Prior to the First Gulf War, Iraq was, compared to the rest of the Middle East, a developed nation. Inflation was low, and so was unemployment, even with a large number of foreign workers.
From 1990 to 2003, the United Nations subjected Iraq to crippling economic sanctions. By 2003, the exchange rate skyrocketed from 6 to 800 dinars per dollar. Approximately half a million Iraqi children died—more than the number of people killed in Hiroshima and Nagasaki combined—due to shortages of necessities such as hospital equipment and medicine.
“I think this is a very hard choice,” then-Secretary of State Madeleine Albright said of the policy. “But we think the price is worth it.”
Despite thirteen long years of tough economic sanctions, Saddam Hussein remained in power until the invasion by the United States and its allies. Sanctions also failed to dislodge Fidel Castro and Kim Jong-il.
Now the United Nations and Western powers are pushing for harsher sanctions against Iran, a country with a population more than twice as large as Iraq’s. In January the European Union banned Iranian oil exports, with British Prime Minister David Cameron, French President Nicolas Sarkozy, and German Chancellor Angela Merkel issuing a joint statement: “Until Iran comes to the table, we will be united behind strong measures to undermine the regime’s ability to fund its nuclear programme, and to demonstrate the cost of a path that threatens the peace and security of us all.” Last month President Obama signed an executive order freezing all property of the Central Bank of Iran, other Iranian financial institutions, and the Iranian Government in the U.S. In addition to bringing an end to the nuclear program, the West hopes that sanctions will help induce democratic change.
Iran’s clerical regime may collapse for numerous reasons too difficult to predict, but escalating unemployment and poverty won’t be among them. If economic sanctions were an effective tool, they would have succeeded in Iraq, and the United States and Great Britain would not have had to resort to military action to topple Saddam Hussein. Economic sanctions only punish the Iranian people and disempower those pursuing democratization, while hardening the position of the regime.
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If sanctions have failed, it’s not for lack of severity. Since Iran’s international transactions (imports and exports) make up 50 percent of its GNP, economic sanctions, imposed since 2006, have caused significant disruption and suffering there.
International trade is now much harder. Since Iran cannot secure credit, it is forced to use cash payments, which has led to dramatic increases in prices. The rate of inflation reached 8.24 percent per year in November 2011, according to the Statistics Center of Iran. The dollar has appreciated more than 60 percent against the rial during Obama’s presidency, climbing from 9,700 to 15,600 rials per dollar as of January this year. Without credit, remaining alternatives include transferring money via currency-exchange offices or by telegrams or bartering. But these also raise problems.
India annually imports $11 billion worth of Iran’s oil, but has delayed payment in recent years because of the disrupted payment systems. Since December 29, 2010, India’s Central Bank has barred Indian companies from any transactions with Iran via Asian Clearing Union, an organization originally set up by the United Nations in 1974 to facilitate transactions in South Asia. By the end of July 2011, India was $5 billion in arrears for the purchase of Iranian crude oil. Although Germany authorized India to use Hamburg-based Europäisch-Iranische Handelsbank as a conduit to pay its accrued debt to Iran, the bank was added to the EU’s blacklist, deterring other financial institutions from facilitating payments to Iran. Iran’s parliamentary Energy Commission announced last August that India had only paid $1 billion of its debt, the rest being compensated for by Iranian investments in India.
Iran’s oil industry is in alarming condition and in dire need of foreign investment. The U.S Energy Department estimated Iran’s oil production at 3.6 million barrels per day (bpd) in 2011, with an annual decrease of 400–700 thousand bpd due to aging and corroded pipelines. Iranian authorities admitted a decrease of 400 thousand bpd at the end of 2011. Behrouz Alishiri, who heads Iran’s Organization for Investment, Economic, and Technical Assistance, said in June 2011 that to fulfill the objectives of a five-year oil and gas development program ending in 2014, Iran needed $1 trillion, $400 billion of which was expected to be provided by foreign investors.
The inflow of investment, however, has been reduced to a trickle. According to the UN Conference on Trade and Development, of the world’s $1.244 trillion of foreign direct investment in 2010, only $3.6 billion was invested in Iran. By comparison, Saudi Arabia received $28 billion and Turkey $9 billion. This discrepancy illustrates how marginalized Iran has become, despite its tremendous potential.
The comparison to Iraq, with which Iran shares five oil platforms, is even starker, given the hell that country has lately been through. Over the past few years, Iraq has signed a dozen significant agreements with international oil companies. Over the next seven years, Iraq will increase its oil production from 2.8 million bpd to 11 million bpd. It has also secured a $17 billion energy contract with Mitsubishi and Shell. Iran, on the other hand, has been unable to sign any agreements with prestigious international companies since 2006.
Sanctions are good at creating poverty and hardship, but revolutions occur during times of economic growth.
Iran also has problems importing needed resources. Certain industrial equipment and material—such as steel—which can be used for military and non-military purposes, is impossible to import due to sanctions. This has crippled many Iranian factories over the past few months and has led to thousands of layoffs.
Oil provides 85 percent of Iran’s export income, which totaled $11 billion in 2011. This income depends on Iran’s Central Bank, which has acted as an intermediary between Iran’s sanctioned banks and foreign banks, opening letters of credit for Iranian businesses and acting as a guarantor for payments. Adding Iran’s Central Bank to the list of sanctioned financial institutions will make the transfer of Iran’s oil income very difficult, if not impossible, and completely cut Iran off from the world’s financial and economic system. The country’s economy was already in a “nose-dive” before President Obama’s action against the central bank, according to Fareed Zakaria. The latest sanctions, he believes, could send Iran into “economic freefall.”
