Can Sanctions Deter Iran?

The U.S. policy of deploying economic sanctions against the Islamic Republic of Iran to persuade the regime to change its behavior is nearly as old as the Islamic Republic itself. Every administration since President Jimmy Carter has used sanctions against Iran in an effort to alter Iran’s meddlesome foreign policy, end Tehran support for global terrorism, and stymie the Mullahs’ pursuit of nuclear weapons or other weapons of mass destruction. The success of these, however, remains inconclusive. Time and again, insufficient enforcement of sanctions has undermined attempts to punish Iran. This has left the West in its weakened position today.

The Carter Administration

The warm American-Iranian relationship began to unravel following the February 11, 1979, fall of the Shah and the subsequent declaration by Ayatollah Ruhollah Khomeini that Iran was an “Islamic Republic.” Despite his best efforts to maintain good ties with Iran, President Carter was faced with unprecedented hostility. In November 1979, with tacit blessing from the new regime, Iranian youth seized the U.S. embassy in Tehran, and took its staff as hostages.

On November 12, 1979, President Carter issued Proclamation 4702, banning the import of all petroleum products from Iran. Two days later, Carter followed up with Executive Order 12170, freezing all Iranian government assets in the U.S. (around $12 billion). When these sanctions failed to change Iran’s behavior, Carter issued Executive Order 12205 on April 7, 1980, prohibiting all commercial exports to Iran. Ten days later, Carter expanded these measures with Executive Order 12211, prohibiting all imports, banning travel to Iran, and instituting further restrictions on financial transactions.

Despite Carter’s best diplomatic efforts, U.S. allies were generally unwilling to join in effective multilateral sanctions to force Iran to release the hostages. The failure of American unilateral sanctions, coupled with Washington’s failed military rescue attempt on April 25, 1980, contributed to a global perception of American weakness.

The Algiers Accords of January 19, 1981, brought the hostage crisis to an end. After 444 days, Iran released the American hostages on President Ronald Reagan’s first day in office. The role of sanctions had little, if any, impact on this outcome.

The Reagan & GHW Bush Administrations

As a result of the 1983 Lebanon embassy and Marine barracks bombings, President Reagan declared on January 20, 1984, that Iran was a “sponsor of International Terrorism,” earning Iran a cocktail of economic sanctions. Tehran continued, however, to step up its terror activities and its regional interferences against U.S. interests in the Middle East. Even amidst its brutal war with Iraq (1980-1988), Iran harassed U.S.-flagged vessels in the Persian Gulf. Reagan, who had already thrown his support behind Iraq to counter Iran, issued Executive Order 12613, on October 30, 1987, prohibiting Iranian petroleum imports.

Reagan’s anti-Iranian policies were a mixed bag, however. From 1982 through 1987, prior to the petroleum import ban, the U.S. had purchased untold quantities of oil from Iran for the administration’s Strategic Petroleum Reserve initiative. Moreover, even as Reagan imposed tougher sanctions, members of his administration illegally sold arms to Iran from 1985-86 in what was known as the “Iran-Contra affair.”

When President George H. W. Bush took office in 1989, it was clear that he was not an advocate of economic sanctions. Yet, faced with continued Iranian support for terrorism and increased evidence that Tehran sought weapons of mass destruction, Bush signed into law the Iran-Iraq Arms Non-Proliferation Act on October 23, 1992. This placed restrictions on the sale of dual-use items that could have aided the Iranian (and Iraqi) nuclear, chemical, and biological programs.

The unilateral sanctions imposed under the Bush administration’s single term failed to alter Iran’s policies of supporting terrorism. Nor did they deter Iran from developing weapons of mass destruction. Their impact was undoubtedly mitigated by continued European commercial interests and by the willingness of other states to sell arms or weapons technology to the oil-rich nation.

The Clinton Administration

During President Bill Clinton’s two terms, he utilized economic sanctions as a more prominent instrument of foreign policy. When Republicans won control of Congress in 1994, despite hopes that President Ali Akbar Hashemi Rafsanjani might adopt more moderate Iranian policies, the White House had little choice but to yield to Republican-led initiatives to punish Iran. This led to sanctions specifically designed to hinder Iran’s ability to modernize its petroleum sector, and thereby potentially cripple its economy. Indeed, petroleum did (and still does) account for roughly 20 percent of Iran’s GDP and 80 percent of its exports.

Clinton issued Executive Order 12597 on March 17, 1995. The goal was to prevent Iran’s “support for international terrorism, efforts to undermine the Middle East peace process, and acquisition of weapons of mass destruction and the means to deliver them.” To this end, the executive order prohibited U.S. businesses or entities from assisting the development of Iranian petroleum resources.

Under mounting Congressional pressure, Clinton also issued Executive Order 12959 on May 9, which prevented imports and exports to Iran, and had some provisions of extraterritorial jurisdiction, since U.S. companies were obligated to control the re-export of their products.

Amidst mounting concerns over Iran’s support for terror and its pursuit of weapons of mass destruction, the American Israel Public Affairs Committee (AIPAC), the Zionist Organization of America (ZOA), and other Israel lobby groups worked primarily with Senator Alfonse D’Amato (R-NY) to craft legislation to place even stronger sanctions on Iran. At the last minute, Senator Edward Kennedy (D-MA) expanded the bill to include punishment of Libya for its rogue behavior. This led to the Iran-Libya Sanctions Act (ILSA) of 1996.

