Why “Iran Style” Sanctions Worked Against Tehran (And Why They Might Not Succeed with Moscow)

Ever since the civic unrest in Ukraine evolved into a Russian territorial grab, Washington pundits and policy-makers have mounted a chorus of support for imposing “Iran-style sanctions” against Moscow. Yesterday’s announcement by President Barack Obama of new measures targeting “key sectors of the Russian economy” in retaliation for Russian annexation of Crimea has moved U.S. policy one small step further in that direction.

In assessing the possibilities of applying the Iran model to Russia, it is essential to understand what has enabled this recent success of Iran sanctions. After all, there is a certain irony in the emergence of Iran sanctions as the preferred panacea for unlocking thorny foreign policy challenges. After all, for nearly three decades, Iran — and, in a similar vein, Cuba — has served as the poster child for the limitations of sanctions as a policy tool.

Over the course of the past four years, however, the sanctions against Iran — and the context for them internationally and within Iran — have changed dramatically. Since 2010, the sanctions’ impact on Iran has been severe: its oil exports and revenues plummeted; the value of its currency eroded; trade disruptions shuttered businesses and exacerbated inflation. Quietly, a backlash emerged among Iran’s political elites against the country’s creeping isolation, and the June 2013 presidential election ushered in a moderate new president and the beginnings of a diplomatic breakthrough on the nuclear crisis — achievements that most observers attribute to the impact of sanctions.

Now that Iran has become the exemplar of successful sanctions, the long experience in deploying economic pressure against the Islamic Republic offers is a wealth of lessons for those seeking to apply this model elsewhere. Below, I’ve outlined several of the conditions that enabled sanctions to pack such a punch against Tehran. In reading and hearing commentary from the array of Brookings Russia experts — among others Senior Fellows Fiona Hill, Clifford Gaddy, Steven Pifer, and Brookings President Strobe Talbott — I’m deeply skeptical about the prospects of creating a similarly conducive context for sanctioning Russia. None of the conditions detailed below appears to apply to the current predicament with Russia. For more on the crisis, my colleagues’ extensive work on this issue can be found here and here and here.

The successful application of sanctions takes time.

The first U.S. sanctions levied against Tehran went into effect just over 34 years ago, in response to the November 1979 seizure of the U.S. Embassy in Tehran. Although those measures were lifted in early 1981 as part of the agreement that freed the U.S. personnel held hostage by the Iranian government, Washington applied some level of economic restriction against Tehran for most of the ensuing three decades. For most of that period, Iran found the costs of sanctions to be bearable, and even to a limited extent beneficial in forcing the development of domestic industries and alternative trade and political relationships. It took decades of honing — and persistent diplomacy — for American officials and their counterparts abroad to assemble a sanctions framework that was far-reaching enough to truly alter Iran’s calculus. And a similarly protracted period of enforcement may be necessary to erode the political will (and the war chest) of the targeted state.

Broad multilateral support is essential — and it is awfully hard to produce.

The Iranian case underscores the significance of international cooperation in fashioning an effective sanctions regime, and the history of the past 35 years clearly demonstrates just how difficult it is to generate sustained support for economic penalties against an important actor in the international economy, even where the threat is evident and the precipitant is shocking.

Washington waged a lonely battle throughout the 1980s and 1990s to muster cooperation from even its closest allies to little avail. Indeed, immediately after Tehran’s 1979 seizure of the U.S. Embassy and its personnel, U.S. allies promised virtually universal support for American efforts to press Iran’s revolutionaries for the release of American diplomats. In practice, however, Japan moved to fill the void left by a U.S. ban on importing Iranian oil, and Japanese bankers worked to help Tehran mitigate the impact of the American freeze of Iran’s overseas assets. During the 14-month crisis, European trade with Tehran rebounded, while Moscow scuttled any prospect of UN penalties. Belated European measures imposed months later had only a marginal impact at best.

