News : Sanctions
- Published: Sunday, 01 June 2014
As the world prepares for the next round of negotiations over Iran’s nuclear program, set for the third week of June, it is important for the West to carefully consider how strong its bargaining position is. The prevailing assumption has been that Iran would feel compelled to vigorously pursue a compromise because of the importance of alleviating sanctions in order to save the Iranian economy. But this may be a serious overestimation of the situation.
That’s not to say that sanctions have been ineffectual. They have contributed to a precipitous rise in inflation and led to fairly severe resource shortages. But what is still in question is to what extent this makes sanctions relief a major motivator for the nation’s ruling mullahs. It’s not a foregone conclusion that Iran will compromise its military power or influence over the region in order to improve its economy, especially if there are other viable options.
It’s just as likely that Iran’s long-term goal will be make the opposite compromise, relinquishing some of the convenience of its economic transactions in order to avoid having the give up anything deemed significant by the ruling power structure. Indeed, that’s exactly what it has done up to this point.
Sanctions have been effective in general, but those effects haven’t been completely reliable. The Iranian regime has found ways to work around American-led restrictions, and this has probably saved Iran from some of the economic catastrophe that it might have experienced. Such a catastrophe might also have actually forced the regime to the negotiating table, just as observers in the West have tended to assume they did.
Western sanctions began primarily by restricting Iran’s ability to use the American dollar as the international reserve currency for oil and gas sales. Usually, these transactions operate through a global payment system called SWIFT, but for committed nations, it’s not the only way of keeping up with exports and imports.
Iran is, if nothing else, a savvy operator on the world stage. And just as its leaders will find a pathway to double-dealing if it means retaining power without compromise, their trading partners will do the same if their energy supplies are largely dependent upon Iran. This is the case, for instance, with Turkey, which gets eighteen percent of its natural gas from Iran, with Russia providing virtually the entirety of the rest.
So motivated simultaneously by economic necessity and political expediency, Turkey and Iran have been conducting trade that is effectively off-the-book, and certainly outside of SWIFT, by exchanging oil and gas for gold and precious minerals. As of 2012, Turkey had exported some 60 tons, or approximately three billion dollars’ worth of gold to Iran.
Other nations adopted the same model for dealing with Iran in defiance of Western sanctions, some because of their own economic concerns, some because of ideological alignment, and some for both reasons. And considering that Iran has recently arranged for meetings with other regional trading partners like Armenia and Turkmenistan, in order to discuss similar barter-based trade, it seems fair to assume that Iran has not only welcomed this defiance of sanctions, but has actively sought it out.
The United States eventually extended sanctions on Iran so that they included a ban on bartering for gold, but it also granted Turkey an extension – in fact, virtually an exception from requirements to comply. Perhaps this was a diplomatic decision, or perhaps it reflected persistent naivety, which led to the belief that the effectiveness of sanctions was good enough even if those sanctions were not vigorously enforced.
Extremely vigorous enforcement is exactly what would be required to force a genuine compromise from Iran, if not for the fact that the US has already prematurely committed to limited relief. That aside, sanctions enforcement has been limp-wristed anyway, because it seems to assume that Iran will not find workarounds for preserving its economy in spite of those restrictions. It has done so and it will continue to do so.
China and Russia both have set up dummy bank accounts for the Iranian government, allowing both nations to completely skirt official sanctions by paying for oil exports in local currency, and allowing Iranian officials to withdraw the payments from Chinese and Russian banks in order to conduct business behind the backs of the West.
Would Iran rather avoid these extra steps in doing business with Asian allies? Of course. But will that inconvenience be enough to compel President Rouhani to compromise on Iran’s enrichment capability, or Ayatollah Khamenei to accept reasonable limitations on the nation’s ballistic missile arsenal? It seems extremely unlikely. In fact, two more months of negotiations may even give Iran the time it needs to arrange more of these barter-based transactions long before sanctions come back into effect.
- Iran’s Coordinated Evasion of Sanctions
- Next:US seeks to fine BNP US$10b for violating Iran sanctions