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Published on July 15th, 2014 | by Derek Davison

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Report: Iran Sanctions Cost US Economy Billions

by Derek Davison

American sanctions on Iran: what have they accomplished? There seems to be little dispute that the sanctions have hurt the Iranian economy, the oil revenues of which have been drastically cut, not to mention Iran’s double-digit inflation, and its lack of access to SWIFT, the network that facilitates most of the world’s international banking transactions.

The conventional wisdom, especially here in DC, is that the economic hardship imposed by these sanctions has led to the current negotiations over Iran’s nuclear program, by creating the conditions under which moderate Hassan Rouhani could be elected president of Iran, or by forcing Rouhani to come to the negotiating table to get them eased, or both. Trita Parsi, President of the National Iranian-American Council (NIAC), opposed this notion in May, noting that Rouhani’s election was driven by a desire for reform and not by economic hardship, and that the resumption of talks was spurred by diplomatic overtures from Washington to Tehran. His argument is bolstered by Iran’s pursuit of a negotiated settlement with the United States years before the strongest nuclear sanctions were imposed.

Yet much of the DC foreign policy establishment, especially hawks and neoconservatives, has endorsed sanctioning Iran, in growing degrees, even while doubting the sanctions’ ability to get Iran to abandon its alleged nuclear aspirations. Indeed, as the negotiations in Vienna get ever closer to the July 20 deadline imposed by last November’s Joint Plan of Action (JPOA), hardliners in Congress and the neocon establishment are insisting that there be no sanctions relief unless Iran not only dismantles its entire uranium enrichment apparatus, but also does away with its ballistic missile program, ends its “support for international terrorism,” and agrees to uniquely intrusive monitoring requirements for at least 20 years. If those demands, none of which can be acceptable to the Iranians, somehow didn’t scuttle the deal, the neocons would probably require an apology for the Battle of Thermopylae.

While some Iran hawks might prefer military action either instead of or in addition to the sanctions, others appear more concerned with punishing Iran — and, whether they want to or not, Iranians — than reducing the chances of military conflict. Indeed, just this week the Daily Beast’s Eli Lake wrote a sarcastic “Thanks Obama!” piece bemoaning and overemphasizing whatever slight improvement the JPOA’s easing of sanctions has spurred in Iran’s limping economy, based on a report by the neoconservative Foundation for Defense of Democracies, and Roubini Global economics. If US sanctions on Iran were indeed aimed at solving the conflict over its nuclear program through diplomacy rather than military force, then the tiny improvement in Iran’s economy following the interim nuclear deal should not be worrisome. Rather, it’s an indicator that incentives are more useful in achieving objectives than punishments; remember, the Iranians are still at the negotiating table where, slowly or not, progress is being made.

Everybody argues about what the sanctions have or have not done to Iran’s economy, but few seem interested in what they may be doing to America’s economy. That’s where a new report by NIAC, “Losing Billions: The Cost of Iran Sanctions to the U.S. Economy,” comes in. Using an economic model called the “gravity model of trade,” NIAC estimates that between 1995 and 2012 the US economy lost, at a minimum, between $134.7 and $175.3 billion in revenue that it could have earned via bilateral trade with Iran (the figures for several European countries are actually larger, relative to the size of their respective economies).

Using the US Department of Commerce’s calculations for the number of jobs created per additional billion dollars in exports, NIAC estimates that sanctions on Iran have cost the US somewhere between 51,043 and 66,436 job opportunities per year over the same period, on average. Any improvement in Iran’s economy over its real world 1995-2012 performance (which could be expected in the absence of sanctions) would push these estimates higher.

Though NIAC’s overarching point (sanctions on Iran have blown back on the US economy) is sound, there are reasons to be skeptical of their exact figures. The gravity model of trade predicts bilateral trade based on the size of the two economies and the distance between the two nations, just as the actual theory of gravity estimates the attraction between two bodies based on their masses and the distance between them. It also incorporates additional variables like past colonial relationships, contiguous borders between the two nations, and linguistic affinities. The report then compares Iran’s trade volume with other countries to estimate how much trade it would have done with America in the absence of sanctions. But Kimberly Elliott, co-author of one of the academic studies underpinning the gravity model, told Al-Monitor that this method doesn’t include the extent to which any lost trade between the US and Iran has been offset by increased trade between the US and other nations. The Brookings Institution’s Barry Bosworth also noted that the US has been a weak exporter in general for much of the period that NIAC was studying, and so the actual impact of sanctions on the US economy may be less than the theoretical impact.

The estimates also don’t take into account the particular complications in the US-Iran relationship; Washington didn’t suddenly cut diplomatic and economic ties with Tehran in 1995, so assuming, as the study does, more-or-less normal trade relations between the two countries over the period 1995-2012 seems problematic. Even absent formal sanctions, it’s unlikely that American and Iranian trade ties would have been that close.

Complicating factors aside, there is no denying that American sanctions on Iran have had a drag effect on America’s economy. NIAC’s report not only reminds us of that easily-forgotten fact, it also puts the dollar figure of that drag into some kind of a ballpark. Though NIAC makes no explicit claim as to whether or not the sanctions were “worth it” in the sense that trading economic growth for (presumed) leverage over Iran’s nuclear program may (arguably) still have been the right course of action, the negotiators in Vienna ought to take into account the damage done to the US and European economies as a result of these policies, even if China and Russia don’t want them to.

Photo: Port Newark and Port Elizabeth container complex in New Jersey, near Newark International Airport.

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About the Author

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Derek Davison is a Washington-based researcher and writer on international affairs and American politics. He has Master's degrees in Middle East Studies from the University of Chicago, where he specialized in Iranian history and policy, and in Public Policy and Management from Carnegie Mellon University, where he studied American foreign policy and Russian/Cold War history. He previously worked in the Persian Gulf for The RAND Corporation.



One Response to Report: Iran Sanctions Cost US Economy Billions

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  1. avatar Norman says:

    Goodness, one might also conclude that the sanctions were put in place to help weaken the U.S.Economy, another financial blow, thought up by those same neocon experts. If we were to take all the different costs to the American economy, from the costs of the “War on Terror” to the costs of sanctions,l to the costs of the financial bailouts, yes, the financial bailouts too, then just who are the real terrorists that threaten the U.S. ?

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