Iran: The impact and limits of sanctions

The European Union (EU) is ramping up pressure on Iran – imposing tough new sanctions on the country’s banking, shipping and energy sectors. These sanctions are the toughest measures taken by the EU so far.

“The reality is that most sanctions end up having perverse effects …. European Union sanctions certainly affect 27 member states and companies that are trading, but there’s a much bigger world out there ….  I don’t think they will have the effects that politicians are looking for.“ – Peter Middlebrook, the CEO of Geopolicity

It has drawn up a list of more than 30 Iranian firms that are being targeted, taking in two top ministries, a host of state-run oil and gas companies, and several banks, including the Central Bank of Iran. It also specifies Majid Namjoo, Iran’s minister of energy.

The West has long accused Tehran of developing nuclear weapons, but Iran insists its nuclear programme is for civilian purposes and denies it is trying to develop an atomic bomb.

The West says sanctions are the main way to pressure Iran and forestall military conflict.

Iran has been the target of sanctions for more than two decades now, but it continues to remain defiant, and publicly insists the restrictions are not harming the economy.

But the latest EU measures are likely to put more pressure on Iran’s faltering economy. And the hard facts suggest Iran is already feeling the pinch of Western sanctions.

“Many believe if it were not for the nuclear programme, the West would have picked up something else in order to put pressure on Iran.“ – Sadegh Zibakalam, a professor of political science at Tehran University

Iran’s oil exports have dropped by about one million barrels a day in the past 12 months, which is a 60 per cent drop in revenue.

Inflation is running somewhere between 20 and 25 per cent and it is hitting Iran’s currency hard. The rial has lost 40 per cent of its value against the dollar in recent weeks.
 
What impact is the latest round of sanctions likely to have? And are sanctions a legitimate means of bringing about diplomacy?
 
Inside Story, with presenter Mike Hanna, discusses with guests: Sadegh Zibakalam, a professor of political science at Tehran University and a specialist on Iran’s foreign policy; Peter Middlebrook, the CEO of Geopolicity, an advisory consulting firm specialising in political and economic intelligence, and a former economic adviser to the UK, EU and World Bank; and Hillary Mann Leverett, the CEO of Strategic Energy and Global Analysis, a political risk consultancy, and a former US diplomat and official at both the White House and the state department.

“The second round [of sanctions] is intended to increase hardship for ordinary Iranians. That’s the intent of sanctions … it’s to impose extreme hardship on ordinary people with the idea that they will then rise up and overthrow their government and get rid of a system that Washington doesn’t like. They will increase hardship for ordinary Iranians, they will increase transaction cost, they will make doing business harder, but the reality is what we have seen come back from Iran, the response from the Islamic Republic of Iran has been, yes, hardship for people, but also an increased ability to rely on indigenous production, indigenous capacity. When we first started imposing sanctions on Iran after the revolution in 1979 Iran was barely able to produce a bullet for its military.” Hillary Mann Leverett, the CEO of Strategic Energy and Global Analysis

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EXPORTS ON THE RISE

• Despite the imposition of sanctions against Tehran, US exports to Iran are actually on the rise – up by around one-third
• During the first eight months of 2012, the value of US exports rose from around $150m to almost $200m
• Much of that was wheat and other grains, accounting for almost $90m. Contrast that with corn sales of just $21m in 2011
• Sales of dairy products more than doubled from almost $8m to just over $20m