Adjusting to Sanctions

Jahangir Amuzegar

From Foreign Affairs, May/ June 1997

Article preview: first 500 of 3,571 words total.

Summary:  Economic bans and political invective against Iran have not worked. America, not the Islamic Republic, has become isolated. Meanwhile, both because sanctions are leaky and because they have pushed it to become more self-sufficient, Iran is actually doing better than many countries the United States has assisted. The sanctions also give the Islamic regime a scapegoat for its serious problems at home, merely prolonging its hold on power. The United States should abandon containment for a strategy of critical dialogue.

Jahangir Amuzegar, an international economic consultant, was Minister of Finance in Iran's pre-1979 government.

THE TOLL IN IRAN

The American-driven sanctions against Iran were meant to transform the "backlash state" into a law-abiding, cooperative, and constructive member of the world community. Washington expected trade and investment restrictions to cripple the productive base of the economy and curtail Iran's ability to support international terrorism or acquire sophisticated military hardware. Economic hardship and fiscal austerity would demoralize the population and turn it against the regime. And domestic popular discontent and external political isolation, Washington hoped, would bring the clerical leadership to its senses.

Inadequate hard data make an objective assessment of the sanctions difficult. Supporters of the policy claim that the cost to Iran has been immense, even greater than expected; critics dismiss the policy as self-defeating and divisive. What is certain, however, is that the economic, psychological, and political impact of the American sanctions has not produced the anticipated results or transformed the regime. Although the comparison may seem invidious, the Iranian economy under sanctions is in certain respects healthier and more stable than many developing economies the United States has assisted. Militarily, Iran appears to be stronger now than in 1989, and is certainly less vulnerable than some U.S. allies in the region. The embargo has isolated Washington rather than Tehran.

Iranian officials concede that the boycotts have caused some economic "difficulties" but do not give details of their nature or magnitude. The affected areas, however, are not hard to identify. Finding non-U.S. buyers for Iranian oil and non-Americans to invest in Iran's offshore oil and gas fields has not been cost-free. Banned imports from the United States have been obtained through third parties at extra cost or substituted for from lower-quality sources. Replacing or renovating defense, industrial, and oil equipment based on American components has been more expensive or less satisfactory. Rescheduling of short-term arrears on debt to other countries has taken place under less favorable terms. Some foreign investors have shied away from lucrative projects in Iran under the threat of U.S. retaliation. Normal credits from international financial organizations have been delayed or canceled. Scheduled long-term foreign loans have been postponed. Foreign technological assistance in some sensitive areas has been withheld. Business confidence in Iran has been shaken, and the climate for foreign and domestic investment in the country has cooled.

There is no doubt that Iran would be in better shape had the United States not resolved to ostracize and cripple it. American economic and political pressures have hurt the Iranian economy, but they have not inflicted irreparable damage. Iran continues to produce its quota for oil set by the Organization of Petroleum Exporting Countries (OPEC), remains solvent, and maintains normal levels of trade and investment with the rest of the world. In fact, various international organizations and foreign media outlets report that economic indicators are healthier than at any time since the early 1990s. High surpluses have been registered in the current account, hard currency reserves are at record highs, and foreign debt payments are being made on schedule. ...

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