“All power, is, at the end of the day, economic”. US foreign policy, has for last few decades, rallied around this central theme.
When pitted against an obstinate and perceived rogue regime, US has resorted to either coercive regime changes or economic sanctions.
The experience of Iraq, Myanmar and Iran, which have seen either of the tools being applied, has shown that coercive regime changes do not produce the desired results.
Changing the behaviour of regimes, against changing the regime itself, is a more mature and risk-free alternative.
Unexpected effects The larger and more pertinent question is: do economic sanctions work? A definitive study on the effectiveness of sanctions, covering the period from 1915 to 2006, has shown that comprehensive sanctions are effective at best 30 per cent of the time; the more comprehensive the level of sanctions, the lesser their degree of success.
Russia, Zimbabwe and Iraq are just a few examples of how US sanctions have never yielded the desired results. Though the desired impact of sanctions is to impact the elite and the ruling class, the results might be paradoxical. For example, Vladimir Putin’s popularity, post sanctions, has been rarely as high as it is today.
Rhodesia (present-day Zimbabwe) had Ian Smith removed from power, largely due to the economic sanctions, but his long term replacement, Robert Mugabe, plunged the country into chaos and economic uncertainty.
About a quarter of a million children lost their lives to disease and malnutrition in Iraq when sanctions were imposed.
Now, let’s consider the Iran sanctions. Using the leverage it has on the global financial system, into which it is so deeply integrated, the US imposed draconian sanctions against Iran, and played a major role in convincing the EU to launch its own set of unilateral sanctions.
Iran’s response There was complete global financial exclusion of Iran (financial institutions were told to choose between severing all links with Iran or face exclusion from the US banking system). In 2012, Iran was excluded from the SWIFT system of cheque clearing, thereby effectively rendering all global business next to impossible from Iranian soil.
The average Iranian was hit by severe inflation, lack of business opportunities and economic hardship, but the intended effect of Iran halting its nuclear programme or bringing about regime change did not materialise.
What it created in turn was a certain road to self sufficiency for Iran. Spend one day in Teheran and you would see how the Iranians have created an own ecosystem of necessities. From their own domestic brands in foods to their own airline manufacturing facilities, though imperfect, they have found solutions.
The grey market is flooded with European brands and knock offs at exorbitant rates. China is their largest trading partner and Chinese, Turkish and Egyptian products are also widely available.
The current agreement of easing of sanctions against Iran and the ending of its stature as a global pariah has its roots in the will of Obama and the efforts of the P5+1. The P5+1 (US, China, France, Russia, UK & Germany) is a group of six world powers, which since 2006, through diplomatic channels, have been jointly negotiating with Iran with regard to its nuclear programme.
This group finally brought about the JCPA in Vienna in June 2015 (Joint Comprehensive Plan of Action), which is the final agreement on Iran’s halting of its nuclear programme in return for global easing of sanctions.
In the US diplomatic circles, the deal struck in Vienna is certainly not perfect. They believe that Iran’s implementation of the deal is not likely to be perfect, either.
A recent development saw Iran test 2 missiles (without nuclear capability) in December 2015, much to the chagrin of the US. But the US now needs to consider whether it should confront perceived Iranian transgressions through re-imposition of sanctions.
It is interesting to think about what the consequences of a foiled agreement would be. The rest of the partners in the P5+1, now at the edge of their patience over US-Iran relations, might behave very differently with Iran, in relation to what the US expects.
There might not be a continuation of the multilateral sanctions regime against Iran. US might have to go it alone. Broadly, a foiled agreement might distance the US from the P5+1 and get them to rally around Iran after more than a decade. Also, it might jeopardise any future negotiating effort between the US and Iran.
New financial system The biggest risk for the US however is its own status in the global financial system. The US is so deeply entrenched in the financial system that it can touch almost all international financial entities. For example, even the soccer organisation FIFA bore the brunt of US attack on its corruption, not because bribes were offered on US soil, but because they passed through entities connected to US banks.
In the case of return of the US sanctions on Iran, and little support for the same from the rest of the P 5+1 powers, there would be an attempt to develop robust financial instruments that would be beyond US’ reach.
One can already see the creation and development of institutions and a financial structure that would be free from US scrutiny. The US Treasury Department would have nil influence on these institutions. The New Development Bank (previously the BRICS Development Bank), China-India-Russia’s new Asian Infrastructure Investment Bank and other institutions could be part of the financial ecosystem that Iran could rely on, and States with energy interests in Iran could be financial allies in this parallel system. This arrangement and establishment of a financial system, which a US-sanctioned Iran could access at a later date, defeats the very purpose of any economic arm-twisting by the US.
The nuclear deal signed in June 2015, with its perceived imperfections, would have the US and Iran in numerous standoffs in the near future. It might be compounded by acts or posturing of Iran against US allies in West Asia.
It would behove the US strategy makers well to realise that economic sanctions again on Iran will have a self-defeating impact. It is critical for the US to play a very mature and enabling role in seeing the deal through.
The writer heads Wipro’s international division. The views are personal