The political economy of the sanctions on Iran

TEHRAN,July 6(MNA)--Conceptual studies have a crucial role in promoting the existing knowledge. Political economy as a concept or an approach most commonly refers to interdisciplinary studies focusing on economics, law and political science in explaining how political institutions, the political environment and the economic systems influence each other. Although sanctioning is not a new phenomenon in international relations, imposing harsh multilateral sanctions on Iran is unprecedented, so it can be accounted as a unique case study in contemporary international relations. As a matter of fact, doing research in the political economy of sanctions on Iran covers a wide area of study. In a research project, relevant data and key questions can be collected in order to organize them methodologically and write a book on this issue. Here, it is not possible to do that, because of shortage of time and the paper space. Within the conceptual framework of political economy, interactions of a few variables involved in the sanctions on Iran are studied in this article. This article, at first, explores the illegal essence of sanctions as an American policy tool to coerce Iran’s behavior on her legal right of nuclear enrichment. Then it sheds light on some positive economic impact of the sanctions. It also discusses political impact of the sanctions and practical experience of the Iranians how to tackle these restrictions. It proposes an alternative way to change this dominant hostile environment in the Iran- U.S. relations. Finally, it touches on the negative role of the IAEA director general in this process. Illegal aspects of the sanctions As Oliver Boyd-Barrett says, political economy is committed to moral philosophy, having an interest in social values and moral principles. Within this conceptual definition, sanctions are viewed as economic war; war on innocent people. When a state — or a group of states — refuses to trade with another country, it is the civilian population in the targeted country who suffers the most. Inevitably, and in many cases imposing sanctions violate international humanitarian law (IHL).First and foremost, "human rights" means allowing people to have the basic needs that are necessary for their survival or allowing people to live in dignity. Sanctions are obstructive for having such rights. Historically speaking, the Iranian nuclear enrichment seems to have been predestined for this country as a continuation of the program which was set before the revolution, with the full assistance of high ranking U.S. politicians. Iranians before the revolution and after the revolution have been aware of overdependence on oil, and they have tried to get rid of this dependency. Before the revolution, Iran planned to build 23 nuclear plants with the U.S. assistance. Now the Islamic Republic somehow tries to continue such an uncompleted project. While there is no threat posed by this nuclear enrichment project, imposing sanctions is immoral and illegal. Iran also has not committed any violations of its International Atomic Energy Agency (IAEA) safeguards obligations. But, upon the IAEA procedural pretexts and biases, propagating on these pretexts and ignoring the realities, the U.S. still insists to enforce more and more sanctions on the Iranian people, which is unlawful and against the IHL. We can interpret these aggressively applied sanctions as a siege and unjust war against civilians. From a humanitarian point of view, the IHL restricts the scope and pressure of economic sanctions. Article 33 of the Fourth Geneva Convention (on the protection of civilians in wartime), for example, prohibits “collective penalties”. The International Committee of the Red Cross (ICRC) interpreted this provision as prohibiting “penalties of any kind inflicted on persons or entire groups of persons in defiance of the most elementary principles of humanity, for acts that these persons have not committed.” Imposing these illegal sanctions even provides a precedent which would be harmful for cultivation of a sound international legal culture. It means in future, all nations will suffer this deprivation. It is not possible to promote justice by collective punishment of an entire society. It shows how international law is underdeveloped and how the rule of law is ignored. It is easily understandable that the basics of human rights cannot grow in this world where in some places like Iran civilians do not have access to medicines they need to survive. The IAEA decision in sending Iran’s nuclear case to the United Nations Security Council in February 2006 was an illegal action, because IAEA never could prove “non-compliance” (diversion toward military purposes). Subsequently the four UNSC resolutions 1737(2006), 1747(2007), 1803(2008) and 1929(2010) seems to be irrelevant and illegal. Judge Koroma, who served two terms as judge at the International Court of Justice (from 1994 to 2012), believes “Security Council resolutions on sanctioning Iran are not abide by international law. Essentially the validity of these resolutions is under question. The world should be vigilant about this issue that Iran has not violated any international law. In this case the right of self defense is not licensed”. “Even the U.S. high ranking officials claim that all options are