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National Security Student Association
Monthly Archives: January 2019

The Iran Deal and its Related Sanctions

By Steven Tibbitts,
January 26, 2019 01:17 PM

One of the most persistent and enduring enemies of the United States is the government of the Islamic Republic of Iran. Formed in 1979 following mass protests against the repressive, U.S.-backed Shah, Iran’s government has proven itself to be a significant threat to both the US and its allies in the region (particularly the Sunni-dominated countries of the Gulf Cooperation Council and Israel). Moreover, the ideological underpinnings of the Islamic Republic, its strategic concerns, and its perennial drive to export its revolution using malicious proxies continue to influence its foreign policy (Hilal 2017; Central Intelligence Agency 1980; International Crisis Group 2018; Nasr 2007, 143).

In 2015, the United States signed the Joint Comprehensive Plan of Action (JCPOA) which was intended to restrain Iran’s nuclear activities and set certain safeguards on preventing the acquiring a nuclear weapon (Laub 2018). The controversial deal lifted U.S. sanctions on Iran in exchange for a temporary pause in nuclear development, enhanced inspections, limits of the number of centrifuges, and repurposing of specific nuclear sites (Laub 2018).

Review of the JCPOA has been mixed. Some argue that it effectively slows the development of an Iranian nuclear weapon and offers better access to Iranian nuclear sites (Tirone 2019; Kaye 2018). Though recent statements by the head of the Atomic Energy Agency of Iran call into question Iran’s sincerity in the deal, the International Atomic Energy Agency has consistently rated Iran as fulfilling its side of the bargain (Al-Monitor 2019; Tirone 2019). Moreover, proponents argue that the JCPOA and its offerings to Iran would allow the international community more leverage to address the country’s international behavior, whereas leaving the deal would push Iran away from international negotiation and to further develop its nuclear program (Kaye 2018; Einhorn 2018).

Others—including U.S. allies in the Middle East such as Saudi Arabia and Israel—view the deal as full of concessions to Iran. They argue that it does not address restraining Iran’s regional activities nor its development of long-range ballistic missiles, and some believe that the deal emboldened Iran’s foreign policy (Solomon 2016; Gerecht 2018). They add that the deal still permits the development of an Iranian nuclear weapon in the future and question the release of billions of dollars of frozen assets to Iran (Gerecth 2018; Singh 2018; Laub 2018; Lardner 2016).

President Trump voiced many of the same concerns with the deal and pulled the United States from the deal in May of last year (Krauss 2018; Laub 2018). Following the withdrawal, the United States unilaterally imposed economic sanctions on Iran in August and November of last year that principally target Iran’s oil sector, though also affecting banking and Iran’s ability to import certain goods (Kraus 2018). The sanctions threaten to cut off foreign countries and companies dealing with Iran from the US financial system in order to deter business with Iran; however, the unilateral nature of the sanctions makes them extremely controversial from the perspective of US allies, including European countries and Iraq (Salam 2019; Paul Ging 2019).

Impacts on the Iranian Economy and Regional Activities 

The economy in Iran has suffered because of the sanctions—prices are up, the riyal is down in value, and conditions are becoming more difficult (BBC 2018; Rozen 2019; Torchia 2018). However, Iranian authorities are acting quickly to address the economic issues, and the sanctions’ impacts has become milder as a result (Torchia 2018; Rozen 2019). One example is the Iranian government selling dollars for riyals, thus manipulating the exchange rate (Torchia 2018). Proponents of the sanctions hope that poorer economic conditions will push Iranians to bring down the government or call for major reform; there is also a likely chance of a rise in nationalism as a result of the sanctions (Kaye 2018; Einhorn 2018; Critical Threats Project 2018).

