Punish Iran’s Rulers, Not Its People

Time is running out for the United States to persuade Iran to halt its nuclear program. As the potential for a diplomatic solution wanes, Barack Obama’s administration must consider what steps might dissuade Tehran from continuing its nuclear program without punishing the Iranian people or strengthening those who rule over them, chiefly the Islamic Revolutionary Guards Corps.

Among the options under serious discussion are tougher U.S. or multilateral sanctions. The U.S. Congress, for example, is considering a bill that would sanction companies that provide Iran with refined petroleum products. According to some estimates, Iran relies on gasoline imports to satisfy up to 40 percent of domestic demand. However, sanctions on Iran’s gas would only hurt the Iranian population without crippling the Iranian government. Worse, they would most likely enrich and could even strengthen the Revolutionary Guards and their business partners.

The Revolutionary Guards have emerged as Iran’s foremost political and economic power broker and also drive major national security policies, especially on the country’s nuclear program. Far from being hurt by gasoline sanctions, the Guards may in fact emerge as Iran’s unchallenged economic power.

Iran is attempting to privatize state-held enterprises. Although this is supposed to be a competitive process, the Guards have managed to use their political influence and national security powers to sideline most private competitors. Sanctions on gasoline would not only hurt consumers, but damage businesses and companies that have struggled to compete with the Guards’ economic expansion. With a virtual stranglehold on the state, the Guards would be able to bypass sanctions through their access to government gasoline reserves and the coffers of President Mahmoud Ahmadinejad’s administration. Their competitors will not be so lucky.

The Islamic Republic of Iran has lived under U.S. sanctions for the past three decades. These sanctions have hindered Iran’s ability to expand its economy and meet the demands of a growing, and restless, population. But many of Iran’s economic woes are due instead to government mismanagement, ineptitude, and corruption. The cost has been less borne by the Iranian government, which relies on oil exports for most of its revenue, than by the educated and professional classes.

U.S. sanctions have even inspired a self-sufficiency movement among the political and military elite. Today, the Revolutionary Guards boast of "indigenously" produced missiles, and Ahmadinejad declares Iran to have become one of the world’s great "nuclear powers."

Of course, Iran has relied on foreign (non-Western) suppliers for much of its weapons and nuclear technology. And the government is in desperate need of foreign investment and expertise to keep afloat, never mind improve, its ailing energy sector. Regardless, Iran’s rulers, including Supreme Leader Ayatollah Ali Khamenei, Ahmadinejad, and hard-line Revolutionary Guards officers, appear to believe that a nuclear deterrent is worth the costs in economic stagnation. And Iran’s international isolation has only empowered the ruling elite, who have no desire to see the masses subjected to Western influences that could culminate in a "velvet revolution."

Meanwhile, the Revolutionary Guards have benefited from Iran’s status as an economic pariah. Facing few remaining domestic and international competitors, the Guards have developed a virtual monopoly on all economic sectors, including construction, energy, transportation, and recently telecommunications.

In addition, the Guards, who oversee Iran’s black-market trade, would benefit from the expansion of the underground economy created by gasoline sanctions and resulting shortages. Though the Guards’ "legitimate" business interests may be somewhat affected by sanctions, their role in the underground economy may actually alleviate some of the economic pressures.

Opposition leaders realize that the Islamic Republic is approaching ideological, political, and economic insolvency. They believe that only a more flexible political and social system with greater access to the outside world can save the Iranian regime from ultimate ruin. The June  presidential election and its violent aftermath was not just a dispute over the person of the president, but was truly a struggle over Iran’s future. Students, workers, doctors, lawyers, and even clerics are now at the forefront of the movement for change. Driven to economic ruin by their rulers, they may also soon face steep hikes in gasoline prices as a result of international sanctions. And they may very well place the blame on the United States, instead of on the Ahmadinejad administration. That could  give the Islamic Republic a second lease on life.

The best bet is to hit the Guards where they may be most vulnerable: their access to the global financial system. Iranian banks with ties to the Guards, such as Bank Melli, have so far been hurt by their inability to access the U.S. financial system, thus impeding their access to financial institutions worldwide. However, financial and banking sanctions will have to be multilateral — enforced by Iran’s traditional commercial partners — in order to put real pressure on Guards-linked banks.

Yet even these measures would only have a limited effect in pressuring the Iranian government. America’s best ally in this fight will be the Iranian people, many of whom are now risking their lives for change and a better future. Congress should think twice before enacting gasoline sanctions that could do more harm than good.