on the table is against Article 2 of United Nations Charter, the case use of forces. They should not dictate what they want under the setting rule of conduct or procedure of law. U.S. position is not the case of self defense.” Professor James H. Fetzer says: “The U.S. has imposed sanctions or collective punishment on a country for an alleged offence its own intelligence agencies claim it is not taking place. It is a disgrace for America”. He believes a complete transformation of U.S. policy toward Iran, just as during the Nixon administration it brought about a complete transformation of its policy toward China by Nixon. Nearly all legal experts have questioned the issue of consistency of these sanctions with the international law. They have concluded the sanctions stand on shaky ground or illegal base. Even the U.S. conservative Heritage Foundation cautions against the excessive utilization of sanction as a tool of foreign policy and points to adverse effects they can have on all involved parties. According to Article 39 of UN Charter, the Security Council is allowed to impose sanctions only to maintain or restore international peace and security, importantly the threat may not be determined on the basis of subjective political motives, there must be genuine “international concerns” behind the sanctions, not foreign or domestic considerations or demagogy of a single state or group of states. Seymour Hersh, upon his research on U.S. intelligent assessments of Iran’s nuclear activities, reported in June 2011, there is no conclusive evidence that Iran has made any effort to build the bomb since 2003. In the June 6, 2011 edition of the New Yorker, he wrote, “Despite years of covert operations inside Iran , extensive satellite imagery , and the recruitment of many Iranian assets, the U.S. and its allies, including Israel, have been unable to find irrefutable evidence of an ongoing hidden nuclear – weapon program in Iran.” On February 24, 2012, the New York Times reinforced Hersh’s analysis, noting that all 16 major U.S. intelligence agencies were in agreement that Iran did what it said. It does not have any plan to produce nuclear weapons. In the U.S. Senate testimony on January 31, 2012, James R. Clapper Jr, director of National Intelligence, clarified that there was no evidence Iran was pursuing a military nuclear program. He told the committee, “We do not believe they have actually made decision to go ahead with nuclear weapon”. Based on the mentioned facts, while there is no threat to international peace and security, the UNSC resolutions on sanctioning Iran are illegal. The worst illegal cases of sanctions are unilateral and hostile sanctions, including EU sanctions which are outside UN sanctions. Pierre Emmanuel Dupont, in his article “Countermeasures and Collective Security: The Case of the EU Sanctions against Iran”, says “these European sanctions are inconsistent with any international obligation. Measures of those enacted by the EU in January 2012 go beyond mere expressions of disapproval and involve the suspension of the performance of the international legal obligations otherwise owed to Iran. Indeed in this case the EU measures actually imply non-performance of various international legal obligations owed to Iran. It may also be considered that the oil embargo and particularly the mandatory termination of existing contracts related to import, purchase and transport of petrochemical product raises prima faci an issue of compliance with a customary standard of investment protection”. “In regard to the measure taken against the Iranian central bank, they may be deemed to be in conflict with rules governing immunities and privileges of foreign states under international law, and in particular of the 2004 UN convention on Jurisdictional immunities of states and their property, which is widely considered as reflecting customary international law and provides immunity of property of a central bank or other monetary authority from execution. It may also be considered that this measure violate the rules of IMF. Article 8(2) of the IMF agreement provides indeed that no IMF member ‘shall’ without the approval of the fund; impose restrictions on the making of payments and transfers for current international transactions”. “Such measures taken by EU undermine the coherence of charter-based collective security system.” Economic impacts of the sanctions Sanctions have mixed impact on Iran’s economy. U.S. hostile policies sometimes bring about interesting results for Iranians. Devaluation of rial, the Iranian currency, can boost internal production in all sectors. It causes the Iranian commodities to be more competitive in the world market. No Iranian politician could dare to do such harsh devaluation of national currency for creating comparative advantage to increase domestic production and boost non-oil exports. By reduction of oil exports the chronic disease of the national budget dependency on oil revenues can be mitigated, if it is well managed. Reduction of crude oil exports and subsequently reduction of the share of oil revenues in the national budget are among the historical wishes of Iranian intellectuals and nationalist economists. Those policies of selling more and more crude oil in the international market and importation of finished goods did not assist diversification