The Unintended Consequences of Economic Sanctions on Iran

Economic sanctions are not a new development inside Iran. The country has been faced with restrictions on trade and finance since the days of the Shah, and both the state and its people have learned to be stubbornly resourceful when facing shortages. Meanwhile western governments still find the imposition of sanctions appealing, as it allows them to claim that firm action is being taken without having to risk much in the way of blood or treasure. Sanctions are considered to offer a more humane option than war, supposedly pressuring specific industries/persons whilst leaving ordinary citizens relatively unharmed. The United States and the European Union have enacted ‘smart sanctions’ against Iran, which are meant to impact the Iranian nuclear programme not the lives of ordinary Iranians. Despite the rhetoric, it appears that there are several unintended consequences of the current sanctions scheme. First, despite the lofty claims of Western policymakers, it is apparent that these economic sanctions are being felt across the spectrum of Iranian society and pushing many citizens into poverty. Secondly, the sanctions have strengthened, rather than weakened, the current government by increasing the hold of Revolutionary Guard and its allies over society. Although having a significant impact on the Iranian economy, there is little reason to believe that economic sanctions will result in either the demise of the Iranian nuclear project or in any significant change to the ruling system of the Islamic Republic.

The greatest impact, to date, has come as the result of stringent sanctions imposed by America against international banks that do business in Iran. This policy has had the predictable result of sharply decreasing the purchasing power of the rial relative to the US dollar, losing roughly half its value in a year.1 A devalued currency has obvious, profound and immediate effects on the population at large. For the average Iranian citizen, this is most commonly experienced in the form of inflation, which has been estimated at 25 percent annually.2 For example, the cost of chicken has soared in recent months, leading to a surprise wave of protests during the summer of 2012, which caught the government off guard.3 Similar unrest was seen in October, when the value of the rial plunged sharply and Tehran’s bazaaris closed their shops in protest.4 With basic living costs increasing and no corresponding rise in the average salaries of Iranian workers, it is inevitable that thousands will be squeezed out of the middle class.

In addition to currency depreciation and rampant inflation, Iranians are also coping with price increases in a variety of sectors controlled by the state itself. The government has long subsidised basic goods as gasoline, energy and certain foodstuffs, but began phasing out many of these subsidies in late 2010 due to the high economic toll on state coffers. The removal of the subsidy on bread has had a particular effect, with the cost of this staple in the Iranian diet jumping approximately 1500% in the two years to July 2012.5 The Iranian government describes these moves as a ‘price correction’6 or even as a ‘victory for Iran’7. The sanctions regime has pressured the government into taking sudden and drastic action, even in the face of public protest. A necessary correction, but one which has been, and will be, felt disproportionately by the poorest and most vulnerable.

As is so often the case in Iranian domestic politics, the effects of economic hardship are experienced differently according to gender and social class. In a briefing prepared to highlight the impact of sanctions on Iranian citizens, the International Civil Action Network (ICAN) warned that women face particular stresses during hard times, citing patterns observed in Iraq during the 1990s that found that women and girls were more likely to be withdrawn from education in order to help support their families, or to be married off in order to remove the burden of feeding them. The paper goes on to note “reduction in family income inevitably is forcing women to find new sources of income. Their coping strategies will likely include cutting back on their own health, wellbeing and dietary needs to provide for their dependents. As in other countries, for the most vulnerable, poverty will lead to risky survival strategies including child labour and sex work – informal sectors which have expanded in Iran in recent years”.8 Likewise, those most affected by price increases and the end of subsidisation will be those teetering on the brink between the lower class and the poverty line, or between low-waged labour and unemployment.

Clearly, the economic sanctions imposed by the US and the EU are having an impact on the purchasing power of ordinary Iranians, whether as a result of inflation, scarcity or through the removal of government subsidies. This is the primary goal of imposing sanctions, even so-called ‘smart sanctions’, as it is thought that economic hardships will result in targeted governments either changing course or losing power in the face of public unrest. This has not yet been witnessed in Iran, for a variety of reasons, including Iranian national pride and a tradition of standing behind national leaders in the face of external opposition; such as the devastating oil embargo imposed by Western nations in the early 1950s. The Ahmadinejad government is already engaged in programmes designed to offset the impact of subsidy reform, with an estimated sixty percent of households qualifying for state assistance in the form of direct cash handouts.9 The Islamic Republic is particularly adroit at portraying itself as a victim of Western duplicity and provocation, and has had no trouble arguing that both the sanctions and its own decision to cease the subsidisation programme are the result of unwarranted American hostility to what it considers Iran’s legitimate right to develop a peaceful nuclear programme.

