional partners withers, there is no indication that the theocratic state is prepared to adjust its aspirations with respect to either its nuclear programme or its claims to regional power.

A closer look reveals that the international community missed a critical turning point in Iran’s international orientation, and squandered the single obvious opportunity to shift Iranian policies towards a more constructive direction. In the 1990s, Iran appeared to be on the verge of discarding its radical patrimony, at least with respect to its foreign policy, much as other revolutionary states such as China and Vietnam have done. The end of the long war with Iraq and the death of the Islamic Republic’s charismatic founder facilitated a period of reconstruction, a respite from the state’s existential insecurities, and a predictable reconsideration of the regime’s ideological verities. By the end of the decade, a reformist cadre led by President Muhammad Khatami sought to rejoin the international community by conceding to its mandates and adhering to its conventions. At the dawn of the twenty-first century, Iran finally appeared ready to usher in its own Thermidorian Reaction.

Yet this prospect appeared to fade after the election of hardliner Mahmoud Ahmadinejad to succeed Khatami in 2005. In the succeeding years, the Islamic Republic has regressed towards policies that resemble the worst excesses of its zealous early years: at home, unambiguous repression of any dissent and an insistence on absolute fealty to an ageing clerical tyrant; abroad, provocative policies towards its neighbours and belligerence towards Washington. Unexpectedly, it has been a younger generation of Iranian politicians—Ahmadinejad and his cohort—who have rejected the nascent pragmatism of their elders; these children of the revolution are seeking to revive its mandates rather than to restrain them.

At the same moment as Iran’s formidable new right wing came to the fore, the region began an even more dramatic set of political transformations, first with the US interventions to Iran’s east and west that removed the theocracy’s most menacing adversaries, and later with the advent of a powerful, far-reaching movement for democratic accountability across the Arab world. As a result of these intersecting trends, Iran’s paranoid, combative leadership has been emboldened to take advantage of the opportunities to be found in an uncertain regional environment with a shifting balance of power. For this reason, the threats posed by Iran’s domestic and regional policies loom ever larger for Washington and the
broader international community.

To date, however, the Obama administration has stuck to the essential framework of the carrot-and-stick diplomacy it adopted upon taking office in 2009—an approach that differs merely in style from that of the Bush administration during its second term. This self-described ‘dual-track’ strategy relies on economic pressure to persuade Tehran to enter negotiations and moderate its policies, consistent with the basic American formula for dealing with Iran since 1979. The achievements of such an approach have always been open to question.

Even as the Obama administration has imposed the broadest and most robust multilateral restrictions on Iran in history, all of Tehran’s most disturbing policies, including its aggressive nuclear programme, proceed apace. Sanctions have imposed heavy financial and political costs on the Islamic Republic, but they have not convinced Iranian leaders that their interests would be better served by relinquishing their nuclear ambitions, abandoning their other reckless policies, or even opening a serious dialogue with Washington. This obduracy is a function of the complex political transformation within Iran over the course of the past decade, the regime’s well-honed capabilities for evading and insulating itself against sanctions, and of course the momentous changes that have swept the broader region. As a result, in dealing with the Islamic Republic of 2011 economic sanctions can have little expectation of achieving meaningful changes in Tehran’s policies. This article examines the history of sanctioning the Islamic Republic, and argues that despite their increasing severity, sanctions have failed to achieve their intended policy results thanks to the regime’s capacity for resisting international pressure. Moreover, the rise of a new generation of hard-liners and the uncertain aftermath of the Arab Spring has exacerbated the regime’s aversion to compromise.

Three decades of pressure

The essential framework for US policy towards Tehran was established during the earliest hours after the seizure in November 1979 of the US Embassy and its staff. As a former senior State Department official recalled of the deliberations, ‘almost as soon as policy discussions began on [the day after the Embassy was overrun], the members of the crisis team in both the White House and the State Department focused on a two-track strategy’. The objective then was to ‘open the door to negotiation’ while also ‘increas[ing] the cost to Iran of holding the hostages’.1 From that time forward, each US president has indulged in finetuning, but the basic blueprint for addressing the array of threats emanating from the Islamic Republic has remained almost precisely the same as the plan crafted at the outset of the hostage crisis.

The embrace of a dualistic approach for responding to the hostage crisis reflected the divisions that quickly erupted within the Carter administration, personified by two individuals: Secretary of State Cyrus Vance, who favoured negotiations, and National Security Advisor Zbigniew Brzezinski, who pressed for greater consideration of coercive options. However, none of the military options presented to the President in November 1979—including a rescue mission and retaliatory strikes or raids—offered compelling prospects for successfully extracting the captive diplomats. With American lives at stake and the hostages’ safe release defined both privately and publicly as the paramount US policy objective, the administration opted early on to exhaust non-military measures before resorting to force.

