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Story Publication logo April 25, 2019

Iran Sanctions Redux—and Why a Blunt Cudgel Can’t Replace Targeted Tools

Pulitzer Center Executive Editor Indira Lakshman speaks President Trump's use of the term "Fake News." Screenshot from a Washington Post video stream. United States, 2018.

"Indira Lakshmanan Reports" highlights Lakshmanan's reporting, commentary, and public event...

President Donald J. Trump signs an Executive Order in Bedminster, New Jersey, entitled “Reimposing Certain Sanctions with Respect to Iran.” Image courtesy of the White House.
President Donald J. Trump signs an Executive Order in Bedminster, New Jersey, entitled “Reimposing Certain Sanctions with Respect to Iran.” Image courtesy of the White House.

While Washington fixates on the Mueller Report and the hordes entering the 2020 presidential race, the Trump administration is making a quiet, seismic shift in US foreign policy that will outlast arguments over tweets and impeachment.

Foreign policy requires a combination of diplomacy, carrots, and sticks—and sanctions, when employed strategically, can be a pretty effective stick. The textbook case is international financial pressure on South Africa that forced an end to apartheid and free elections. More recently, a mind-boggling array of US and European sanctions on Iran forced Tehran to accept a 2015 deal to roll back its nuclear program, under 24/7 international surveillance. Those sanctions would have failed without the cooperation of China, Turkey, and other Iranian trading partners, who sacrificed their short-term economic interests to help pressure Iran. US and international sanctions on what both Presidents Trump and Obama rightly denounced as Iran's malign activities—terrorism, illicit missiles, and human rights abuses—were never lifted as part of the nuclear deal, and remain in force today.

Sanctions can be an attractive weapon—but they're not a silver bullet. A nearly 60-year-old unilateral US embargo on Cuba hasn't brought the Castros down, nor have decades of penalties managed to end the brutal, totalitarian Kim dynasty in North Korea. When wielded clumsily and without international unity needed to make them effective, sanctions are toothless—all bark and no bite.

Secretary of State Mike Pompeo announced Monday the United States is ready to severly punish countries that import Iranian oil, including China and Turkey, who responded defiantly. Oil markets were caught by surprise and prices jumped to six-month highs.

Pompeo is re-imposing sanctions the Obama administration and Congress imposed in 2012 to pressure Iran over its illicit nuclear program. The difference now is that Iran's nuclear program has been curtailed—as verified more than a dozen times since 2015 by UN International Atomic Energy Agency inspectors.

Trump withdrew the United States from the nuclear deal last year, stubbornly convinced he could force Iran to accept tougher terms. But Iran—along with Europe, China, and Russia—ignored him and remained in the deal, maintaining surveillance of Iran's nuclear program in exchange for trade.

Mark Dubowitz of the Foundation for Defense of Democracies, an architect or adviser on some of the toughest sanctions that led to the nuclear deal, thinks Iran "is trying to wait Trump out, convinced that a Democratic president will give massive sanctions relief . . . If Trump is reelected, the regime will have the choice between returning to negotiations or potential economic collapse that could create massive civil unrest." Administration officials, including National Security Adviser John Bolton, share the hope that crippling Iran's economy will stoke uprisings that destabilize or topple its regime.

But what if Iran, Europe, China, and Russia remain in the nuclear deal? What if the UN continues to certify that Iran is in compliance with its nuclear limits? Re-imposing sanctions seems far more likely to galvanize Iranian hardliners' iron grip on power, and to fuel backlash from our allies and trade partners.

The European Union last year banned European companies from complying with reimposed US sanctions on Iran, and is working on a scheme to allow Europeans to engage in legal commerce with Iran while end-running US banks, explains Adam M. Smith, a former senior Treasury Department official, now an trade lawyer at Gibson Dunn. The world's two largest banks by capitalization now are Chinese, meaning oil importers could use Chinese banks rather than American ones anyway.

The Trump administration treats sanctions like "an iron fist" instead of a surgical tool, but that doesn't mean officials will get the results they expect, said Richard Nephew, a former lead sanctions official under both Obama and George W. Bush. Iran will now bargain hard with importers, offering discounts and special terms. Oil markets remain on edge, because replacing Iranian crude with Saudi and Emirati oil doesn't account for potential shortfalls in Venezuela, Russia, or elsewhere. In March, Iran had an estimated 1.9 million barrels of day in the market, according to Ellen Ward, an energy fellow at the Atlantic Council, far higher than the amount Pompeo says need to be replaced.

Iran may push the envelope on nuclear restrictions, perhaps short of violations, but enough to raise concerns. Iran could also retaliate by boosting terrorists in the Middle East or launching cyber attacks on Saudi, Emirati, or US oil companies.

Further confusing the picture is Trump's mixing and matching of apples-and-oranges economic tools—from sanctions and export controls to trade and tariffs. Tariffs are wielded tit-for-tat on unfair trade; sanctions take aim at foreign policy goals, and should be removed when the goal is achieved.

Conflating them makes "a big ball of wax" out of otherwise sharp, specific tools, said Gary Hufbauer at the Peterson Institute for International Economics. Pressure on Venezuela or North Korea is undermined when Iran and Cuba sanctions don't have international support or likelihood of success.

Unlike a surgical knife, if you hurl a ball of wax at a target, it doesn't stick to anything.

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