As sanctions lead to hardships amongst the Iranian populace, the extent to which the regime itself and its inner circle can avoid their impact becomes noticeable. As seen in Iraq, elite members of the government and their associates are able to use their connections to obtain goods that are not readily available to the general public. In Iran, members of Ahmadinejad’s inner circle and those associated with the Islamic Revolutionary Guards Corp (IRGC) have significant financial interests, including in the oil industry. Writing in Foreign Policy, Eskandar Sadeghi-Boroujerdi and Muhammad Sahimi argue that “the constant state of emergency will only benefit [the IRGC] and legitimize their raison d’être in the face of an external enemy. The remaining oil revenues, which flow into the country from oil exports to China, Japan, India, and others, will stay firmly in the hands of the hardliners and the repressive organs of the state”.10 In other words, there are still ways and means through which Iran can sell its oil to countries not participating in the sanctions regime, which will hinder the effectiveness of the programme’s ability to cripple the Iranian regime. Rather than creating the conditions for regime change, the economic sanctions programme could have a strengthening effect on the existing government’s hold on power. After all, as the number of Iranians who are directly dependent on the state for their livelihood grows, so too does the proportion of society for whom a regime change would not be in their best interest.

The economic sanctions currently in place are designed to “further isolate and penalise Iran for its refusal to live up to its international obligations regarding its nuclear programme, and to hold accountable financial institutions that knowingly provide financial services to Iranian banks that are under U.S. sanctions for their connection to illicit activities”11, according to a fact sheet prepared by the American government. The programme takes the inherent position that economic hardship will either lead the general public to put pressure on the Iranian leadership to reconsider its actions related to the nuclear question, or will result in regime change. In reality, the existing sanctions scheme is having a noticeable effect on the Iranian population, but seems likely to further increase their support for their existing government. It pushes thousands of middle class Iranians into poverty or near-poverty, increasing their dependence on the Islamic Republic to provide financial aid. It allows the Iranian government to blame outside forces for the need to institute unpopular changes to existing government subsidies, whilst leaving avenues open for government elites to access revenues, mainly through the sale of oil to countries not participating in the sanctions programme. In short, the sanctions succeed in their aim of penalising the Iranian state for its nuclear ambitions; however the penalty is born by the general populace rather than by their leaders.

 

1 “Iranians fret and lawmakers demand answers as rial plunges” Los Angeles Times September 11 2012 http://latimesblogs.latimes.com/world_now/2012/09/iranians-change-plans-and-fret-over-inflation-as-rial-plunges.html return to main text
2 Ghadar, Fariboz New Debate: Should the United States Rethink Sancitons Against Iran? http://www.fas.org/policy/debates/20120801_iran.html return to main text
3 Bastani, Hossein and Hamedani, Ali “Growing anger in Iran over cost of chicken as sanctions bite” BBC 27 July 2012 http://www.bbc.co.uk/news/world-middle-east-18999395 return to main text
4 “A Comeback for the Reformers?” The Economist 13 October 2012 http://www.economist.com/node/21564607 return to main text
5 International Civil Action Network Killing them Softly: the Stark Impact of Economic Sanctions on Ordinary Iranians http://www.icanpeacework.org/wp-content/uploads/2010/01/ICANIransanctionssummer12.pdf return to main text
6 Hakimian, Hasian New Debate: Should the United States Rethink Sancitons Against Iran http://www.fas.org/policy/debates/20120801_iran.html return to main text
7 Yong, William “Gas Prices Soar in Iran as Subsidy is Reduced” New York Times 20 December 2010 return to main text
8 International Civil Action Network “Killing them Softly: the Stark Impact of Economic Sanctions on Ordinary Iranians” http://www.icanpeacework.org/wp-content/uploads/2010/01/ICANIransanctionssummer12.pdf return to main text
9 “Iran to boost state aid to offset soaring inflation” Al Arabiya 16 May 2012 http://english.alarabiya.net/articles/2012/05/16/214497.html return to main text
10 Sadeghi-Boroujerdi, Eskander and Muhammad Sahimi “The Sanctions Aren’t Working” Foreign Policy 5 July 2012 http://www.foreignpolicy.com/articles/2012/07/05/the_sanctions_aren_t_working?page=0,0&wpisrc=obnetwork return to main text
11 Fact Sheet: Sanctions Related to Iran 31 July 2012 http://www.whitehouse.gov/the-press-office/2012/07/31/fact-sheet-sanctions-related-iran return to main text

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