of the economy or sustainable economic development. These imposed sanctions which limit imports possibly can assist diversification of Iran’s economy and induce production of new materials and commodities in industrial sector which were not profitable before. In this new sanctions environment, if the government succeeds to set a comprehensive strategy and if it can be managed well by the Iranian authorities, possibly creates more jobs and wealth. The more Iranians produce domestically, the more wealth everyone has in the economy. Sanctions in essence lower the cost of Iranian goods and raise the cost of foreign goods. This makes the domestic market prosperous. Meanwhile the economic dependence of many nations on the U.S. economy has not assisted them to have a remarkable economic growth. The financial crisis in the U.S. has caused the collapse of their economies. Although sanctions are harsh for the Iranian economy, but the results may be good. The U.S. sanctions on Iran cannot succeed. A study by Cliff Morgan, Navin Bapat, and Valentin Krustev analyzes 888 cases of threatened and imposed sanctions from 1971 to 2000. Their study indicates 39.5 percent success rate when sanctions are imposed unilaterally and a 54.8 percent success rate when imposed multilaterally. The data, collected in the Threat and Imposition of Sanctions (TIES) database, show that total embargoes are far less likely to succeed than limited sanctions. Based on this analysis, in the Iranian case of sanctions the shift from limited sanctions to total embargo, which U.S. officials insist on nowadays, will not have desired outcome for American policy makers. Sanction in essence means cutting trade and exchange. When you impose deprivation of trade on other side, you impose deprivation on yourself too. The bigger the economy of the target country means the more loss for those imposing sanctions. This case is a kind of “self punishment”. Unlike Cuba or North Korea, Iran’s economy with a GDP (PPP) around one trillion dollars is not a small one. It means the American and European industries are losing ground and invariably means to some extent assist the impoverishment of American or European people. They punish their own businessmen. When the Peugeot decided to stop trade with Iran last year, the decision pushed Peugeot to close some factories in France and the company faced big problems of unemployment and labor strikes. It is obvious sanctions create various types of economic rents which induce other nations to bypass the sanctions and supply the target country with insufficient commodities. As they supply the target country these rents are dissipated and the previous harm is reduced. These sanctions have shifted Iran’s trade market from the West to the East. So the losers are the Western societies and the East Asian countries are benefiters of this game. Four years ago European diplomats at a seminar in Tehran were anxious why the total value of trade between Iran and Europe had been reduced and why East Asian countries had been the benefiters of this political game. Now the Europeans have realized that it is in their benefit to lift sanctions on Iranian banks. For instance the EU’s General Court lately announced that the EU had failed to provide sufficient evidence that Bank Saderat was involved in Iran’s nuclear program when the union targeted it with sanctions starting in July 2010. Earlier the court issued a similar ruling about the Bank Mellat, the biggest private sector lender in Iran. Although sanctions have hit Iran’s oil industry which reduces the national income, but bear in mind huge amount of petro-dollars and unfettered importation of luxury finished goods in the past never could create job for the people. Those policies never increased productivity in the Iranian economy which dominantly faced the “Dutch disease”. Meanwhile Iran has figured out with sanctions of one sort or another since the revolution in 1979, much earlier than its nuclear enrichment program. So the Iranian business people are used to fighting for survival. Based on the IMF report, April 2013, Iran’s economy will recover from recession caused by sanctions by 2014. The report says sanctions cannot have a crippling effect on Iran’s economy that the U.S. leaders intend. Economic growth in Iran depends primarily on sound economic policy making. National system of political economy is the main factor of socio-economic development even at the time of globalization and the growth of international trade. Meanwhile these sanctions make the Iranian economy less vulnerable to the volatile international financial market. The economic impacts of trade sanctions on the target country are reflected in their terms-of-trade effects, which are larger in the case of multilateral sanctions than unilateral. Investment sanctions initially raise the rate of return to capital in the target country, but eventually the decrease in the inflow of new capital from abroad constrains the target's growth. These multi-layer sanctions can boost local market growth. Political impacts of the sanctions The Gallup surveys conducted in Iran in December 2012 and in February 2013 show that the majority of Iranians say that the sanctions have hurt their livelihood. The surveys truly reported that despite the effects of sanctions the majority support their national nuclear