As a result, this original version of the dual-track US strategy relied heavily on economic pressure: prohibition of Iranian oil imports to the United States, a freeze of all Iranian state assets held by US institutions, and eventually a travel ban and a comprehensive embargo on nearly all forms of trade with Iran. Of these measures, the freeze on assets proved uniquely powerful: in one fell swoop—precipitated at least in part by concerns that Iran planned to withdraw its US deposits— Washington ‘effectively immobilized $12 billion in Iran’s assets, including most of its available foreign exchange reserves’.2 The financial constraints imposed by the freeze may not have fully crippled the Iranian economy, which was already reeling as a result of revolutionary chaos, but this measure magnified the negative consequences of Iran’s inept and ideological management of its oil sector as well as the existential crisis precipitated by the September 1980 Iraqi invasion.

As the hostage crisis moved slowly towards resolution, economic interests assumed an increasingly high priority for Iran’s leadership in the terms of any agreement, and the negotiations that produced the January 1981 Algiers Accords entailed a considerable focus on the accounting and mechanics of settling the outstanding financial disputes between the two countries. As one of the negotiators of that agreement has argued, the existence of vast and complex financial claims between the two countries, including many private American claims stemming from the revolution itself, would have effectively obligated both sides to engage in negotiations even if no political imperative for doing so had existed.3 In this respect, the hostage crisis may offer the single striking example of the efficacy of sanctions in producing a demonstrable concession from Tehran, and the US–Iran Claims Tribunal that was created as a result of the Algiers Accords has proved the single consistent and enduring mechanism for official interactions between the two governments.

However, the hostage crisis also underscores the limitations of sanctions, and particularly highlights the difficulty of achieving broad multilateral support for stiff penalties against Iran. Despite US allies’ sympathies with the American predicament and outrage over the affront to international law and diplomatic protocol, even Washington’s closest international partners proved deeply reluctant to jeopardize their economic interests in Iran or undertake measures that might alienate opinion in other parts of the Muslim world. Japan and the European Community adopted minimalist trade sanctions only midway through the 15-month crisis, and even those measures were loose enough to enable trade to continue to rebound from post-revolutionary disruptions. For its part, the Soviet Union actively undermined the sanctions regime by vetoing a modest array of proposed United Nations sanctions in January 1980 and dangling ambiguous offers of economic assistance to Tehran throughout the crisis.

The deliberations over sanctions during the hostage crisis reflected a persistent overconfidence among US officials about Washington’s capacity to exercise a positive impact on the struggle for power within Iran’s fractious polity. Then as now, US officials sought to craft a balance of inducements and penalties that would empower the theocracy’s persistently embattled moderates. The release of the hostages was ultimately a pragmatic move by Tehran; it is difficult to discern any significant constructive influence of carrot-and-stick diplomacy on the interim outcome of the enduring contest for influence within the Islamic Republic.

Although tensions between Tehran and Washington remained high even in the aftermath of the hostages’ release, the Algiers Accords included provisions for the lifting of trade sanctions, meaning that there were now no legal impediments to economic interactions between Iranians and Americans. However, the climate degenerated quickly, as Iran stepped up its campaign of subversion against its neighbours and began cultivating terrorist proxies in the Middle East. At the same time, Washington began shifting from its previous neutrality in the long, bloody Iran– Iraq war to a distinct tilt towards Baghdad, in part to avert the regional upheaval that would have ensued if Iran had succeeded in its aim to take the Iraqi capital.

Throughout its two terms, the Reagan administration sought new mechanisms for ratcheting up pressure on Tehran, including a willingness to deploy military as well as economic coercion. Early measures included an aggressive campaign to prevent Tehran from securing desperately needed military equipment and the 1984 designation of Iran as a state sponsor of terrorism for its support of Hezbollah in Lebanon and its involvement in the bombing in 1983 of a US barracks in Beirut that killed 241 marines.

These restrictions were relatively limited measures, at least compared to the hostage-era sanctions, and whatever sense of urgency they may have conveyed to Tehran was surely undercut by the nearly simultaneous covert sales of US arms to the revolutionary regime that took place as part of the Iran–Contra episode. Just as State Department officials in 1979–81 sought to empower those presumed to be moderates in the hope of securing the hostages’ freedom, the Reagan administration officials who embarked on the secret weapons sales were motivated by a conviction that the effort would tip the internal balance of power against Khomeini and in favour of pro-western moderates.

In the embarrassing aftermath of the Iran–Contra scandal, the Reagan administration persisted in pursuing a bifurcated policy towards Tehran, albeit one that was much more heavily biased towards coercion. While senior US officials continued to hold the door open to engaging Iran’s leadership, this phase also includes the sole period of direct armed conflict between Iranian and American forces, after Washington agreed to escort Kuwaiti oil tankers that had come under Iranian attack through the Gulf. In addition, the administration strengthened the sanctions regime in the wake of the Gulf skirmishes, with a 1987 embargo on all imports from Iran and selected exports to it, although it should be noted that the effects of this measure were checked by the loopholes that permitted US companies to continue to do business with Iran’s oil sector.4

The persistence of a hostage problem in the Middle East persuaded President George H. W. Bush to turn up the volume on inducements within the dual-track approach to Iran. In his inaugural address of January 1989, President Bush referred to American hostages held in Lebanon and added that ‘assistance can be shown here, and will be long remembered. Good will begets good will. Good faith can be a spiral that endlessly moves on.’5 He and other officials repeatedly signaled publicly their openness to engagement. Iran’s leaders vociferously and publicly rebuffed Bush, and their back-channel efforts to assist in Lebanon proved unconvincing to Washington given the ongoing violence there. Still, even as the administration’s engagement track faltered, so too did any meaningful efforts to apply new pressure on Tehran.

