Reckoning the Impact of latest US Sanctions against Iran

Reckoning the Impact of latest US Sanctions against Iran

The latest US sanctions against Iran come as Tehran launched its satellite carrying rocket into space (the ‘Simorgh’). Washington believes this missile launch to be “shorten[ing] a pathway” to the development of ICBMs. All six Iranian firms sanctioned, are owned and controlled by the Shahid Hemmat Industrial Group that is “central” to the Iranian missile program.

Currently, Iran’s case is different from that of earlier proliferating regimes (including Pakistan). Concerning Tehran, the US administration is out there to prove a point domestically and fulfill its campaign pledges. Two of the key campaign pledges were ‘repealing Obamacare’ and ‘tossing away the JCPOA’. Seven months into the new administration, neither of the two pledges has been delivered. Yet, perhaps the only issue at hand where the White House enjoys bipartisan support concerns North Korea and Iran sanctions. As such, the current sanctions against Iran have a greater domestic political role in Washington: the sanctions reflect the jostle between the US administration and Congress/Senate to prove to the other as to who leads the way in stalling the development of Tehran’s nuclear program per se.

Additionally, sanctions bills against US opponents generally win bipartisan backing and sail through the political chambers unchallenged (Senate approved the latest sanctions bill by 98-2). Few Congressmen would vote against sanctions, actively conscious that such a vote could be spun into an accusation of them being pro-Russia or pro-Iran.

What makes the latest sanctions legislation particularly delicate is that this was a package bill comprising of Iran, North Korea and Russia. While the White House may not be in favour of strict sanctions against Russia, it is in its favour to push for more Iranian sanctions. As a Congressman or Senator, even if one supported sanctions against one of the three included countries, one would be obliged to vote ‘Yes’ for the bill. Hardly any member of Chamber would vote ‘No’ on North Korea. Essentially, this bill was a political masterstroke. But the question remains whose masterstroke it turns out to be: Congress or the White House’s?

While the sanctions may resemble a symbolic move for Washington, they are very real to American allies part of the JCPOA. European firms and entities poised to open business relations with Tehran in the aftermath of the JCPOA still find immense pressure from the US and unfavourable investment conditions to thaw out economic relations with Iran. The US Treasury Department continues to be the long pole in the global sanctions architecture. Even symbolic American measures will pose a powerful deterrent against business in Iran. It is also why Washington continues to confidently assert that the EU needs to come around to the sanctions legislation and not the other way around.

Additionally, Iran’s RGC and other central actors remain designated under existing US measures. Any foreign entity risks its legal and reputational standing when doing business with their Iranian counterparts. All financial and business organizations would prioritize their American interests over initiating investments in Iran, especially multi-year and multi-billion dollar projects such as those in Iran’s energy sector. This compliance culture is a pivotal heavyweight that continues to accrue the advantage to Washington over Tehran. A practical example was seen in November 2013 during the pre-JCPOA interim period when the positive impact of the openings provided to Iran’s economy came out to be far more subdued and less valuable than anticipated.

Iran needs to calibrate the US sanctions according to the political climate in Washington. For the US administration, the worst outcome of imposing more sanctions is the termination of the JCPOA. Since it views the agreement as an ‘Obama landmark legacy’, the White House would have few qualms about this outcome. Repealing the JCPOA unilaterally is not in the interests of Washington, particularly as the deal has a multilateral nature, codified by the UN Security Council. As such, sanctions present the most immediate and real way of exhibiting US annoyance at what Washington deems to be Iran’s continued infringements of the JCPOA. Moreover, the only way terminating the JCPOA would work in Washington’s favour is if Iran reneges on it: further sanctions and hardening rhetoric will encourage hardliners in Tehran to walk away from the agreement, meaning Iran may be the party eventually breaking the deal.

Additionally, the US is not obliged by the JCPOA to not sanction what it views as Iran’s other malign activities against regional peace and international security. The deal specifies that the US “will refrain from any policy specifically intended to directly and adversely affect the normalization of trade and economic relations with Iran inconsistent with their commitments not to undermine the successful implementation” of the agreement. The US, regardless of who is in the White House, has insisted that such wording allows sanctions to counter nefarious Iranian activities including human rights violations, weapons proliferation or terrorism finance. This perhaps highlights a significant weakness of the JCPOA: it addresses only one dimension of the challenge posed by Tehran to the US. Therefore, it appears likely that the US will pursue the JCPOA and Iranian sanctions simultaneously for the near future.

However, the US should be prudent about imposing excessive Iranian sanctions: there is a domestic element to sanctions in Iran as well, where the Iranian supreme leader’s modus operandi is that Western pressure is only going to harden, not soften, Iranian behaviour. Tehran’s political leadership keenly follows the principle ‘offense is the best defence’, which is why Iran may react and not simply accept more sanctions. An aggravated Tehran is a threat to more than just the US. Yet, sanctions affecting the Iranian populace may work for the US: consequences such as currency devaluation and the rising cost of living will increase domestic pressure on the Iranian government. Domestic agitation might be the surest way of making the Ayatollah blink.

Ultimately, Iran needs to be prudent and judicious about what it perceives as show of strength but what is practically more like shooting oneself in the foot. Even residual US sanctions will hurt Tehran and prevent the Iranian economy from receiving the complete benefits of the JCPOA.

While Tehran’s ballistic missile program may not violate the JCPOA, it is contrary to the intent of numerous UN Security Council resolutions. The language of the JCPOA is very clear: although it does not expressly prohibit missile development and UNSCR 2231, while endorsing the agreement, simply “calls upon” Iran to halt the program for eight years, the deal also does not terminate all sanctions levied against Iran nor does it prohibit future sanctions against it. Tehran has sold the JCPOA domestically as providing wholesale sanctions relief and a cessation of all economic penalties. This is a simplistic interpretation and the US is not legally bound to not impose further sanctions, especially with regard to non-nuclear issues.

Muhammad Omar Afzaal
is Senior Non-Resident Fellow of CSCR. A Graduate from Grinnell College and Pursuing his masters from Brown University through Harvard Brown Program in Public Affairs. His area of expertise is Nuclear non-Proliferation, International Security and Civil-Military Diplomacy.

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