Everyone Loves Iran Sanctions… For Now

While lawmakers are still debating the merits of the interim deal with Iran, Washington seems to agree on at least one thing: sanctions work. The U.S. program to cut Iran off from the international financial system is widely viewed as successful — the only debate in Congress is whether to ratchet up sanctions now, or later.

Though they can’t agree on what to do next, politicians from both sides of the aisle espouse the view that Iran came to the negotiating table because of U.S. sanctions. Secretary of State John Kerry reiterated the argument Wednesday at Transformational Trends, a conference co-hosted by Foreign Policy and the Policy Planning Staff of the U.S. State Department.  Kerry said not only did sanctions bring the Iranians to the table, but also the Iranian people elected President Hassan Rouhani to get out from under the sanctions. 

The debate over what to do next is borne out of that perceived success – sanctions are so effective, we should add more of them, is the argument from lawmakers who want the U.S. to hold a hardline. Tomorrow, the key officials running the Iran sanctions program are set to rebut that argument in a Senate hearing. 

Treasury sanctions chief David Cohen, who will testify tomorrow with head State Department negotiator Wendy Sherman, previewed his argument today in a Wall Street Journal op-ed. Cohen says sanctions brought Iran to the table and the U.S. is not relenting during the interim agreement.

"We will communicate a blunt message to every foreign official, businessperson and banker who thinks now might be a good time to test the waters: We are watching, and we are poised to act against anyone, anywhere, who violates our sanctions," Cohen said in the op-ed.

Cohen followed that threat with action Wednesday, announcing a stiff fine against a Scottish bank for alleged sanctions violations. The Treasury Department said it reached a $100 million settlement with the Royal Bank of Scotland for alleged violations of sanctions against Iran, Sudan and other countries.

"This action demonstrates our continuing efforts to aggressively enforce U.S. sanctions laws against Iran and other sanctioned parties," Office of Foreign Assets Control Director Adam Szubin said in a statement.

Though Obama administration officials promise pressure on Iran will not relent, that’s no guarantee of success. And past examples demonstrate how tricky gauging success can be.  Though the Treasury Department managed to cut off North Korea from its primary bank Banco Delta Asia in 2005 applying pressure to the reclusive regime, the tactic never succeeded in getting North Korea to abandon its nuclear program. And while the United States’ decades-long trade embargo against Cuba continues, it doesn’t seem to be leading to any breakthroughs (Obama-Castro handshake, aside).

The problem is that sanctions aren’t an exact science. While strict sanctions seem to have helped get Iran to the table, there’s no way to know for sure.  Ali Vaez, senior analyst on Iran with the International Crisis Group, says that view discounts internal factors in Iran, like economic decisions by the Iranian leadership.

"It’s a reductionist view to credit sanctions and only sanctions for this outcome," said Vaez. Therefore, Vaez says, it’s wrong to think "more pain results in more gain" with sanctions policy. 

And if the easing of sanctions, under the interim deal reached in Geneva, is meant to coax Iran toward a permanent agreement, it will be hard to call the sanctions a success until negotiators reach a permanent agreement to mothball Iran’s nuclear program.

And as Washington continues to debate between tough and tougher sanctions, the pain that falls on the heads of ordinary Iranians doesn’t really come up. In addition to making it hard to get food and medicine into Iran, sanctions lawyer Farhad Alavi, says there are other ancillary effects.

"It is damn near impossible for Iranians to open foreign bank accounts now," said Alavi, a partner at Akrivis Law Group PLLC.  Alavi, who helps companies navigate the sanctions laws, says banks in the U.S. are sophisticated enough to know what’s legal and what’s not, but many banks outside the U.S. don’t want to deal with Iranians, even if they’re not designated by Treasury, because the risk of running afoul of U.S. law is too high.

"The law might say one thing, but it has a cascading effect.  It impacts things that aren’t even mentioned in the law," Alavi said. The success of sanctions has effectively made Iran toxic in the international business community, he said. And the full effect of that, good or bad, is yet to be seen.