New sanctions enacted during this period were codified in the 1992 Iran–Iraq Nonproliferation Act, which prohibited any transfer of any goods or technologies that could facilitate the development of chemical, biological or nuclear weapons or destabilizing conventional weapons such as missiles. This legislation is notable as the first salvo of Washington’s increasing reliance on threats of extraterritorial measures against third countries as a means of attaining new leverage against Iran, something that prior administrations had studiously avoided for fear of alienating crucial allies. The administration also sought to strengthen multilateral restrictions on dual-use goods, albeit to little effect.

The relative inertia displayed by the first Bush administration on Iran masks a hardening of Washington’s attitude towards the theocratic state that is evident in two important respects. The first was the decision to ostracize both Iran and Iraq, as part of a broader reconceptualization of a post-Soviet strategic landscape dominated by threats from rogue states.6 This approach contrasts with the historic tendency to balance one of the northern Gulf states against the other. Second, the administration’s direct and fruitful immersion in the precarious terrain of Middle East peacemaking created a new imperative for antagonism between the two old adversaries. At the same time, Tehran stepped up its regional assertiveness in the aftermath of the Iraqi defeat and in response to the momentous prospect of Arab– Israeli peace. Its stated goal was to drive American forces from the region and reverse the tentative shoots of regional peacemaking; beyond this, the revolutionary leadership sought to establish itself as the pre-eminent power in the Gulf and undermine its Arab neighbours.

All these trends only intensified during the Clinton administration from 1993. Secretary of State Warren Christopher’s experience of leading the contentious negotiations that freed the hostages left a legacy of profound distrust of Iran and a revulsion from the policies of the Islamic regime. He and others in the administration entered office determined to avoid Tehran’s duplicitous tactics and to firmly isolate Tehran, as well as Baghdad, in order to facilitate the emergence of a ‘new Middle East’ anchored by a post-Oslo Accords Arab–Israeli peace. The new US policy became known as ‘dual containment’, a rejection of the historical tendency of Washington to counterbalance one of the Gulf powerhouses by indulging the other. Washington sought to shape the essential parameters of regional politics through economic warfare against Iran.

The Clinton administration’s initial efforts were focused on generating greater cooperation from its reluctant European allies to apply pressure on Tehran, a posture that was undermined by the persistence of considerable volumes of US trade with Iran. A combination of European resistance, frictions between the Republican Congress and a Democratic administration over Iran policy, and an unexpected Iranian overture precipitated a dramatic tightening of US economic restrictions against the Islamic Republic. In 1995, Tehran offered its first upstream oil deal since the revolution, and opted to put the offer to an American company in what Iranian President Ali Akbar Hashemi Rafsanjani later described as ‘a message to the United States that was not properly understood’.7 Whatever the intended impact may have been, the move triggered a renunciation of the deal, as well as new executive and congressional measures that imposed a comprehensive US trade and investment ban and threatened penalties on third-country investors in Iran’s energy sector. The latter measure, codified in the Iran–Libya Sanctions Act of 1996, is notable for having caused a predictable uproar among America’s allies. The application of secondary sanctions violated the declared US commitments to free trade, complicated Washington’s efforts to generate a united front with Europe, and ultimately was diluted by the evident reluctance of Washington to implement its provisions—or even identify its prospective targets.

No sooner had the Clinton administration erected the most rigorous unilateral sanctions regime since the hostage crisis than it was unexpectedly confronted by a changing set of circumstances within Iran’s domestic political contestation. The 1997 election of a moderate president and the advent of a new political force within the Islamic Republic that aimed at reviving the republican imperatives of the Islamic revolution prompted a frenzied US effort to translate these changes into a genuine improvement in the bilateral relationship. After a flurry of signals from both sides, including the proposal by Secretary of State Madeleine Albright for the development of a ‘road map’ towards rapprochement, the same American administration that had significantly intensified sanctions for the first time since the revolution whiplashed in the opposing direction. As part of the most dramatic series of US overtures towards Tehran since 1979, President Clinton adopted a number of measures that eased existing sanctions. These included authorizing the sale of spare airline parts, lifting restrictions on sales of food and pharmaceuticals, removing Iran’s designation as a conduit for narcotics production and transit, and—finally and most dramatically—a wide-ranging speech by Albright that articulated US regret for a range of previous policies and announced the lifting of sanctions on caviar, carpets and pistachios. Neither the onerous economic restrictions of 1995 and 1996 nor the accommodating overtures of 1998, 1999 and 2000 generated positive changes in Iranian behaviour or rhetoric.

