Weakened Support for Sanctions on Iran Threatens Lost Leverage, Worse Disparity

 

These critics fear that the promise of sanctions relief following the June 30 deadline for a final agreement has already led some entities to court business deals in the Islamic Republic, potentially limiting the effects of those sanctions while they remain in place.

Furthermore, the critics allege that this advance interest in the Iranian market has undermined international support for economic sanctions, in turn making it impractical for policymakers to expect that they can be re-imposed later. Nonetheless, the Obama administration has been touting the notion of “snap-back” for sanctions in the event that Iran is found to be cheating on a deal after it is signed.

Fears of vanishing support for the sanctions regime were reinvigorated this week when the news broke that India would be embarking on a project for joint development of the Chabahar port on Iran’s southeastern coast. Many news outlets reported that this was in defiance of the US government’s urging last week that its partners avoid haste in expanding economic relations with Iran.

The US State Department insisted that Iran is not yet open for business and that a final nuclear agreement leading to the removal of sanctions has not yet been finalized. Iran’s oil ministry quickly responded with a statement claiming that a delegation of US business interests was scheduled to visit Iran to pursue potential investment opportunities in the oil and gas industry.

The statement mentioned no specific individuals or companies, however, leading to speculation that the unsubstantiated claims were merely propaganda aimed at undercutting the US government’s urging of caution.

The Chabahar port development is demonstrably not propaganda, however. But the impact of that news is called into question by the news that just days earlier, Iran had cancelled an agreement for joint development with India of an offshore gas field. The latter story indicated that India’s efforts to remain in compliance with international sanctions had led to delays that Iran found unacceptable.

This interest in compliance is further underscored by the fact that India, as Iran’s second largest Asian oil importer, purchased no Iranian crude in March for the first time in 10 years, as part of an effort to keep the Islamic Republic within imposed annual limits.

Nevertheless, the possibility remains that Indian support for sanctions is gradually wavering. And even if it is not, India does not speak for other global entities, whether governments or businesses. A story published by Reuters on Friday pointed to a much clearer example of foreign anticipation of the removal of sanctions on Iran.

The French multi-national car manufacturer PSA Peugeot-Citroen is actively planning to start a joint venture with Iranian manufacturer Iran Khodro. “We are speaking to our Iranian partners on a weekly basis about how and when we can start our activities,” said Peugeot brand chief Maxime Picat in an interview with Germany’s Manager Magazin.

Despite the French government’s reputation for maintaining a very hard line in P5+1 negotiations over Iran’s nuclear program, French politicians and business interests have also decried US sanctions enforcement, with some suggesting that the US has been putting itself in a unique position to enter the Iranian market before other Western powers can do so.

Last summer, after the US Treasury Department filed charges against French bank BNP Paribas for violating restrictions on commercial relations with Iran, the French parliament considered a measure to set up a national bank that would deal with Iran but not with the US, thus insulating it from sanctions enforcement.

Opponents of the Iranian regime worry that any such undermining of US-led sanctions will not only diminish Western leverage in the nuclear negotiations but also empower Iran to spent more money on destabilizing regional activities and domestic repression.

This week, White House spokesperson Josh Earnest said in a press conference that it was common sense to believe that if given relief from sanctions, Iran would spend the additional money to restore its national economy. But earnest added that this may not line up with the regime’s actual policies, as it had previously chosen to spend its limited resources on financing of terrorism and other activities unrelated to the wellbeing of its citizens.

Conditions have been deteriorating in the Islamic Republic, with the poverty rate having risen from 22 percent to 40 percent over the last 10 years. A close look at the situation reveals that this is not just a matter of the effect of economic sanctions, but also reflects mismanagement and the priorities of the Iranian leadership.

Widening economic disparity has become a hot button issue inside of Iran, suggesting that the problem is not simply the increase of economic pain in the country, but rather that that pain is being shared unevenly. Interestingly, Peugeot’s apparently intense interest in investing in Iran threatens to further contribute to this situation of highly conspicuous wealth for a very small elite in an otherwise impoverished country.

The Reuters report notes that PSA Peugeot-Citroen’s plans involve initially selling high-value vehicles to strengthen to company’s image in Iran, and only later to move into producing affordable vehicles there. This seems to imply that even if Peugeot delays its actual investment until after sanctions have been removed following a nuclear deal, that investment will at first benefit the existing Iranian elite almost exclusively.

As it stands, high-value cars on the streets of Tehran have become a rally symbol for dissent and unrest among the lower classes in the country. On Friday, IranWire quoted various Iranian citizens to illustrate that a strong national dialogue was continuing in the wake of a high-profile crash of a Porsche sports car, which killed a 20 year-old girl and the 21 year-old grandson of a wealthy and influential cleric.

“What kind of justice is this? What kind of Islam is this when a girl of 20 owns a car that costs as much as the entirety of the rent of people living in this neighborhood for a year?” said one of the individuals interviewed by IranWire. Referring to the misplaced priorities of government officials, he added, “Instead of bothering women about wearing the hejab, they must fight this.”

As quoted by Business Insider, Supreme Leader Ayatollah Ali Khamenei’s response to this controversy appeared to affirm the government’s interest in constraining domestic unrest related to economic issues, but not in actually addressing those issues. Extremely wealthy young people should avoid showing off their wealth, he said, because it “creates psychological insecurity in the society.”