BY ALEXANDER GALITSKY
If the imposition of a punitive sanctions regime on Iran was designed as a means of compelling behavioral change, it represents a severe misunderstanding of a political ideology that thrives on resistance. This story is a common one in the chequered history of economic sanctions; while generally successful in disrupting the economic capacity of targeted states, often these measures fail to produce intended strategic outcomes. Instead, sanctions provide governments with a tangible scapegoat for economic misfortune, confirm a regime’s narrative of the existential threat posed by foreign forces, and reinforce the belief that only the incumbent can safeguard the nation’s interests. In the case of North Korea’s nuclear proliferation, Russia’s foreign adventurism, and China’s expansionism in the South China Sea, international sanctions have routinely failed both as a method of deterrence and compliance. Sanctions have proven consistently ineffective at facilitating regime change due to their fundamental mischaracterization of the means through which revisionist states establish their legitimacy.
The myth that the great economic might of the United States pressured Iran into accepting the terms of the ‘Joint Comprehensive Plan of Action’ (JCPOA, or Nuclear Agreement) has established a dangerous precedent in the effort to tame rogue nations. Two years since the implementation of the Nuclear Agreement, the enduring belief that punitive sanctions hold currency in dissuading revisionist state behavior has once again produced adverse strategic outcomes for the United States. The persistent unwillingness of the U.S. to come to terms with Iran’s potential both as a regional stabilizer and lucrative transcontinental trade partner has not only hindered the pursuit of a meaningful political accord between the two states, but ensured Tehran’s exclusion from the Transatlantic politico-ideological order. The initial failure of the U.S. was in the assumption that an ideology built on hostility to foreign pressure could be destroyed through foreign pressure. Recent protests, for example, were not the revolutionary anti-regime uprising as many had characterized. Rather, they were more an expression of dissatisfaction with the leadership of President Rouhani, who had betrayed the public’s expectations by failing to fulfill his promise to induce economic recovery. Rouhani’s challenge went beyond removing the pressure of sanctions, which only laid bare the worsening structural deficiencies of the Iranian economy. In fact, Iran’s economy actually experienced consistent real GDP growth in the 15 years following the escalation of sanctions in 1995 that targeted foreign firms conducting business in Iran. Serious decline became noticeable during Mahmoud Ahmadinejad’s presidency, primarily as a result of the profligate distribution of oil wealth into unsustainable subsidy programs that facilitated wasteful consumer spending and rapid inflation. This was followed by a mismanaged subsidy reform program that failed to curb inflationary spending and diminished Iranian purchasing power through the removal of the safety net many citizens had become reliant on. While Rouhani’s administration saw modest success in the restoration of positive GDP growth, and the stabilization of unemployment and the rate of inflation, this did not translate into positive outcomes in reducing inequality and the cost of living.
But while sanctions certainly accentuated this economic turmoil, they were not enough to affect the political crisis necessary to produce behavioral change in Tehran. Rather, sanctions became an effective form of blame avoidance for the failure of economic leadership. The Iranian government repurposed international commentary that held sanctions responsible for Iran’s economic decline to reaffirm the threat posed by Iran’s Western opponents. Furthermore, the international sanctions regime actually served as the catalyst needed to initiate a long overdue economic restructuring that has allowed Iran to transform into one of the more resilient economies in the region. With a reliance on imports untenable due to inflation, and oil export markets shrinking due to trade restrictions, Iran was forced to diversify its economy – achieving its first non-oil trade surplus in March of 2016. Furthermore, with a substantial proportion of its population under the age of 30, and the need for economic innovation crucial to achieving autarky, considerable attention was directed towards the development of the nation’s education sector. Iran’s education spending as a percentage of total government expenditure is one of the highest in the world, and in less than a decade Iran has come to lead the region in net enrollment and completion rates at all levels of education with little to no gender disparity. This has supported significant growth in Iran’s science and technology sectors, with a UNECO report suggesting that sanctions “appear to have accelerated the shift from a resource-based economy to a knowledge economy”; resulting in high rates of enrollment and research output in STEM fields. As a result, the international sanctions regime positioned Iran well for its first foray into the global economy. The reduced reliance on energy exports allowed Iran to not only adapt to the realities of a lower oil price but aggressively pursue further price devaluation as a means of outcompeting regional export rivals to regain market share. Furthermore, Iran’s isolation from global financial institutions has ensured minimal foreign debt and insulation from fluctuations in the global economy – seen in its maintenance of a stable industrial production rate over the course of the global financial crisis.