program. The fact is that the Iranian nuclear program is a matter of national pride. Most Iranians support this national peaceful program, whoever be president of the country. Any passerby in Tehran streets or ordinary person in other cities is supporting the program. It has become a part of the Iranian value system, political culture or an ingredient of Iranian nationalism. Reinforcing sanctions can’t change this sort of nationalism. The history of sanctions all around the world since 1914 indicates that the assumption of a relation between sanctions and political system is false. Sanction does not have any relation to change a political system. Sanctions also rarely can change the policy of target country. The sanctions show that they have had no effect on the Islamic Republic’s political system or the country’s policy toward its civil nuclear program, or its stance on the Middle East or elsewhere. Gultung, as one of the earlier sanction scholars, in 1967 noted that sanctions are often followed by increased level of political integration in the target country. Mayall(1984-p:631) wrote sanctions “frequently have perverse effects, creating out of the siege of mentality a sense of national cohesion and determination to triumph adversary that was previously lacking.” In such situation it is not uncommon that sanctions increase popular support for the ruling class in the target country (Mark and Khan 2000). Selden (1999) notes that in the long run sanctions often fosters a development of domestic industries and reduces the target’s dependency on outside world, and also reduces the ability of those imposing sanctions to influence the target’s behavior trough economic coercion. A realist thinker, Stephen M. Walt, believes states (and people) tend to resist blackmailers, because once you pay them off the first time, they can keep making more and more demands. In international politics, giving in to one state‘s threats might convey weakness and invites demands by others. By contrast, states (and people) routinely engage in acts of “back scratching” where each adjust its behavior to give other something that it wants in exchange for getting something that it wants . Back scratching is the essence of trade agreements, commercial transactions and many other types of cooperation establishes a valuable precedent. It shows if you do something for me, then I will do something for you. The Americans should understand that negotiations will not produce an agreement while there is a constant threat. This American approach of threatening Iran, as experiences in the West show, has negative result. The failed nuclear fuel swap contract in 2009, for the Tehran research reactor, is a notable example. The proposed plan was near to success through the mediation efforts of the Brazilian and Turkish officials, but the U.S. undermined the deal. It means that the persistent confrontational approach of the U.S. has brought about consistent failure for more than three decades. Sanctions will not result to the economic collapse or political change in Iran, as the U.S. sanctions did not result to economic collapse or political change in Cuba or North Korea. Bear in mind both Cuba and North Korea have smaller and more vulnerable economies than Iran. The fundamentals of Iran’s economy are strong enough to resist such tough sanctions. Iran’s highly educated population, as human capital, and various affluent natural resources, as natural capital are available locally for socio-economic development. All these factors assist economic self-sufficiency. Meanwhile sanctions have backfired. They have hardened the Iranian position so that they can block reaching a compromise with Iran. So these sanctions cannot support diplomatic negotiations. The fact is that political ideologies of Iran and U.S. are incompatible. It is immoral that this incompatibility leads to sanctions and hostilities. From geopolitical point of view imposing more sanctions on Iran can erode the stability and security in the Middle East, and even the global security structure, because these sanctions have undermined international treaties including trade treaties and banking treaties. The real problem is that the Western societies are closing their eyes in relation to this fact that another country in the Middle East, Israel with 200–600 nuclear bombs, has not signed the Non-Proliferation Treaty and does not allow IAEA inspections. It is ironic that Israel has not been sanctioned yet, while Iran, which has many times proposed that efforts should be made to make the entire Middle East a nuclear weapons-free zone, is facing these unfair and illegal sanctions. If President Barack Obama really wants to take the lead in promoting peace and security in the Middle East, he should take some serious steps for a nuclear disarmament of Israel, and not intensify sanctions on Iran which have no intention of building a nuclear weapon. What Iran wants is that the West recognizes its legal right to civilian nuclear enrichment. What can be done? Realism advises U.S. policymakers to deal with Iran. They cannot change the behavior of Iran as the most powerful player in the region. It is important to side with what is right. Wrong policies have brought the U.S. to the verge of losing its strategic position in the Middle East with a potential disastrous consequence for