In the past few days there have been a string of reports regarding the harmful impact of sanctions on the Iranian population. Issues related to rising prices, the inability to import medicine for life threatening diseases because of financial sanctions and even life threatening pollution caused by domestically-produced gasoline, [...]]]>
In the past few days there have been a string of reports regarding the harmful impact of sanctions on the Iranian population. Issues related to rising prices, the inability to import medicine for life threatening diseases because of financial sanctions and even life threatening pollution caused by domestically-produced gasoline, have all received ample attention in the Western press. On Saturday, two additional airlines — KLM and Austrian Air — announced the suspension of flights to Iran (Austrian Airlines by January 13 due to a lack of demand and KLM by April).
Inside Iran, one parliamentarian went so far as to suggest that Western sanctions are moving toward the direction of the Iraqi food for oil program. Meanwhile, political institutions seem to be in complete deadlock over the direction of economic policy. The government is once again late in forwarding its budget to the Parliament despite complaints. The Parliament in turn has voted to suspend the second phase of the government’s much touted Targeted Subsidy Reform Act, fearing fuel price increases will worsen the already out of control inflation rate which according to the Central bank of Iran now stands at 27.4 percent (more independent observers think that it could be higher than 40 percent). Even Iran’s Chamber of Commerce, Industries, and Mines is siding with the Parliament. In a public statement it called for the suspension of the second phase until the government fulfills the obligations it had in the first phase to the industrial and agriculture sectors. According to the head of the Chamber, Mohammad Nahavandian, the government has yet to pay 30 percent of its commitments to these sectors. The country is awash with rials due to the expansionist fiscal policies of the past few years but industry and agriculture are faced with liquidity shortages due the government’s lack of payment for services preformed, he said.
Mahmoud Ahmadinejad thinks otherwise. He went to the Parliament on Wednesday to make his case for implementing the second phase of the subsidy reform but there was even conflict over whether the president should have just given a speech or also face questions from MPs. Iranian television announced that it would have a live program debating subsidy reform on Sunday, followed by a poll. But the program was cancelled at the last minute on the pretext that this action was intended “to create a tranquil environment for the airing of the president’s views.”
All this brings attention to the questions of how bad the economic situation really is in Iran and whether we are finally witnessing a country that is on the brink. However, a study done for the Oxford Institute for Energy Studies suggests that these are the wrong questions to ask; they lead Iran watchers to ignore important debates and changes that are taking shape in order to counter the impact of sanctions. Conducted by William Yong and Alireza Hajihosseini, the study is not very instructive in terms of the extent to which these debates and changes will be successful in countering the preponderant force of sanctions. But the authors are rather persuasive in their criticism of the infatuation with the one-sided impact of sanctions without giving due attention to “how sanctions are being absorbed by Iran’s political elites in a dynamic and continuous fashion.” They suggest that the portrayal of Iran as perpetually “on the brink while confounding us with the fact that it has not yet tumbled” prevents us from examining the dynamic manner in which the Islamic manner is trying to respond to challenges posed.
The force of sanctions has surprised the leadership of the Islamic Republic, but Yong and Hajihosseini argue that it’s now in adjustment mode with both the short and medium term in mind. In the short term, the fight will play out over the budget. Rather than bemoaning the president’s performance, the focus has shifted to “fiscal management that reflects new realities.” The fight will be over the extent of budget contraction, how to increase revenues, and what the estimated oil price in the budget should be and at what currency rate. This budget fight happens every year, but it has taken on new urgency in the midst of “new realities.” Yong and Hajihosseini suggest that the Petroleum Ministry will be a more important player as it becomes increasingly wary of being a hollow structure overseeing companies (including the National Iranian Oil Company) that have been treated as cash cows for the government. It will be pushing for a greater share of oil revenues for investment purposes.
None of this may work. After all, Iran has been trying to wean itself from oil revenues since forever. But necessity may indeed turn out to be the mother of all inventions. The heated debates and efforts suggest that the Iranian political class has now turned its attention to domestic economic restructuring and economic resources that can be generated from inside the country in order to address shortfalls and problems caused by sanctions. Despite their acknowledgment of severe economic difficulties, they are behaving as though they do not believe that Iran is on the brink.