One of the main reasons for the sanctions is Tehran’s use of proxies, including terrorist groups, to destabilize the region. An important US foreign policy goal is to curtail the impact of these groups on the Middle East’s security and stability. However, some research indicates that Iran has consistently been able to use a small budget to achieve big gains via its allied groups, even with sanctions (Salam 2018; International Crisis Group 2018). Sanctions against the broader Iranian economy would probably fail to stop international adventurism by the Iranians unless they produced a strong enough reaction from the Iranian public. More targeted sanctions may produce fruit, such as the ones recently levied at airlines Iran uses to ferry weapons to terrorists and European sanctions aimed at punishing Iran for terrorist activities in Europe (Chiacu and Ahmann 2019; Sanders IV 2019).

However, other factors will still influence Tehran’s ability to expand abroad; for example, the recent confusion about the US’s position in Syria serves to strengthen Iran’s hand in the country despite the sanctions (Clarke and Courtney 2018). Additionally, the sanctions give credence to Iranian hardliner politicians who have been waiting for an excuse to criticize the more moderate politicians such as President Rouhani (Torfeh 2018; Critical Threats Project 2018; Meuse 2018).

Impacts on the World Oil Market

One of the biggest pushes of the sanctions is to cripple the Iranian oil industry, with sanctions designed to crush output of oil. However, the administration had to offer waivers to various countries still buying Iranian oil, including India, China, Japan, and others (Tan 2018). This is one of the weaknesses of the sanctions—Iranian oil is still in demand, and Iran has ways of selling it or even smuggling it out for export (Krauss 2018). The US has little ability to control China, India, or other countries that wish to continue importing oil, and the sanctions’ unilateralism does little to strengthen their legitimacy in these countries’ eyes (Tan 2019).

The sanctions have a strong impact on oil prices. Iran’s oil production dropped about 1.3 million barrels of oil a day, and in May when the waivers expire there could be another drop in world oil supplies, pushing up global oil price (Gold 2019; Tan 2019; Reuters 2019). Recent turmoil in Venezuela is combining with uncertainty over how much oil Iran will be exporting once the waivers end in May to push oil prices up (Reuters 2019). Oil from Saudi Arabia, Russia, and the U.S. has filled much of the gap, but there is still much to be seen in the future (Krauss 2018).

Impacts on Allies

Europe is not pleased with the imposition of sanctions by the United States and continues to seek ways to get around their impact (Paul Ging 2019). European Union leaders are attempting to develop a mechanism to conduct trading with Iran outside of the purview of the Iranian sanctions, much to the United States’ chagrin (Wintour and Dehghan 2018). There are fears that the resulting tension between Europe and the US over the sanctions and the pullout from the JCPOA will split the historic alliance between the two (Kaye 2018).

Another ally that is in a difficult situation with the sanctions is Iraq. Iraq and Iran have a strong economic relationship, especially since Iraq buys natural gas from Iran to use in the production of electricity (Salam 2019; al-Jaffal 2018). Iran and the United States are both competing for influence in Iraq, and according to some observers the race has become tighter with the imposition of the sanctions (Mamouri 2018). The difficulty for Iraq lies in being able to import the goods it needs from Iran without aggravating the United States, which will not exempt Iraq from the sanctions (Mamouri 2018, al-Jaffal 2018; Salam 2019). Projects are in the works to arrange for some form of trading relationship that does not rely on the dollar (Salam 2019).

Summary

Overall, the imposition of sanctions on Iran comes from a very real understanding that Iran continues to pose a dangerous threat to the Middle East. However, their effectiveness is challenged by the lack of multilateral coordination, the already emboldened Iranian foreign policy establishment, and unclear intentions. At this point, the clearest dangers from the imposition of the sanctions come from the threat of Iranian retaliation against US troops or allies in Syria or Iraq, a renewal of nuclear weapons work, or invigorated efforts to extend influence in Syria and Yemen while the United States is grappling with figuring out a Middle East policy.

Works Cited 

Tags
Information Reports Middle East Iran Iranian Nuclear Program Iranian Oil Sanctions