With the most recent round of UN-approved sanctions, and the seemingly
more restrictive additional sanctions introduced by the European
Union, Canada, Japan and Australia; there appears to be renewed
interest in the effectiveness of sanctions in altering the behaviour
of the Islamic Republic of Iran concerning the atomic energy programme
of the regime and its real purpose. In this note, I aim to explore
some of the less often discussed, but I hope not less appreciated,
possible effects of the sanctions.
One stated anticipated effect is that these sanctions will raise the
cost of developing industrial capacity vis-à-vis the growth of the
energy sector in Iran. Given that 80% of the government’s budget,
along with 70% of investment monies for industrial projects, comes
from oil revenues which are under the monopoly of the government, and
because management of the budget has been transferred to the Islamic
Guards (Sepah); the sanctions will result in a significant fall in the
revenue available to the government. This will clearly serve to reduce
its financial capability to pursue and complete its nuclear energy
programme which we suspect has the capacity to develop military
potential for weaponization. This line of analysis advocates that in
light of a very ambitious long range missile programme which already
has the assumed capability of delivering a load, be it very small in
weight, to most of southern Europe; the world community, in the
interest of collective security, should indeed use sanctions to cause
a substantial reduction in the income earning of the present leaders
and their security force. In fact, in recent years Sepah has expanded
its presence in the oil and gas sector, and in almost all layers of
the economy. The targeting of four industries, namely the energy,
banking, transport and insurance industries; is designed to weaken the
four pincers which Sepah designed to hone the nuclear programme to its
asserted militarized phase.
At first glance, it may appear that Sepah is employing the sanctions
as an opportunity to use the veil of foreign threat and national
security. Their broader agenda is to tighten their grip on the
economy, thus increasing their revenues from their "rent-seeking"
activities. This would help Sepah to displace their private sector
competitors. In reality, sanctions may be used to expand Sepah’s
economic empire and its share of the economy.
However, simultaneously, if these sanctions are effectively policed;
we will very quickly see a fall in the growth rate of the economy. In
combination with the poor management skills of Sepah, sanctions could
push the Iranian economy into negative growth rate within 12-18
months. Industrial production is estimated to decline by 15% while
unemployment may rise by as much as another 5-7% on top of the
existing official 15%, which would result in an unofficial predicted
employment rate of 20-22%. In a young society, with a populace of
approximately 70% being less than 30 years of age; this could
potentially translate to an unemployment rate of 35% for those
entering the job market for the first time.
Sanctions are certain to increase the cost of conducting trade to the
economy; in this case the increase may be as much as 50% in some
sectors. In Iran's economy, where imports use 88% of oil revenues; a
rise in the cost of trade will be transferred to higher domestic
prices. Those Iranians on a fixed income, i.e. salaried and waged
households, will be the most affected since their income will remain
stable. Therefore, the value of their labour will decrease
accordingly. An accelerating inflation rate is almost certain to
deplete the dwindling nuggets of savings of the middle classes, and it
will push a large segment into the low income category.
Sanctions are known to affect health care spending and education;
these services will likely be the first cut by the government budget.
Simultaneously, we will likely observe an increase in the resources
allocated by the government for security and intelligent services. Low
and middle income families are most dependent on the public sector
provision of health and education services in Iran. It is probable
that access and availability of these two basic services will be
affected negatively. Entitlement to basic health and education are
crucial to the development of a healthy and stable economy of any
So, why are sanctions being employed in the case of Iran?
Sanctions are the preferred option as they are aimed to deal with the
rising influence of Sepah, and the command of a regime which has
secured control and ownership of massive segments of the economy. This
activity of Sepah has cultivated the mushrooming of corruption and
systemic implementation of rent-seeking behaviour in foreign trade
vis-à-vis energy and banking sectors. We clearly recognize that the
rising financial power of Sepah will have significant implications for
the military and nuclear programmes approved by the leadership. Those
in power wish to gain complete control of the economy, as well as
tight rein of the political arena. Returning to "business-as-usual"
will make a mockery of the human rights of the citizens inside Iran.
More critically, it may also have serious consequences with respect to
dealing with future risks under a new power structure in the Islamic
Republic of Iran.
Sanctions will always have a negative effect on the wellbeing of the
citizens of the targeted country. But, sometimes, sanctions can
accelerate positive change and bring about transition to increased
participatory policy making within the framework of governance.
Sanctions are the softest of the hard power tools; they can serve as
the most potent diplomatic language. In this case, sanctions can
potentially displace military action against Iran. Those who speak of
positive engagement may wish to pause a moment to consider the
behaviour of the leadership throughout the last 12 months, and even
through the last 13 years during which the Supreme Leader arbitrarily
blocked any attempts at meaningful and lasting reform. To accept the
designed agenda-driven policies pursued by the current leadership in
Iran is a futile endeavour. This dead end option is neither the wish
of the West, nor the desire of the citizens of Iran who wish to pursue
a fruitful life and live in peace.