Much like the Clinton administration, President George W. Bush and his team entered office with deep mistrust of Iran and a determination to avoid repeating the mistakes of their predecessors. Unlike the 1990s, the events of the Bush era—particularly the 9/11 attacks and the revelations about Iran’s covert nuclear programme—only reinforced that mistrust and the pursuit of maximum pressure on Tehran. Like Clinton, President Bush sought to cordon off Iran from the rest of the Middle East in order to facilitate a broader regional transformation; however, in doing so, he also sought to align US policy with the aspirations of the Iranian people, rather than exploit whatever distinctions remained within its rapidly consolidating hardline government. The hallmarks of his first-term approach to Tehran tended towards diplomatic grandstanding over significant policy initiatives or specific new sanctions. This period coincided with the waning days of the Iranian reform movement, which struggled to sustain temporary concessions on the regime’s nuclear activities.

During its second term, however, the Bush administration adopted a more assiduous and innovative approach that sought to strengthen US leverage in dealing with an apparently ascendant Iran. While retaining the pugnacious rhetoric of his first term, President Bush adopted a substantially different course, one that prioritized multilateral cooperation and identified new mechanisms for broadening the impact of US unilateral measures.

This involved several components, including the use of executive prerogative to designate Iranian entities as associated with terrorism, under measures adopted after the September 11 attacks, as well as enhanced counterproliferation sanctions. These unusually far-reaching restrictions effectively precluded foreign banks with US interests or presence from doing business with designated institutions in Iran. While extraterritorial sanctions had provoked European opposition in the past, these measures met little overt resistance from either the diplomatic or the financial community. The surprising degree of compliance reflects a combination of effective US diplomacy with allies, a more sceptical international mood towards Tehran, and the obliqueness of the measures, which ostensibly targeted merely the Iranian institutions but indirectly imposed constraints on any of their foreign business partners.

These measures were accompanied by a concerted campaign, primarily focused on financial firms in Europe and the Gulf, intended to highlight both the increasing legal roadblocks to investing in Iran as well as the reputational risks of doing so. The outcome was dramatic: after more than two decades of trying to bring the rest of the world into line with American efforts to isolate and pressurize Iran, Washington helped launch a wave of divestment from Iran simply by capitalizing on the unique role of the US financial system in magnifying the impact of US restrictions. The US federal measures were complemented by the proliferation of state-level measures, the cumulative effect of which was to reinforce the disincentives for any firm with American interests to deal with Iranian counterparts.

Finally, the Bush administration embarked on a long and arduous campaign to bring the Iranian nuclear file before the United Nations Security Council (UNSC), in the course of which it reversed its prior refusal to negotiate with Tehran and relaxed its stance towards future Iranian nuclear activities. These concessions won Washington a trio of successive UNSC sanctions resolutions that began to build an international consensus on penalizing both the state of Iran and specific institutions within it over the nuclear issue. The end result was a new relevance for Washington’s Iran policy—but with no evidence that this sudden salience is producing the intended moderation of Iranian policies.

In contrast to his predecessors as well as his rivals, as a candidate for the US presidency Barack Obama publicly campaigned on the exigency of a more effective approach to Iran; during the Democratic primary race, he embraced the need for direct negotiations without preconditions. Moreover, after taking office the new President personally invested himself in reaching out to Iran, via a video message commemorating the Iranian new year (Nowruz) in March 2009—a greeting that was evidently crafted to appeal to regime elites as well as ordinary citizens. Over the course of the next several months, the administration reportedly initiated other gestures towards Tehran of a more private nature, including unprecedented correspondence from President Obama to the Iranian supreme leader. However, President Obama indicated from the outset that engagement would be given an early deadline to prevent Tehran from using the process to evade demands made of it. As in other elements of its Iran policy, the Obama administration retained the basic outline of the Bush approach to Iran sanctions, with modest enhancements. The designation of Iranian individuals and institutions under the counterproliferation and counterterrorism statutes remains a powerful tool for creating ripple effects across the global landscape of the country’s trade ties. Beyond these steps, however, President Obama has sought to enhance the persuasive power of US policy—initiating early overtures towards Tehran as a means of demonstrating to Europe the seriousness of American readiness to negotiate, making key compromises on issues at stake with Russia to draw Moscow into a more cooperative relationship on Iran, and investing in a protracted negotiation of the latest (and presumably last) UN resolution on Iran, Security Council Resolution 1929, so that it would serve as a platform for additional measures by individual states as well as the European Union. The advantages of this synergy cannot be overestimated, and in many ways those subsequent unilateral sanctions are far more significant than the UN measure itself. Washington took other steps to encourage cooperation among ‘like-minded states’ in Europe and in Asia, notably by using sanctions policy to highlight human rights abuses in Iran and to restrict the government’s access to technology used to control the free flow of information.

Notable new measures include the July 2010 Comprehensive Iran Sanctions and Divestment Act (CISADA), which includes a rescission of the prior exemption of caviar, carpets and pistachios from US sanctions, as well as a new array of extraterritorial measures including restrictions on sales of refined petroleum products to Tehran. In part because CISADA was enacted so quickly on the heels of the UN resolution, there was some grumbling, particularly from the Russians, that Washington was exceeding its mandate. Still, the unilateral American actions did not provoke intra-alliance tensions or defections from the overall international consensus on putting pressure on Tehran.