This story was repeated time and again over the next two decades. Despite support for U.S. objectives of curtailing Iran’s involvement with terrorism and other destabilizing policies, Washington’s most reliable allies were mostly unwilling to jeopardize their own trade and diplomatic relationships with Tehran. The Clinton administration buttressed American appeals for support with a veiled threat of extraterritorial sanctions against investors in Iran’s energy sector, but this only prompted transatlantic tensions while doing little to erode European interest in the Iranian market. So long as the Iran sanctions regime remained primarily a unilateral American construct, its effects were limited and tolerable for Iran. Tehran’s ability to do business as usual with the rest of the world made U.S. sanctions an inconvenience and a constraint on the country’s growth — but hardly catastrophic.

The 2006 referral of the Iranian nuclear issue to the United Nations Security Council began to change this equation, but it took a uniquely persuasive confluence of wrongdoings and offenses by Iran to generate a coherent international coalition committed to imposing real costs on Tehran. Multilateralism in sanctions tends to generate a virtuous circle; as the United Nations, the European Union, and a number of individual states joined forces with Washington in pressuring Tehran, it became correspondingly easier to nudge other longstanding fence-sitters, such as the Gulf states, into line. And international support didn’t simply just broaden the scope of sanctions enforcement; it helped to create an interlocking and often redundant array of measures that has proven far stronger and more persuasive than the sum of its parts.

The sanctions worked when they hit Iran where it hurt most — but avoided economic blowback elsewhere.

One of the most important factors in facilitating the recent international sanctions against Iran has been the fortuitous changes in technology and the global economy that have enabled a massive expansion of U.S. oil and gas production. Hydraulic fracturing and other technological advances have made it possible to access previously unavailable petroleum resources, and rising prices and steady growth in demand for energy has made these new technologies economical to deploy.

These shifts in global energy markets worked to the advantage of Washington and its partners; for the first time in the history of the American-Iranian estrangement, it became possible to hurt Tehran’s primary revenue stream without imposing equally painful costs on U.S. consumers or on the global economy. Iranian leaders initially discounted the intensifying penalties based on the (incorrect) presumption that their toll would be equally painful for the West, with Iran’s supreme leader Ayatollah Ali Khamenei arguing that “continuing these sanctions for a long time is not in the interest of western countries” and that much of the world has “either been forced to go along with sanctions or they are just doing it as a ceremonial gesture. And these conditions will not continue.” This proved a devastating Iranian miscalculation.

The asymmetry in the impact of the most recent Iran sanctions has been crucial to their success. Iran’s oil exports have fallen from approximately 2.4 million barrels per day in 2011 to current levels estimated by U.S. government officials to be near 1mbpd (Iran’s less credible statistics depict a slightly less drastic decline.) Meanwhile, the availability of new North American production as well as stepped-up supplies from Saudi Arabia helped ensure that the price at the pump did not spike along with the loss of Iranian exports.

Symbolic sanctions are unlikely to change a state’s calculus; ingenuity, education, and enforcement are necessary.

The real bite of Iran sanctions came thanks Bush administration efforts to amplify the force of U.S. restrictions. By applying a model crafted after September 11th to combat terrorist financing, Washington established new counter-proliferation authorities that facilitated the designation of individual Iranian banks that were associated with the nuclear program. This extended Washington’s reach by precluding transactions with any American individual or institution, including the exceptionally tangential contacts that characterize the movement of capital in the modern international financial system.

These measures effectively blacklisted the designated institutions from contact with any entity with American business interests, and as such have a powerful extraterritorial dimension. One by one, Iranian banks and other institutions were designated under both the anti-terrorism and counter-proliferation Executive Orders. The designations were accompanied by a concerted campaign, primarily focused on financial firms in Europe and the Gulf, intended to highlight both the increasing legal roadblocks as well as the reputational risks of investing in Iran.

In addition, Washington made clear that its scrutiny of Iran’s trade and investment partners was serious rather than purely symbolic. In contrast to the Clinton-era extraterritorial measures — which prompted European objections and were never actually applied — there have been hundreds of firms and individuals designated for violating Iran sanctions over the course of the past few years.