Despite the lifting of sanctions, significant political and economic barriers still oppose Iran’s full integration into the international political-economic order. The continued political and economic isolation of Iran, particularly under the Trump administration, has limited the extent to which other parties to the JCPOA have been able to implement sanction relief and further market access. For the U.S., Iran is still a rogue state with a now dormant nuclear program seeking to achieve malign hegemony in a zone of great strategic importance. Ongoing restrictions aimed at undermining Iran’s military programs and projection of political influence in the region have failed to build confidence in the prospect of political accord between Tehran and Washington. But while European states face U.S.-imposed political pressure and institutional barriers to furthering their trade relations with Iran, the ‘East’ has been eager to capitalize on this paralysis to capture Iranian markets with little resistance. Russia, China, and India each recognized the role of Iran as a crucial geopolitical node in the emerging multipolar world order during the height of its isolation, exhibiting reluctance to fully commit to the multilateral sanctions regime. The unwillingness of the U.S. to facilitate the integration of Iran into the global economic order inadvertently paved the way for Tehran’s deepening involvement in a geopolitical network aimed at counterbalancing the global influence of the U.S. political-economic nexus; seen through moves towards Iran’s cooperation with the Eurasian Economic Union, and the Shanghai Cooperation Organisation. As a result, Iran has become the focal point of two key multi-modal transcontinental transport projects. The first is the Russian-Indian North-South Transport Corridor; a ship, rail and road network covering 7,200km (4500mi) that promises to reduce transport times by 30-40% at a capacity of 20-30 million tonnes of goods per year. The second is China’s One Belt One Road (OBOR) initiative; a 1 trillion dollar project aimed at revitalizing the ‘Silk Road’ through strategic investment in transport infrastructure across Eurasia. As a result, Tehran and Beijing agreed in 2016 to expand bilateral trade to $600 billion over a 10-year period, and strategic relations have been bolstered through naval drills, the transfer of military technology and discussions surrounding China’s use of Iranian naval bases.
The strengthening of ties with great regional powers has allowed Iran to achieve several key strategic foreign policy objectives. The first has been the consolidation of Iran’s “axis of resistance”; a security network comprised of both formal and informal institutional linkages between Iran, Iraq, Syria and non-state actors such as Hezbollah in Lebanon, and the Houthis in Yemen. Iran has sought to capitalize on the absence of a credible security guarantor able to fill the region’s persistent power vacuums. In Iraq, Iran has effectively monopolized the nation’s security infrastructure after forces trained during the U.S. intervention collapsed under the pressure of the Islamic State. In its place is the 100,000+ strong Popular Mobilization Units (PMU), a predominantly Shi’ite paramilitary coalition that assisted the clearing Iraq of the Islamic State. With the assistance of the sympathetic ruling Islamic Dawa Party, in 2016 the PMUs were legally institutionalized as a separate military corps. Iran has also seen desirable outcomes in the Syrian Civil War, ensuring the survival of the Assad regime through the mobilization of PMUs, Hezbollah, and the provision of technical assistance to the embattled government. But of particular significance has been shifting international attitudes towards the resolution of the Syrian conflict; both Egypt and Turkey, the region’s largest Sunni powers, have publicly reversed their strong opposition to the maintenance of the Syrian government – breaking from their American and Saudi allies. Iran also continues to outmanoeuvre Saudi Arabia in Yemen. Iran, which provided only modest backing to the Houthi rebels, was able to successfully stoke Saudi fears of Shi’ite expansionism to the extent of embroiling the Kingdom in a conflict that has proven costly for both its economy and its reputation. In Lebanon, the appointment of Michel Aoun as president has led to a strengthening of Hezbollah and its allies in the governing structure of the country. The success of Aoun, a key figure in the pro-Syrian ‘March 8 Alliance’ and staunch Hezbollah-ally, marks the weakening of Saudi Arabia’s position in Lebanon – accentuated by the blatant attempt to remove Sunni Prime Minister Saad al-Hariri from office for his weakness on confronting the Hezbollah threat. The final major strategic success has been the weakening of the region’s Sunni-axis. First was Egypt’s break from financier Saudi Arabia’s policies towards Syria and Yemen. More crucially, however, has been the burgeoning rapprochement between Ankara and Tehran. Iran and Turkey shared a united opposition to the Saudi-bloc’s role in the Qatar Crisis, with Ankara using the incident to bolster its presence in the Gulf state while seeking to challenge Saudi Arabia’s supremacy in the Sunni world. Turkey and Iran have also seen progress on the Syria front, with the two participating in Russian efforts to restore stability in Syria under a reformed Assad government. Turkey’s participation has largely stemmed from its decision to prioritise the containment of Syrian Kurds over regime change. The Kurdish question has served as further grounds for cooperation between Iran and Turkey following the Kurdish Independence Referendum in Iraq was seen to risk regional spill-over.
Several conclusions can be drawn from Iran’s experience with the sanctions regime. First, by limiting Iran’s capacity to capitalize on its petroleum resources sanctions forced the restructuring and diversification of Iran’s economy. The sanctions failed to achieve their intended result by underestimating the staying-power of the regime, and validating the official narratives admonishing Western interventionism. Second, by alienating Iran from Western political and economic institutions Tehran was pushed into the hands of revisionist powers seeking to challenge U.S. primacy. The architects of the sanctions fundamentally failed to consider how Iran’s unique geography placed it at the center of the geopolitical aspirations of emergent Eurasian powers such as Russia, China, and India. And finally, by restricting Iran’s economic influence, sanctions gave Iran no other option but to resort to the use of military coercion. With international deterrent and coercive measures exhausted, Iran had calculated that there was little more it could lose. By the time the JCPOA had been finalized, the seeds of Iranian influence had already been sown throughout the region. Ultimately, the international sanctions regime did not just fail to curb Iran’s hegemonic ambitions – it accelerated them.
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Image source: U.S. State Department
About the Author
Alexander Galitsky is a junior fellow at the ERA Institute. His research interests include geopolitics, conflict resolution, and human rights.
This article is produced by the Eurasian Research and Analysis Institute, Inc. (ERA Institute), a public, 501(c)(3) nonprofit institution devoted to studying Eurasian affairs. All views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).