A measure of success—and continued obduracy

After more than three decades of reliance on sanctions as the centrepiece of US policy towards Tehran, Washington can finally claim a measure of success, at least with respect to the breadth of multilateral cooperation, the potency of international implementation, and apparent costs imposed on Iran as a result of its defiance of UN mandates.

The consequences of the sharpened sanctions regime can be seen across the board within Iran. Trade with Europe has declined precipitously, and sanctions have forced Tehran to recapitalize its banks and seek out creative mechanisms— including barter instruments—for increasing proportions of its considerable trade finance requirements. Indian imports of Iranian gasoline have gone unpaid for months, for lack of a legally viable payment process, while Iranian jets have been grounded in Europe as a result of US restrictions on sales of refined petroleum products. A wide range of Iranian politicians, including Ayatollah Khamenei, have acknowledged the increasing hardships posed as a result of the restrictions.

The argument in favour of sanctions is grounded in the historical evidence that Iranian policy is often shaped by a rational assessment of costs and benefits. And yet it is not apparent that the mounting costs of sanctions have brought the clerical leadership any closer to a meaningful process of dialogue—much less serious compromises—on its nuclear programme or the other elements of its provocative policies. This reflects the formative influence of Iran’s domestic political dynamics, and its unexpected evolution, on the regime’s assessment of risks and rewards.

Historically, Iranian leaders have tended to reject the significance of sanctions, at least rhetorically, and have celebrated the country’s capacity to withstand external economic pressure, particularly the measures imposed on Iran by Washington. In the immediate aftermath of the revolution, this ethos was philosophically consistent with the revolutionary leadership’s quest for independence and its ambivalence about capitalism and international entanglements. The rupture of Iran’s financial relationship with the United States and the American ban on exporting military equipment to Iran spurred Tehran to invest in its domestic capacity, particularly in the security sector.

Over time, sanctions have been integrated within the regime’s ideological narrative. Like the war with Iraq in the 1980s, economic pressure represents another component of the international conspiracy to undermine the Islamic Revolution, a plot that has been foiled by Iran’s wise and righteous leaders, who have used sanctions to the country’s benefit by strengthening its indigenous capabilities and sovereignty.

From this perspective, the hard-liners may perceive merely surviving new sanctions—even at a significant price—as a victory, and will portray it as such to their support base. ‘These [past] sanctions didn’t work to our detriment,’ Khamenei said in 2008. ‘We were able to create an opportunity out of this threat. It’s the same today. We are not afraid of Western sanctions. With the blessing of God, the Iranian nation, in the face of any sanction or economic embargo, will demonstrate an effort which will double or increase its progress by many folds.’8 Since that time he has returned to the question of sanctions repeatedly. In February 2011, Khamenei implicitly acknowledged the constraints that the latest round of UNSC sanctions, including an arms embargo, had imposed on Iran’s military in an address to the air force on the anniversary of the revolution.

These tendencies have been redoubled as a result of the historic transformation that Iran has undergone over the course of the past two decades. The 1990s are often seen as a decade of economic reconstruction and political reform in Iran’s revolutionary theocracy. Intellectuals, businessmen and technocrats dominated the public sphere, as Iran seemed to be distancing itself from its revolutionary heritage. The clerical reformers were seeking to reconcile democracy and religion, while the younger generation was moving away from a political culture that celebrated martyrdom and spiritual devotion.

However, beneath the surface of innovation and change was an emerging war generation—pious former soldiers who as young men had served on the front lines of the Iran–Iraq conflict. This cohort of austere veterans maintained their revolutionary zeal and a commitment to Ayatollah Khomeini’s original mission. This segment of society would produce some of Iran’s more important future power-brokers, such as Mahmoud Ahmadinejad, Sa’id Jalili and Mujtaba Samarah Hashemi.

The young reactionaries defined their ideology by calling for a return to the ‘roots of the revolution’. The new right would often romanticize the 1980s as a pristine decade of ideological solidarity and national cohesion. They saw it as an era when the entire nation was united behind the cause of the Islamic Republic and was determined to assert its independence in the face of western hostility and Saddam’s aggression. Khomeini and his disciples were dedicated public servants free of the corruption and crass competition for power that would characterize their successors. Self-reliance and self-sufficiency were the cherished values of a nation that sought to mould a new Middle East. Western restrictions ‘backfired’, Khamenei said earlier in 2011, adding: ‘The sanctions made our youth think and produce whatever the enemy did not like us to possess. They produced such things on their own and in some cases they produced even better versions.’9 Like all idealized recollections, the conservative view of the 1980s has a limited connection to reality. For most Iranians, the first decade of the revolution was a time of economic privations, encroaching autocracy and a seemingly endless war that nearly destroyed the country.