Photo: Adam Jones (Flickr) (CC BY-SA 2.0)
]]>Last Thursday, the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the removal of two parties designated under the Iraq Stabilization and Insurgency Sanctions program (“Iraq Sanctions”). These sanctions were put into law by Executive Orders 13303, 13315, 13350, 13364, and 13438. They target specific individuals and entities associated with [...]]]>
Last Thursday, the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the removal of two parties designated under the Iraq Stabilization and Insurgency Sanctions program (“Iraq Sanctions”). These sanctions were put into law by Executive Orders 13303, 13315, 13350, 13364, and 13438. They target specific individuals and entities associated with the former Saddam Hussein regime, as well as parties determined to have committed, or to pose a significant risk of committing, an act of violence that has the purpose or
effect of threatening the peace or stability of Iraq or the Government of Iraq or undermining efforts to promote economic reconstruction and political reform in Iraq or to provide humanitarian assistance to the Iraqi people.
To date, their remains 218 parties designated pursuant to Iraq Sanctions administered by OFAC. As a result of these designations. US persons are prohibited from engaging in transactions with these parties, and any assets owned or controlled by these parties which come under US jurisdiction are to be blocked. The last time a party was designated pursuant to Iraq Sanctions was over three years ago on December 22, 2009. Since that time, all OFAC actions concerning that program have either been removals or the release of the regulations promulgated pursuant to the above referenced executive orders.
This March will mark ten years since the regime of Hussein was toppled. It has been over six years since Saddam was executed and one year since US troops pulled out of Iraq. So why do we still have Iraq sanctions? Well, sectarian violence is still believed to be rampant throughout the country, which could impact Iraq’s economic reconstruction and political reform. That said, it is interesting to note that the overwhelming majority (around 80-85%) of those designated on the OFAC SDN List pursuant to the Iraq Sanctions have been designated since July 30, 2004, nearly eight and a half years ago, when the new Iraq Sanctions were imposed, and not as a result of an recent ongoing violence in the country.
This phenomenon speaks to one of several conclusions. First, it could be that a large majority of these parties still engaged in the same activities they were engaged in during July 2004 when they were designated. This would suggest that OFAC targeted sanctions have had no impact on changing the behavior of these parties. Taken a step further, this notion would bolster the arguments of those who suggest sanctions do not work. Second, it could be that OFAC just needs to do some house cleaning on the Iraq portion of their SDN List. This is likely, because the agency is obviously geared more towards putting parties on the list than taking them off. Finally, and dovetailing off of the previous point, it could be that none of those parties designated on July 30, 2004 have formally contested their designation by submitting a request for reconsideration pursuant to 31 C.F.R. 501.807. I am unaware of any internal process OFAC has for periodic review of designations, so it may be that as long as the program exists and parties are not contesting their designation, they will remain listed. Regardless of which conclusion is most accurate, the Iraq Sanctions seem to be an atavistic sanctions program, or, at minimum, one that is long overdue for a review.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.
Photo: The Treasury Annex, located across the street from the US Department of the Treasury headquarters. Source: “AgnosticPreachersKid” Wiki Creative Commons
]]>This past week a couple of articles have been published that hint at the central incoherence of the United States’ Iran policy. The arguments are not necessarily new, but they show in concrete terms how the stated objective of US sanctions, which is to change the calculations and behavior of Iran’s [...]]]>
This past week a couple of articles have been published that hint at the central incoherence of the United States’ Iran policy. The arguments are not necessarily new, but they show in concrete terms how the stated objective of US sanctions, which is to change the calculations and behavior of Iran’s leaders, is undermined by the same sanctions that end up weakening – at times even endangering – the domestic forces presumably required to leverage the sanctions’ power and result in a change of behavior.
Virginia Tech economist Djavad Salehi-Isfahani explains how the sanctions regime is threatening Iran’s bond to the global economy, not only through the straight-jacketing of the middle class and private sector, which is the promoter of that bond, but also hindering the point of view that is supportive of that bond. In other words, instead of helping to promote a developmental state whose behavior is moderated by the multi-faceted links created, the sanctions regime strives to sever those links based on the claim that severing those links will eventually make the Islamic Republic a better global citizen!
James Ball’s article in the Washington Post is even more damning. The domestic actors striving to change the behavior of the Iranian state, it turns out, do not merely constitute unfortunate collateral damage. They are the direct recipients of policies that deny them protective tools, leaving them vulnerable to significantly more powerful entities which always find ways to get around sanctions and access the instruments of repression that they need to carry out their objectives.
