from Pressure Points and Middle East Program

Are Iran Sanctions Working?

February 21, 2013

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It’s a commonplace to say that sanctions against Iran are tighter than ever and are working. Here’s an example from White House spokesman Jay Carney last Fall: "We have diplomatic isolation and international isolation that’s unprecedented in history and it’s having a profound impact on both the Iranian economy and the Iranian regime’s internal political structure."

The problem is that sanctions appear to be having no impact on Iran’s nuclear weapons program, which is after all their purpose. Impoverishing Iranians is not the goal.

The damage to Iran’s economy is visible: oil exports are down (though because oil prices are up, the impact of this is reduced); the currency has fallen in value by about two-thirds against the dollar; foreign exchange reserves are apparently down from about $100 billion to perhaps $75 billion.

But that is not economic collapse. A foreign ambassador stationed in Iran recently told me that the depressed value of the currency means, for example, that a middle class family used to an annual vacation in Turkey can no longer afford to take that trip. They now have to vacation inside Iran. But as he noted, that’s hardly the kind of thing that produces rioting and it isn’t going to produce a change in the Supreme Leader’s nuclear policy.

Reuters’ Middle East economics editor recently wrote that sanctions "are not close to having the ’crippling’ effect envisaged by Washington. The Iranian government has found ways to soften the impact, and Iran’s economy is large and diverse enough to absorb a lot of punishment." He noted that "The International Monetary Fund estimated in October that Iran would post a general state budget deficit of 3.9 percent of gross domestic product this year - easily bearable for a government with gross debt of only about 9 percent of GDP." Moreover, "government subsidies and handouts are expected to continue softening the impact of inflation on Iran’s poorer families by keeping staple foods such as bread, rice, sugar and edible oil affordable for them. Parliament agreed last month to allocate a further $2 billion to support low-income families."

So sanctions are hurting Iran’s economy, and are hurting many Iranians--though the richest can take care of themselves, and the poorest are protected by the government. But there is no crisis, and it seems to be wishful thinking that the ayatollahs will abandon their nuclear program because the economic pain, and the political risk it is producing, are too great. That could happen if sanctions--especially sanctions that reduce Iran’s oil exports a good deal more and interfere with its ability to import refined products--are strengthened. But that does not seem to be in the cards.

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