In the path of self-aggrandizement, Iran has to be prepared to pay a price. Ayatollah Ahmad Jannati, the head of the Guardian Council, stressed this point, noting: ‘We have to have perseverance. We will tolerate sanctions and enmities and continue in our Islamic stance.’ While serving as deputy secretary of the Supreme National Security Council, Ali Hussein-Tash similarly noted: ‘A nation that does not engage in risks, and difficult challenges, and a nation that does not stand up for it, can never be a proud nation.’ In essence, the new right has redefined Iran’s national interests, privileging strategic gain over economic growth. The western politicians who insist that financial penalties will somehow detract the theocracy from its planned course do not fully appreciate the hard-liners’ mindset.

Defiance and the aspirations of Iran’s new right

Given their determination to eclipse American power, the Iranian new right seems to regard the acquisition of nuclear capability as an important objective. Ayatollah Muhammad Taqi Mesbah-Yazdi has declared this task a ‘great divine test’, while the mouthpiece of the extreme right, Kayhan, has openly called for acquiring ‘knowledge and ability to make nuclear weapons that are necessary in preparation for the next phase in future battlefields’.10 While the Rafsanjani and Khatami administrations looked on nuclear weapons as tools of deterrence, for the conservatives they are a critical means of solidifying Iran’s pre-eminence in the region. The current leaders of the Islamic Republic accordingly display little intention of bartering the programme away for commercial contracts or security guarantees which they openly deride. A hegemonic Iran requires a robust and extensive nuclear infrastructure.

As is typical of Iranian politics, the rise of the new right has invited challenges from other conservatives who may share its objectives but are pressing for a more tempered approach. Ironically, evidence suggests that this tendency was also shaped by the seminal experience of the Iran–Iraq war. In the aftermath of the war, many officials within the intelligence and security services, along with combatants from the Revolutionary Guards, began to contemplate their nation’s future path. Among the leading members of this group are the mayor of Tehran, Muhammad Qalibaf; the Speaker of the parliament, Ali Larijani; and the former defence minister Ali Shamkhani. Their writings and speeches reflect a shared conviction that the end of the Cold War and Iran’s unique geographical location position it naturally as the pre-eminent power of the region; but that, for too long, the ideological edges of the regime and its unnecessarily hostile approach to the region have thwarted its ambitions to occupy that position. They argue that the only way for the Islamic Republic to reach its desired status is to behave in a reasonable manner while increasing its power. Such an Iran would have to impose some limits on the expressions of its influence, accede to certain global norms and be prepared to negotiate mutually acceptable compacts with its adversaries.

From the perspective of the country’s dominant conservatives, Iran has been offered a rare and historic opportunity to emerge as the predominant power in the Persian Gulf and a pivotal state of the Middle East. The ‘Arab Spring’ that has already displaced an important American ally in Egypt and is putting pressure on the remaining pillars of the US alliance system, offers opportunities for projection of Iran’s influence. The consolidation of Shi’i power in Iraq, the continued ascendance of Hezbollah and Hamas, and the disarray in the pro-western camp are all seen as positive developments. Iranian officialdom is convinced that the goal of regional predominance is within its grasp. Whether it is correct in its assessment of America’s declining power or the fragility of the hold on power exercised by the incumbent Arab regimes is less relevant. The salient point is that such perceptions condition their approach to international affairs.

At a time when the region is undergoing an unpredictable transition and the Arab populace is pressing for autonomy from American mandates, Iran cannot be seen as conceding to the US on the critical nuclear issue. The domestic politics of Iran only reinforce calls for intransigence. After years of proclaiming that the nuclear programme is the most important national asset since the nationalization of the oil industry in 1951, the government believes that even merely suspending the programme will challenge the legitimacy of the state. The Islamic Republic’s deliberate strategy of marrying Iran’s national identity to the cause of nuclear aggrandizement makes the task of engaging its leadership in a process of constructive diplomacy even more daunting.

The ultimate arbiter of Iranian politics and the person responsible for setting the national course remains the Supreme Leader, Ali Khamenei. Thus far, Khamenei has upheld the essential aspects of the conservative approach and has been effusive in his praise for Iran’s nuclear defiance. ‘Among the significant characteristics of the ninth government is justice-seeking and its campaign against global hegemony which are among the mottos of the revolutionary government,’ insisted Khamenei. He has also echoed Ahmadinejad’s claims by stressing that any ‘setback will encourage the enemy to become more assertive’.11 As a Supreme Leader who has survived the internal challenge of the reform movement and the external threat of American intervention, he seems at ease with the new right’s nuclear advocacy.

As Khamenei gazes across Iran’s contested domestic landscape, his foremost concern is the survival of the regime, which is beset by economic difficulty and political ferment. The rise of the democratic opposition group known as the Green Movement has unsettled the Supreme Leader, who tends to view all opposition as externally engineered, and who now sees a menacing America in conjunction with its fifth column seeking to displace the theocratic regime. ‘It was sedition. Sedition means that certain people chant slogans with a 100 percent wrong content in order to deceive people, but they failed. Last year’s sedition was a manifestation of enemies’ plots,’ pronounced Khamenei.12 Whatever doubts and suspicions Khamenei already harboured against the West were further accentuated by the latest wave of protest to engulf the Islamic Republic.