ILSA imposes sanctions on any company that invests $20 million or more in the Iranian petroleum industry. It affords the president seven punishment options—ranging from denial of credit to the denial of export licenses—to impose on a violating company, and must impose at least two of them.

The president can, however, waive sanctions for reasons of “national security.” And this has too often been the case. According to the Congressional Research Service (CRS), despite the fact that at least 22 companies are currently believed to be in violation of the law (not to mention myriad others in the past), not one company has ever been sanctioned for violating ILSA, or as it was changed in 2006 to exclude Libya, the Iran Sanctions Act (ISA). The Commerce Department, however, insists that the act has been very effective, since companies are aware of the law, and are loath to invest in Iran because of the potential penalties and public relations headaches.

The European Union also undermined these sanctions. It adopted legislation on November 22, 1996, that blocked ILSA by outlawing compliance. In addition, when the French oil company Total invested some $2 billion in Iranian oil fields, the European Union threatened Clinton with a trade battle. Clinton ultimately waived the sanctions that should have been applied.

The George W. Bush Administration

In August 2001, President George W. Bush extended ILSA. However, the extension of the law was actually a defeat for the legislation, as the sanctions were only extended by two years. The new bill also called for a frequent review of the sanctions, which analysts viewed as an “out clause.”

Following 9/11, however, in light of Iran’s inclusion in the so-called “Axis of Evil,” the administration intensified its effort to punish Iran, particularly given intelligence reports detailing Iran’s nuclear program. In September 2006, the Iran Sanctions Act (minus Libya, which relinquished its weapons of mass destruction program in 2003) was extended through December 2011.

Sanctions took another form in 2006, as the U.S. Department of the Treasury began to use “targeted financial measures” against individuals and financial institutions to convince them of the long-term financial risks associated with doing business with Iran. Undersecretary Stuart Levey (who now continues his work under the Barack Obama Administration) has traveled the world to deter international financial institutions from working with Iran by demonstrating clearly that Iran is engaged in fraudulent and deceptive financial practices, uses money-laundering front companies, and manipulates 40 Iranian companies, including state-owned banks, that have been designated as involved in supporting the country’s terrorist and WMD-related activities.

During the last years of the Bush administration, Congress proposed two major additional sanctions bills, but no new sanctions were actually passed. Indeed, the House and Senate are still mulling these proposals today. One measure, initiated by Representative Barney Frank (D-MA) in the House, and Senators Sam Brownback (R-KS) and Robert Casey (D-PA) in the upper chamber, enables pension funds to divest without penalty from companies doing business in Iran. However, as of mid-November, the bill had not been brought to the floor in either chamber.

A more comprehensive sanctions bill, introduced in the Senate by Evan Bayh (D-IN), Joseph Lieberman (I-CN), and Jon Kyl (R-AZ), and in the House by Representative Howard Berman (D-CA), would ban the export to Iran of refined petroleum products or technology to refine petroleum. This measure, known as the Iran Refined Petroleum Sanctions Act (IRPSA), has the support of more than three-quarters of Congress, but has been held up by the White House, as President Barack Obama struggles to find international support for these and other sanctions against Iran.

Tough Choices

In the first months of his presidency, Barack Obama embarked on a program of diplomatic engagement with the Islamic Republic, rejecting calls for military action, or even sanctions. Critics argued that this approach was counterproductive in that it allowed Iran time to develop a nuclear weapon.

In October 2009, the President’s diplomatic offensive appeared to have paid off. News emerged of a tentative agreement calling for the existing Iranian stocks of enriched uranium to be taken to Russia for processing under international controls to ensure an enrichment level that would only be useful in a research or medical reactor. Indeed, the international media touted the draft agreement as a means to prevent Iran from further enriching its uranium for a weapon. However, as of November 2009, Iran has balked at the deal.

Scattered reports now indicate that Iran is on the cusp of finally engineering both a nuclear weapon and the ability to deliver a nuclear payload against Western targets without outside assistance. If true, these reports would render the effects of sanctions obsolete. Indeed, economic penalties would only encourage Iran to hurry up and complete the process.

Some observers, such as John Bolton, the former U.S. Ambassador to the United Nations, already believe that Iran has progressed to this point. Bolton concluded in a recent Wall Street Journal article:

For Washington, the question should not be whether ‘strict sanctions’ will cause some economic harm despite Iran’s multifarious, accelerating efforts to mitigate them. Instead, we must ask whether that harm will be sufficient to dissuade Iran from pursuing nuclear weapons. Objectively, there is no reason to believe that it will. Adopting tougher economic sanctions is simply another detour away from hard decisions on whether to accept a nuclear Iran or support using force to prevent it.

Inevitable?

The historical record indicates that existing or even wider sanctions are likely not to deter Iran. This undoubtedly has emboldened its leaders. After all, the Obama administration appears averse to even threatening a military attack on Iran as a means to destroy its nuclear program. This, coupled with Iranian progress in missile technology and the failure of international diplomacy, leaves the West without many options.

If Iran comes to possess nuclear weapons, history will show that failed sanctions played an important role in a series of errors that led to the arming of one of the most dangerous regimes in history.