by Esfandyar Batmanghelidj
On Aug. 29 the US Treasury added 28 Iranian individuals and entities to its ever-expanding sanctions list. Expectedly, Tehran denounced the decision.
“They are in conflict with the spirit of talks. They are unconstructive in my opinion,” said Iranian President Hassan Rouhani during an Aug. 30 news conference broadcast on State TV.
“We should resist such an aggression with all might and power,” he said. “We consider some of the sanctions crimes against humanity.”
This is not the first time the United States has imposed sanctions on Iran since the historic interim nuclear deal achieved between Iran and the P5+1 (US, UK, France, Russia, China plus Germany) in November 2013, but Rouhani’s words mark a shift in Iran’s reaction. The Iranian president spent considerable time decrying the sanctions in a harsher tone than ever before. Rouhani was sending a message to the United States.
US sanctions on Iran, which have been consistently expanded by Congress and executive orders since 1997, have become so byzantine that they are hindering the activities of countless businesses, Iranian or multinational. The net of financial sanctions has been crafted with such a tight mesh that even harmless, routine trade is constrained and sanctioned.
In concrete terms, the Office of Foreign Assets Control (OFAC), the body responsible for the enforcement of trade and financial sanctions, has extended its regulations to such a degree that many Iranian private businesses are struggling to survive as basic business functions have become nearly impossible. Iranian Banks cannot easily send or receive money abroad, especially if that money needs to be converted into dollars for the transaction, or if the funds must pass through a major bank that conducts significant US business. Airlines cannot readily purchase parts, or refuel in foreign countries. Factories cannot easily secure the inputs of production, or sell their goods overseas. The fact that any private business remains in Iran at all is a testament to the wherewithal of Iranian executives and technocrats.
One could argue that the challenges facing Iran’s business community are offset by the fact that Iran is back at the negotiating table. But Iran expressed a willingness to negotiate before the harshest sanctions were imposed, and the direct consequences of OFAC’s actions have also led to considerable human suffering that could take years to remedy.
When banks, airlines, and factories cannot readily engage in their basic operations, three groups suffer: consumers, employees, and shareholders. In Iran, as in all countries with a private sector, these three groups represent the constituencies of civil society. When sanctions impact banking, it precipitates inflation and currency devaluation that wipes out the real value of savings accounts, leaving families broke or in a state of uncertainty. When sanctions hit airlines, passengers are left boarding ageing and poorly maintained aircraft. Although the US claims it is not targeting average Iranians, financial sanctions constrain factories that process food, manufacture medicines, or refine oil, leaving consumers with ever-increasing prices for basic goods like bread, antibiotics, and gasoline.
Since 2006, when the Iran Sanctions Act was strengthened and extended, Iran’s Consumer Price Index increased from about 40 points to 195 points in 2013, according to data from the Central Bank of Iran. Similarly, the Producer Price Index shot up from its record low of 153 points in 2008 to almost 550 points in June 2014. Most troublingly, monthly food inflation has averaged 38% for the last two years and has only recently begun to stabilize.
As a result, sanctions harm civil society, which we in the West claim to cherish as the foundation of moderate politics. Compounding Iran’s problems, unemployment creeps upward, and business owners cease investing in growth and innovation because they have to search for ways to preserve their wealth, which leads to capital flight. According to the World Bank, Iran’s economy shrank by nearly 6% in 2013. Although last year’s interim nuclear deal, the Joint Plan of Action, offered Iran modest sanctions relief, Iranians, especially the middle class, are still struggling to lead normal lives. Today Iran’s economy remains closer to the brink of collapse than to recovery.
So as OFAC has strengthened its position, sanctioning individuals and business entities while demanding record fines from entities that have long traded with Iran—European banks in particular—the Iranian people have unduly suffered. This has not been unknown to policymakers in Washington. Countless papers from think tanks, academic institutes, and government offices have highlighted the ways in which sanctions have harmed ordinary Iranians. But the collateral damage seemed justified during the overlapping Ahmadinejad and Bush presidencies, when there was no hope for détente.
Yet the presidential election of Rouhani last year paved the way for a new era in US-Iran relations. The cautious optimism was boosted by the interim nuclear agreement. Now the role of OFAC must come under greater scrutiny. President Barack Obama has clearly expended immense effort and political capital to push forward the negotiations since Rouhani became president. Yet OFAC and its agents take extraordinary measures to sanction companies, many of whom claim they have done nothing more than try and survive in an impossible economic and regulatory environment. Should OFAC tow the line of anti-engagement proponents in Congress and hawkish advocacy groups, we may be condemned to a further decade of antagonism with Iran, the resilient and capable partner sorely needed in a region descending into chaos.
– Esfandyar Batmanghelidj is a founding partner of the 1st Europe-Iran Forum, a conference to be held in London in October focused on commercial opportunities in Iran. He has conducted extensive research on Iranian political economy and social history.
Photo Credit: Behroz Khosravi/Fars
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