In an important and largely ignored speech in 2010, Khamenei set out his case against engaging with the United States. ‘The change of behavior they want—and which they don’t always emphasize—is in fact a negation of our identity … Ours is a fundamental antagonism,’ declared Khamenei.13 Iran’s Supreme Leader appreciates that engagement with the United States is potentially subversive and could undermine the pillars of the Islamic state. At a time when the Arab public is seeking to reclaim its destiny and finally free itself from external dominance, Khamenei does not want to be the regional ruler who compromises with the United States. In the end, for the Supreme Leader the political costs of engagement outweigh its economic benefits.

This stance is consistent with the strategic preferences of the Islamic Republic from its inception. Since the revolution, Iran has experienced a number of episodes of severe economic pressure, as a result of volatile oil prices and the severe political crises that ensued after the revolution and during the war with Iraq. None of these episodes of economic pressure generated any significant moderation of Iranian foreign policy; on the contrary, when purse strings tightened the Iranian regime pulled together and rallied the public behind it. The current political context is, of course, unique, but a review of Iranian history dispels any illusion that Tehran will automatically buckle when its budget becomes too tight.

Iran’s conservative power structure has responded to the latest volley of sanctions in a multifaceted fashion, including defiance, mitigation, aversion, insulation and a self-serving public diplomacy campaign. Tehran has taken a number of steps over the years to mitigate its vulnerability to external economic leverage. In particular, Tehran instituted a range of measures to minimize gasoline consumption and ramp up refinery capacity in a bid to reduce the country’s reliance on imported petroleum products, and has launched a historic effort to eliminate the longstanding and profoundly debilitating price subsidies on various vital consumer goods, including bread and gasoline.

These steps have been a clearly articulated priority for Tehran for at least several years, specifically intended to undercut the impact of international restrictions.14 The regime is resourceful, adaptable and well versed in insulating its preferred constituencies and in identifying alternative suppliers. Through trade and mercantilist diplomacy, Iran has deliberately sought to expand its network of trading partners and to reorientate its trade and investment patterns to privilege countries with international influence and minimal interest in political intervention. Iranian leaders are experienced at replacing prohibited suppliers, finding alternative financiers, and absorbing additional costs in order to mitigate the impact of sanctions.

Loopholes in the landscape

Since the 1979 revolution, sanctioning Iran has largely been the lonely work of the US government. Underpinning the international community’s historical reluctance to embrace sanctions is a divergence in views both on Iran itself and on the efficacy of economic pressures. The early achievements of the Obama administration have established a solid basis for multilateral cooperation on Iran, but there is reason to suspect that the international community may splinter as the standoff persists.

Few countries other than the United States have consistently treated the Islamic Republic as a pariah state; on the contrary, important international actors such as China and Russia have invested significantly in developing a deep relationship with a country viewed by many as the region’s natural powerhouse. And while energy interests and other economic enticements, including Iran’s role as a market for Russian arms, have proved powerful binding forces, dismissing international resistance to sanctions as purely mercenary is overly simplistic. In Moscow, Beijing and other capitals, Iran remains a useful interlocutor in a critical region of the world, and these countries are loath to jeopardize their relationship with this important agent. They also share a resentment of American prerogatives and a mistrust of Washington’s intentions.

Achieving international consensus on tough sanctions is further complicated by divergent perspectives on the likely consequences. Traditionally, Washington has argued that increasing the costs of Iranian malfeasance can alter the regime’s policy calculus and dissuade it from adopting problematic policies. This view of sanctions as an instrument that can affect a recalcitrant regime is not widely shared within the international community. In particular, Moscow and Beijing have repeatedly raised concerns that, rather than inducing moderation, sanctions might provoke further Iranian radicalization and retaliation, either via direct actions against governments that adhere to any boycott or by accelerating their nuclear activities and withdrawing from the Nuclear Non-Proliferation Treaty. Moscow’s and Beijing’s reluctance to follow the US line is also informed by their long memories of their own countries’ experiences with sanctions and other forms of western economic pressure.

In recent years, Russia and China have drawn the lion’s share of attention and recriminations for hindering progress on sanctions, and yet ambivalence runs deep throughout much of the rest of the international community. Even within many European polities, the legacy of three decades of ‘constructive engagement’—an approach that endeavoured to moderate Iranian policies by drawing the regime into a more mutually beneficial network of relationships—has left a residue of discomfort among some leaders with sanctions as the primary policy instrument. In addition, Iran’s neighbours in the Persian Gulf region, who revile the Shi’i theocracy and would prefer almost any outcome to a nuclear-capable Iran, remain somewhat ambivalent about directly confronting the Islamic Republic with anything short of devastating force.15 Their trepidation is based on fears of Iranian retaliation and concerns about preserving their own economic stability in the midst of profound global uncertainty.

In any negotiations involving multiple parties and interests, a single, influential hedger can dissuade other fence-sitters from signing up to an agreement. Such selfreinforcing mistrust within the international community persistently undercuts efforts to achieve a comprehensive sanctions regime. Today, European companies grumble about pressure to forfeit opportunities to their Chinese competitors, who will quickly take their places with impunity. Tehran has exploited this dynamic, seeking to expand its economic ties in ways that complicate any prospects for western leverage. Iranian leaders have also used the opportunities afforded by the rise of ambitious new powers on the international scene, through mechanisms such as the May 2010 ‘Trilateral Declaration’ with Brazil and Turkey that sought to undercut progress on the latest round of UN sanctions.