These arguments are slightly different from the suggestion that sanctions are a form of collective punishment with the Iranian population ending up as the victims of Iranian leaders and foreign powers locking horns. The sanctions policy is assessed in the way that all policies should be assessed: What is the policy intended to do, who is supposed to benefit from it or be harmed by it, and are the policy instruments aligned with the policy objectives. In this case, the evidence offered suggests they are not.
There are, however, other ways of addressing the question of inconsistency between instruments and objectives. One way is to ignore the inconsistency while giving rhetorical lip service to the sublime cause of the Iranian people freeing themselves from the yoke of dictatorship. The objective of this policy, it is said, is to change the behavior of the Iranian government. External pressure will also eventually payoff on its own. No need to worry about what sanctions will do to Iran’s social fabric, economy, and the private sector in the meanwhile. Sanctions are both feasible and effective given American muscularity and the Iranian historical tendency to give in to overwhelming pressure eventually. This formulation is apparently based on a joke Iranians make about themselves: “Iranians never give in to pressure unless it is lots of pressure.” As for those freedom-loving Iranians, they’ll find a way to foment change in Iran and aim it in a favorable direction even in spite of us making their path more difficult because of their incredible desire and energy to be free.
The problem with this argument lies first in giving a lofty role to desire (as opposed to instruments for fulfilling that desire) and second, in refusing to acknowledge that in no country is there “a people” with a collective desire. Iran, like elsewhere, is a country consisting of a multiplicity of interests, desires, power centers, and a differentiated population with vastly different means of access to resources. Democracy, like elsewhere, will not arise out of Iranian collective desire but out of negotiations and accommodations among these multiple interests. This very basic point is not rocket science – especially given the US’ own experience with democracy. The refusal to understand this point reveals either the shallowness of the commitment to any kind of democratic project in Iran or a naïve hope that external pressure will delegitimize the regime and open a path for a more democratic Iran.
But perhaps I am searching for coherence in the wrong places. The US’ Iran policy is not that incoherent if the objective is not aimed at changing the calculus of the Iranian government and rather intended to simply harass, isolate, or even destabilize Iran. In fact, one can argue that the Obama Administration, unlike the Bush Administration, has found a perfect formula for this intent, which is also a good fit for the way the American bureaucratic structure works.
Rather than confronting Iran with an all-out sanctions regime, the US has settled on an escalating sanctions regime. Every couple of month or so, it announces a new set of sanctions to keep the Islamic Republic off balance and in search of new ways to get around sanctions. Of course, this is partly necessitated by the reality of the oil market. The complete shut off of Iran’s oil exports would have had a drastic effect on oil prices. But in any case, an escalating sanctions regime is a much better tool for harassment – or what some in Iran call psychological and economic warfare – than an all-out sanctions regime.
The Iraqi sanctions regime is a good example of why going for an all-out sanctions regime is not a good instrument; after a while, the sting wears off and ways are found around it. Even Donald Rumsfeld, by July 2001, was suggesting that one US policy option was to “publicly acknowledge that sanctions don’t work over extended periods and stop the pretense of having a policy that is keeping Saddam in the box when we know he has crawled a good distance out of the box”.
An escalating sanctions regime, on the other hand, assures that the initiative remains in US hands and the Islamic Republic – and by implication the people who live and work in the Islamic Republic – are kept off balance. It also has the added value of making a whole lot of people in various bureaucracies work hard for their paycheck.
The folks at the Treasury Department strive hard to find new ways and new entities to sanction; folks in the State Department work hard to get exemptions for allies (and even non-allies) who presumably have done well in reducing their oil imports from Iran exactly at the same time that the Treasury is tightening the noose in some other areas. Folks in the Department of Energy also work hard to determine exactly how much of Iranian oil can be kept off the market before prices rise.
And the game continues. Just watch to see what happens after the six-month exemption period is up for Japan, South Korea, and…
The US’ Iran policy cannot be considered incoherent if the policy objectives and the instruments have become the same. It can still be considered immoral for trying to add to the economic woes of a good part of the Iranian population – irrespective of the fact that the Iranian government is most responsible for those economic woes – particularly at a time when so many people in the world are already suffering from unemployment and economic downturn. But it is not incoherent. It is intended to harass and it is doing so in a calculated and now rather routine, bureaucratic way. Weaning from routines and habits will be hard.
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