its global standing. The only way to forestall such an outcome is rapprochement with Iran as the main regional power. The Obama administration, as the key player in the 5+1 group’s negotiations with Iran, well understands that negotiations under the cloud of UNSC sanction resolutions are not possible. Iran as a big regional player can take a decisive role in peace building in the Middle East. The Obama administration should trust Iranians and adopt the “nuclear fatwa” as a base of confidence building, as many American writers have suggested it nowadays. The fatwa (religious decree), which was issued in 2005 by Supreme Leader Ayatollah Ali Khamenei, says that the production, stockpiling and use of nuclear weapon are forbidden under Islam. Based on the fatwa, as the Supreme Leader has said, possession of nuclear weapons is a sin and having such weapons is absolutely prohibited, since they are a danger to the existence of humanity; they are forbidden by God. He has spoken about this fatwa many times. The nuclear fatwa is a principal one, since the existence of human is at stake. The fatwa is also not dependent on time and circumstances. It has set forth a precedent that future religious leaders can’t discard it. The fatwa should be taken as an assurance that Iran has no intention of building such weapons. It can be adopted as an official UN document as a way of building confidence. Based on the fatwa Iran has called for total nuclear disarmament to create a world without nuclear weapons. The fatwa is the same as Ayatollah Khomeini’s fatwa on banning the use of chemical weapons despite the fact Saddam Hussein’s army used such weapons against Iranians in the 1980s. But the humanitarian aspect of that fatwa had much more priority than military victory against Iraqi aggressors at that time. Iran has inalienable right to uranium enrichment under Non-Proliferation Treaty and all IAEA documents as well as reports by U.S. intelligence agencies verify commitment to the fatwa: that Iran does not have any intention to make nuclear bomb. For these reasons U.S. authorities must trust Iran, lift illegal sanctions and reach an agreement with Tehran. Diplomacy and negotiations are the only tools to reach a compromise. The devaluation of national currency, decrease in oil revenues and national reserves, creation of problems for the country’s financial system… have created economic problems for the country. Since Iran has not violated any international treaty and has not committed any offence against peace and security, the imposition of sanctions on it is unjustified. Any decision should be in full conformity with the international law. So the sanctions should be lifted and the damages which have been inflicted on Iran’s economy should be compensated by the U.S. and EU. The IAEA negative role in negotiations Within the conceptual framework of political economy, the two main actors/variables involved in the Iranian nuclear case are the IAEA, as an international organization, and the U.S. intelligence services. The discrepancy between IAEA reports and the U.S. intelligence reports on Iran’s nuclear enrichment program is an outstanding issue for analysis. While the U.S. intelligence reports seem to be more balanced, reports by IAEA director general Yukiya Amano that Iran may have conducted nuclear tests at the Parchin military site on the eve of Iran’s negotiations with the 5+1 group in Almaty, Kazakhstan, can be interpreted as a provocative action intended o increase tension between Iran and the 5+1 negotiators. Taking such new role by the IAEA is meaningful in the conceptual framework of political economy. Before the year 2000, the IAEA faced huge budgetary deficit which put the organization on the verge of collapse. Since the year 2000, everything has changed as the organization received millions of dollars from the United States. By receiving huge amount of money from the U.S., the international organization lost its neutrality and took the side of Washington. After Mr. ElBaradei, the ex-director general of the IAEA, Mr. Amano, instead of being a reconciler or a peacemaker in the negotiations, has stirred up public opinion against Iran. The IAEA has sabotaged negotiations many times by issuing biased or unbalanced reports. In November 2011, the baseless IAEA report caused the U.S. to intensify sanctions against Iran. That report also obstructed an agreement with the 5+1 group. In another case, two days before the beginning of the second round of 5+1 negotiations in Almaty, Amano disrupted the negotiations by announcing baselessly that Iran might be trying to build a nuclear weapon! Although he could not prove his claim, his remarks created a sense of doubt in the environment of negotiations with the aim of preventing the sides from reaching an agreement. Any time that there was a possibility of progress in the nuclear talks between Iran and the 5+1 group, Amano, as an “official instigator”, through his interviews or his reports, disrupted the progress in the negotiations. If there is a political will to find a compromise, the IAEA director general’s negative role should be mitigated in the negotiations. Mohammad Kordzadeh Kermani is a research fellow at the Institute of Political and International Studies (IPIS), Tehran, Iran. He can be reached at kordzadeh@ipis.ir. (Mohammad Kordzadeh Kermani )