Conclusion: options and alternatives

Economic sanctions are typically intended to influence both the cost–benefit analysis of decision-makers and the ability of their government agencies to implement problematic policies. It seems self-evident that 30 years of American economic restrictions and broad export controls on military materiel have imposed functional constraints on Iran’s capacity to cause trouble in its region. But on the arguably more important plane of leadership choices, sanctions have thus far failed to dissuade Tehran from pursuing its most objectionable policies, particularly its efforts to develop a vast nuclear infrastructure.

During the tenures of Rafsanjani and Khatami, the Iranian approach to the world was conditioned by tensions between pragmatism and revolutionary values. But it has undergone a marked change over the course of the past decade. Under the auspices of the Supreme Leader, a ‘war generation’ with imperial ambitions and an austere Islamism has come to power, redefining the parameters of Iran’s international relations and pressing its perceived advantages to their uppermost limits. Iran is well along the path to achieving a nuclear weapons capability while emerging as the most important state in the Middle East.

As long as Iranian leaders perceive themselves to be under siege from a domestic insurrection orchestrated by their longstanding enemies, they may be reluctant, and less able, to negotiate in a serious and sustained fashion with the international community, particularly on the nuclear programme—an issue that they have identified as critical to the security of the regime and the state. Moreover, regional developments are almost certainly undermining the ultimate objective of the Obama administration’s approach, namely to pressurize or persuade Iran’s leader to bargain this nuclear programme away.

The current approach is minimally sufficient for dealing with Iran, in the sense that it has successfully impeded Iran’s most problematic policies without actually generating much progress towards reversing them or altering the regime’s political calculus. But without a viable endpoint, Washington’s strategy is simply too heavily reliant on economic sanctions, a tool whose efficacy progressively declines, to resolve successfully the most urgent American concerns about Iranian policies.

Even though the sanctions succeed on a purely economic basis—that is, in imposing significant costs on the regime and exacerbating public frustration over economic hardships—they appear to be backfiring by further entrenching Iranian intransigence. Under such circumstances, the policy of economic sanctions as a means of producing reliable interlocutors must be reconsidered.

1 Harold H. Saunders, ‘Diplomacy and pressure: November 1979–May 1980’, in Warren Christopher et al., American hostages in Iran: the conduct of a crisis (New Haven, CT: Yale University Press, 1985), p. 73.
2 Robert Carswell and Richard J. Davis, ‘Crafting the financial settlement’, in Christopher et al., American hostages in Iran, p. 232.
3 Roberts B. Owen, ‘Final negotiation and release in Algiers’, in Christopher et al., American hostages in Iran, pp. 299–300.
4 Hossein G. Askari, John Forrer, Hildy Teegen and Jiawen Yeng, Case studies of U.S. economic sanctions: the Chinese, Cuban and Iranian experience (Westport, CT: Praeger, 1987), p. 190.
5 ‘The 41st President; transcript of Bush’s Inaugural Address: “Nation stands ready to push on”’, New York Times, 21 Jan. 1989.
6 Robert Litwak, Rogue states and U.S. foreign policy: containment after the Cold War (Washington DC: Woodrow Wilson Center Press, 2000), p. 166.
7 New York Times, 10 May 1995.
8 Speech by Ayatollah Seyyed Ali Khamenei in Shiraz, 20 April 2008, Vision of the Islamic Republic of Iran Network 1, Thursday, 1 May 2008, World News Connection, document no. 200805011477.1_cd440fd14763d95e, accessed 25 Oct. 2011.
9 Islamic Republic News Agency (IRNA), 2 Feb. 2011.
10 Keyhan, 12 Feb. 2006.
11 IRNA, 2 March 2008.
12 IRNA, 8 June 2011.
13 IRNA, 20 Aug. 2010.
14 See e.g. Khamenei’s sermon on 13 Oct. 2007, in which he declares that ‘we pay billions to import gasoline or import other things in order that a certain section of us—or a segment of our society—can spend and be extravagant. Is this right, I ask you? We, as a nation, have to look at this as a national problem . . . They [the West] have launched sanctions against us time and again precisely because they pin their hope on this particularly negative characteristic of our nation. If we continue to be a wasteful and profligate nation, we will be vulnerable to difficulties. But a nation which refrains from such extravagance and takes care with its expenditures and revenues will not be vulnerable to these difficulties. In this case they can sanction the nation all they like. Such [a] nation will not suffer if it faced sanctions.’ World News Connection, NewsEdge document no. 200710131477.1_adcf03c738cd1232, accessed 25 Oct. 2011.
15 ‘Iran sanctions raise Saudi doubts’, Al-Jazeera (English), 16 Feb. 2010, http://english.aljazeera.net//news/middleeast/2010/02/201021641617847397.html, accessed 25 Oct. 2011.