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In spite of their harshness, sanctions have produced no significant political progress and have embittered Iran’s middle class, which is critical to any internal democratic reforms. Making the sanctions even more burdensome, like the ones imposed on Iraq, will not lead to the submission of Iran’s clerical rulers. The Islamic Republic can manage to survive as long as it is willing and able systematically to terrorize and repress its people.
Sanctions advocates clearly do not understand this. As U.S. Senator Mark Kirk (R – Illinois) put it, “It’s okay to take the food out of the mouths of the citizens from a government that’s plotting an attack directly on American soil.” Yet in tough economic situations, survival and safety become the public’s main concerns, while noble pursuits such as democracy or human rights lose their importance.
Sanctions are good at creating poverty and hardship, but revolutions occur during times of economic growth. When daily life improves, people’s expectations rise, and they become discontented with the limited political power they have. As sociologist James Davies argues in “Toward a Theory of Revolution,” “Revolution is most likely to take place when a prolonged period of rising expectations and rising gratifications is followed by a short period of sharp reversal.”
Alexis de Tocqueville alluded to what modern theorists call “the revolution of rising expectations” in his analysis of the French Revolution. “It was precisely in those parts of France where there had been most improvement that popular discontent ran highest,” de Tocqueville writes. “This may seem illogical, but history is full of paradoxes.” The Revolution actually occurred during a time when “the uncalled for measures of coercion were abolished.”
De Tocqueville’s thesis has been born out by modern scholarship. In The Anatomy of Revolution, Crane Brinton affirmed that revolutions “clearly were not born in societies economically retrograde; on the contrary, they took place in societies economically progressive.” France and Russia, for example, both experienced periods of extreme poverty and famine, which led to occasional unrest, but those periods did not generate a revolution. Davies concludes: “Far from making people into revolutionaries, enduring poverty makes for concern with one’s solitary self or solitary family at best and resignation or mute despair at worst.”
Iran’s 1979 revolution confirms this. The economy had been growing for years and was stronger than it had been at any other time during Mohammad-Reza Shah’s reign, with annual GDP growth of 17 percent. Prices were stable, and per capita GDP had risen from 2 million rials in 1960 to 2.7 million by 1977.
As the American diplomat Harold Saunders ascertained in 1968, “The Shah seems to have made a conscious decision to emphasize the pursuit of higher standards of living in order to keep Iranian minds off any movement to secure participation in the political process.” But economic success did not generate complacency. Richard Helms, the U.S. ambassador to Iran in the mid-’70s, wrote in 1975, “The conflict between rapid economic growth and modernization vis-à-vis a still autocratic rule . . . is the greatest uncertainty of Iranian politics.”
Seeing that this was one conflict the Shah could not address, Helms’s successor William H. Sullivan wrote in August 1977, “The fabric of this society, under the stress of a genuine democratic opportunity, may disintegrate. . . . That sort of thing has happened before and the U.S. assisted in the re-establishment of ‘internal security.’ If we consider it in our interest to see the Shah persevere . . . we should consider what we can do to help.”
The problem was that even the United States was no longer able to meet the demands of the revolution of rising expectations. In early January 1979, Sullivan urged his government to “put the Shah behind us and look to our own national interests.” On January 16, the Shah left Iran for good.
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“Sanctions will not have any impact on our determination to continue our nuclear course,” declared Sayyid Ali Khamenei, the supreme leader of Iran, last month after Friday prayers. Since he is convinced that the ultimate goal of sanctions is to dismantle the Islamic Republic, he has little reason to acquiesce to Western demands for the elimination of the nuclear program. As Khamenei has pointed out, Muammar Qaddafi authorized the Americans to investigate Libya’s nuclear facilities, and Saddam Hussain did not even have nuclear facilities to investigate. Still, both were attacked by the United States and its allies. In fact, not only does Khamenei have little incentive to comply, but sanctions may even be to his benefit, providing ammunition for the regime’s claim that it is the victim of a Western conspiracy.
Despite failing to make any diplomatic progress, Western leaders show no signs of backing down. “As President of the United States, I don’t bluff,” said President Obama at a recent press conference with Israeli Prime Minister Benjamin Netanyahu. “I think both the Iranian and the Israeli governments recognize that when the United States says it is unacceptable for Iran to have a nuclear weapon, we mean what we say.”
If Iran’s leaders were interested in progress rather than provocation, they would establish diplomatic ties with the United States based on mutual respect and national interests. They would defend, or at least stay impartial about, the two-state solution in Israel and Palestine. They would abandon their quixotic international policy, mainly consisting of inflammatory slogans against Israel intended to curry favor among the masses in the Middle East. They would realize that establishing ties with Israel, rather than calling for its eradication, serves Iran’s interests and that they would better defend Palestinians’ rights in the framework of international law. Instead of incurring huge costs to obtain nuclear arms, they would talk about nuclear disarmament, an idea supported by most people in democratic countries.
When Iran’s cleric-dictators do not listen, who can Iranians turn to in order to be heard? The leaders of democratic countries, who are more realistic and reasonable. Those leaders, in turn, should act more wisely and not be so easily taken in by a regime whose aim is mere provocation.