This time around, the extraterritorial nature of U.S. sanctions generated some Russian and Chinese grumbling but little overt pushback. The surprising degree of compliance reflects a combination of factors, particularly their obliqueness. The sanctions target  Iranian institutions but by extension impose constraints on their foreign business partners. The outcome was dramatic; after more than two decades of trying to bring the rest of the world on board with American efforts to isolate and pressure Iran, Washington helped launch a wave of divestment from Iran simply by capitalizing on the unique role of the U.S. financial system to magnify the impact of U.S. restrictions.

Sanctions work best against a divided leadership with a finite interest in absorbing the cost.

Historically, Iranian leaders have tended to reject the significance of sanctions and celebrated the country’s capacity to withstand external economic pressure. This ethos was philosophically consistent with the revolutionary leadership’s quest for independence, and the ruptures in Iran’s international trade and finances spurred domestic investment. Sanctions have been integrated within the regime’s ideological narrative — like the war with Iraq, 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. On this basis, Khamenei even now continues to extoll Iran’s ability to absorb international pressure through an “economy of resistance” – one which “prepares the ground for the progress and flourishing of a nation even in times of pressure and sanctions.”

However, as the cost mounted, it became clear that this determination was shaken by the sheer toll of the measures and the corresponding concerns about the impact on regime stability. This wasn’t simply an economic calculation; it was a function of Iran’s domestic political context, which has always been competitive and dynamic. That competition increasingly focused on the played out in public during the run-up to the 2013 presidential campaign, and culminated in an extraordinary televised debate only days before the vote, when the sitting nuclear negotiator was roundly upbraided for failing to forestall the onslaught of sanctions.

Voters instead overwhelmingly chose moderate Hassan Rouhani with an explicit mandate to resolve the nuclear issue and improve the economy — and to date he has been given an unprecedented room for maneuver to do so. Ayatollah Khamenei and Iran’s hard-liners may be prepared to “eat grass” if necessary to obtain a nuclear weapon, as a late Pakistani leader once promised. However, mounting public dissatisfaction over food shortages and skyrocketing inflation seems to have left doubt about their citizens’ willingness to join them.

Luck — and a cartoonishly compelling adversary — helps.

Few Iranians would describe the 2005 election of inexperienced hard-liner Mahmoud Ahmadinejad as a stroke of good fortune, but for the architects of the sanctions regime, he was the gift that kept on giving. His proclivity for apocalyptic rhetoric, shameless anti-Semitism and historical ignorance of the Holocaust, and other flagrant offenses made him an object of international condemnation and living proof of the threat posed by the Iranian leadership. Ahmadinejad’s antics proved invaluable in persuading leaders in Europe and elsewhere to adopt more strenuous measures against Iran.

Adding fuel to the fire was Ahmadinejad’s dubious 2009 reelection victory, which was contested by his more moderate rivals and which provoked the largest demonstrations since the 1979 revolution demanding a fair count of the ballot. The violent suppression of those pro-democracy protests galvanized European leaders and publics against Iran — and in favor of harsh new penalties against the regime — in unprecedented fashion. Without these provocations, I am personally skeptical that European governments would have agreed to adopt the measures that sacrificed their long-standing trade relationships with Tehran.

Finally, even where sanctions appear to change the stakes, they may not succeed in changing policies.

For all the pundits’ valedictories surrounding the apparent success of Iran sanctions, it is worth noting that they have not in fact yet produced a durable resolution to the nuclear impasse. Both Obama (in a conversation at the December 2013 Saban Forum) and Khamenei have publicly voiced skepticism that it will be possible to achieve a durable comprehensive accord on the nuclear issue. And it takes only a quick scan of the media in either capital to read compelling arguments against the ongoing diplomatic process. Even though sanctions have helped generate a more constructive environment for negotiations between the two old adversaries, it is far too soon to declare victory, and the collateral impact of sanctions on Iranian politics and society remains too little known to tout the measures as an unqualified success.