Renewed Iran Sanctions Will Bolster the Regime and Undermine the Private Sector

The Trump administration’s decision to withdraw from the Iran nuclear deal and pursue a policy of “maximum pressure” on the Islamic Republic has been coupled with a public diplomacy campaign in alleged support of the Iranian people. But the result is likely to be a stronger central government, as sanctions crush private enterprise and force beleaguered Iranians to turn to the regime for relief.

Sanctions are economic and diplomatic instruments that are designed to put pressure on the targeted state to convince it to comply with the demands from those imposing the sanctions. However, the degree of their effectiveness has long been subject to debate. In the case of Iran’s nuclear program, proponents argue that it was “crippling” sanctions that forced Iran to seriously negotiate. While this is partly true, Iran continued to gain leverage during the course of the negotiations by advancing its nuclear know-how. By the time the Joint Comprehensive Plan of Action (JCPOA) was reached, three years ago, Iran had a large inventory of centrifuges and had increased its expertise in other areas with potential military as well as civilian use. At the same time, the Iranian people paid a heavy price as a result of the sanctions.     

One hope of Iranians who backed the JCPOA was that it would allow Iran to reintegrate into the international economy and attract investment in the private sector. Now, as two deadlines – Aug. 6 and Nov. 4 – loom for the re-imposition of US sanctions on foreign companies doing business with Iran, the Iranian state is poised to further consolidate its control over society.

In general, when sanctions are applied to authoritarian states, the population has no choice but to seek assistance from the central government, which has access to precious hard currency and controls a large sector of the economy. This in turn, will strengthen the government’s position vis a vis the population and undercut those seeking to reduce its power over society. Political scientist Dursun Peksen has explained this in an empirical analysis of how sanctions work: “…Because the target leadership controls the supply of scarce public resources political elites will divert the cost of sanctions to average citizens by unevenly using extant resources in their favor.”

While the elite will also feel the pinch of sanctions, it can stay afloat because of its large resources. However, smaller businesses will struggle to survive and are likely to be devoured by companies affiliated with the government and especially the Islamic Revolutionary Guard Corps (IRGC ). Furthermore, in the absence of foreign companies, IRGC-affiliated firms will take over developmental projects, further benefiting from the sanctions. Interestingly, there is a Persian word for those who benefit from the sanctions — Kaaseban-e Tahrim or Tradesman of Sanctions.  

The Trump administration’s decision to withdraw from the JCPOA and to stringently enforce secondary sanctions on foreign companies have led many foreign firms, including automakers Peugeot and Hyundai, to leave the Iranian market. These companies returned to Iran only after international sanctions on Iran’s automobile industry were lifted under the JCPOA. Prior to that, Iran’s automobile industry was severely affected, and thousands were laid off.  If the past is prologue, one can expect that the renewed sanctions will compound the chronic problem of unemployment in the country, which currently stands at at least 11.9 percent. The incoming sanctions will hurt Iranians in the same way that so-called “smart bombs” inflict collateral damage on civilians.

The re-imposition of sanctions will further exacerbate corruption in the country by encouraging “underground” market operations. The JCPOA allowed Iran to legally sell its oil on the market; however, when the restrictions are re-imposed, Tehran will have to resort to sanction-evading tactics and the black market to keep the lifeline of its economy open. The case of the sanctions-busting tycoon, Babak Zanjani, is a good example. Zanjani, who has been sentenced to death for withholding $2.7 billion of the state’s oil revenues, used multiple front companies at the peak of international sanctions to sell Iran’s oil on the black market. He is only one of many black-market operators that Iran employed to evade sanctions.

While sanctions will increase the power of the central government and make it harder to root out corruption, they will also force Iran’s chronically fractious political forces to unify. Increasing tensions between Tehran and Washington, expressed in a recent Twitter war between top officials, has consolidated the Iranian political establishment against the external threat. Recently, Ayatollah Ali Khamenei, Iran’s Supreme Leader, backed President Hassan Rouhani after he implicitly threatened that Iran would shut down the Strait of Hormuz if it is not allowed to sell its oil. The commander of the IRGC’s Quds Force, Gen. Qassem Soleimani, who rarely makes political statements, also expressed support for Rouhani and warned the United States that it would lose all its influence in the region if it attacked Iran. “You may begin the war, but it will be us who will end it,” Soleimani said in a speech July 26 in Hamadan.

It seems unlikely at this point that Iran would try to close the Strait of Hormuz, as that would certainly lead to US military intervention to re-open the waterway. Nevertheless, if severely pressed, Iran might decide to act anyway. Recently, Hossein Alayi, a former commander of the IRGC Navy, warned  that “if Iran can close the Strait of Hormuz, the United States can open it…. One must consider the costs and the benefits of such an action.”  As the Persian saying famously goes, Marg Yek-Baar, Shivan Yek-Baar, that is, You Die Once, You Mourn Once(only).

In the meantime, Iran-backed Houthi forces in Yemen are menacing another key naval chokepoint – the Bab el-Mandeb strait that leads from the Red Sea to the Gulf of Aden. Saudi Arabia announced recently that it would suspend oil shipments through the strait after two of its tankers were attacked by missiles.

There is no question that Iran was suffering from economic mismanagement, corruption and chronic unemployment before the US decision to re-impose sanctions. However, the US policy of exerting maximum pressure will only punish millions of ordinary Iranians and leave them less able to demand more political and economic rights.

Proponents of the maximum pressure policy use North Korea to make the case that Iran will succumb and seek a new “Trump” Comprehensive Plan of Action. Given its ancient culture with deep roots in resistance and pride, however, Iran is more likely to engage in more provocative actions if it feels cornered and threatened.

Sina Azodi, is a PhD student in Political Science and a graduate researcher at University of South Florida’s Center for Strategic and Diplomatic Studies. He received his  B.A. & M.A from the Elliott School of International Affairs, George Washington University. He focuses on Iran’s foreign policy and U.S.-Iranian relations. Follow him on Twitter @azodiac83

Image: View of Tehran from Sharif University of Technology (Wikimedia Commons)