The Iran sanctions fallacy

International sanctions have exacerbated the pain of the middle class struggling with high levels of unemployment.

iran president 2007 [GALLO/GETTY]
The economy, and its poor performance, is a major concern for average Iranians [GALLO/GETTY]

Iranians’ displeasure with their government is palpable and transcends demographics. Before the contested 2009 presidential election, few were satisfied with the government’s performance. Since then, this displeasure has only increased – but not for the reasons that many assume. More than politics, the state of Iran’s economy is the greatest source of discontent. Despite record profits from high oil prices, many Iranians are forced to navigate an economy plagued with unemployment, inflation and corruption. However, the assumption in the West that sanctions will aggravate Iranian government mismanagement to the point of popular revolt is largely misguided.

This presents an arduous task for American policymakers. Publicly, they justify broad-based sanctions as punishment for the Iranian government’s refusal to yield to pressure over its nuclear programme. That is a hard sell to even the most liberal 30-something in urban Tehran – and the majority of Iranians residing outside the capital are far less progressive and politicised. They embrace neither sanctions nor their own governments’ malfeasance. From Ahvaz to Mashhad, Iranians outside Tehran are undoubtedly dissatisfied with the status quo, but their political discussions focus more on skyrocketing prices and dwindling employment rather than the lack of political and social freedoms.

During my experience living and traveling throughout Iran, I spoke regularly with global business executives, entrepreneurs, bazaaris, intellectuals and students. I witnessed first-hand their struggles managing day-to-day and future planning of business affairs in a damaged economic climate. Conversation about the impact of mismanagement and sanctions on their businesses and families was a frequent topic of conversation at meetings and social gatherings. When I speak with those same friends and associates today, they are vexed by an environment in which mismanagement persists and sanctions increasingly bite. Many Iranians are unclear about how to manage the present and plan for the future, as this toxic combination limits their ability to make business, career and investment decisions.

Potential unreached

To be clear, politicised economic decision-making has long caused the Iranian economy to underperform.  Despite this, the Islamic Republic has important building blocks in place that are critical to fulfilling its vast economic potential: a young, dynamic society; a vibrant private sector culture; material wealth; and diversity of economic sectors.  

It is this vast potential that makes the Iranian government’s self-induced shortcomings all the more tragic: imbalanced distribution of wealth; financial and administrative corruption; and an overall lack of economic doctrine, efficiency and structure – a recipe for economic disaster in any country that does not possess massive energy resources.

And therein lies the rub: with buoyed oil prices, economic reform discipline drops and political survival is prioritised. The root cause of Iran’s economic malaise is government induced, but broad-based sanctions worsen this languor and the costs are passed down from the government to the people.

Some factions within the Iranian government tried – with some success – to bolster the private sector in an effort to relieve this burden on middle-class Iranians. However, the conservative factions currently in power enjoy windfall oil revenues – and do not depend on taxes to replenish government coffers. Therefore, they do not need a dynamic middle class or productive economy to ensure political survival. Instead, many Iranians depend on the government in some fashion to help make ends meet. 

Sanctions exacerbate this dependence on the government. By raising the costs of doing business in Iran, sanctions slow economic development and decrease employment options for the middle class. When fewer companies invest in Iran, there are fewer jobs for skilled middle-class workers; fewer opportunities to develop professional skills; and less socially-conscious investments while the government prioritises differently to combat foreign pressure. Alternative options for Iran’s middle class are increasingly narrow: unemployment, emigration, or becoming state employees. As a result, many middle-class Iranians not employed by the government live on unsustainable sources of income such as second jobs and remittances from family abroad.  Survival for the middle class is at best unstable, and the conservative factions in power prefer to keep it that way – a struggling middle class focused on making ends meet is easier to control. 

Conservative power

Sanctions have in fact strengthened the hand of conservative factions that increasingly disregard economic reforms from the 1990’s and early 2000’s. Instead, they have favoured economic populism and tighter government control of resources. This allows Iranian hardliners to kill two birds with one stone: reallocating resources to lower-class Iranians in an effort to expand their political base, while squeezing middle-class Iranians that are the backbone of Iran’s pro-democracy movement. Together, these policies increase the percentage of the population beholden to the state for its livelihood. With no compelling alternative in sight, Iranians are less likely to revolt and bite the proverbial hand that feeds them.

While the Iranian government is less popular today than any time in recent memory, little support for broad-based economic sanctions exists in Iran because they collectively punish Iranians. Ironically, the group least affected by these sanctions are political and military elites that control Iran’s nuclear program – who sanctions ostensibly target. Iranians are therefore more likely to turn against countries that impose such sanctions, rather than their own government for inducing them. Simply put, most Iranians are not sympathetic to the fact that the impetus for sanctions is Iran’s nuclear program. They are even less sympathetic to the prevailing assumption in Washington that Iranians will eventually revolt if their economic infrastructure is decimated by sanctions. This process upsets Iranians now, and contrary to popular assumption, that negative feeling will not wane over time. 

I have seen first-hand how indiscriminate sanctions kill hope in Iran, rather than fuel it in the way that economic opportunity can. Iranian history demonstrates how hope fuels change, while economic misery kills the development of democratic institutions and principles. Iranians who can afford it will continue buying imported iPhones and luxury cars, but the lower and middle classes will have steadily decreasing chances to compete. It is worth repeating that sanctions alone are not to blame for Iran’s economic maladies, but we should not neglect the fact that they are increasingly hurting the people that America says it seeks to help. As a new generation of Iranians assumes positions of power in the coming years, they will increasingly hold their current leaders accountable for the damage caused by poor economic management. However, they are just as likely to begrudge, rather than trust, an American government responsible for economic damage inflicted by broad-based sanctions that inhibit their ability to build a better future.

Reza Marashi is Director of Research at the National Iranian American Council and a former Iran desk officer at the US Department of State.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.