A Flawed American Sanctions Policy on Iran

by Daniel Brumberg

The Trump Administration’s decision to reimpose sanctions on Iran is animated by a deeply flawed grasp of Iranian politics and an incoherent strategy, one that will not be realized by dreams of regime change in the country. Rather than force Iran’s capitulation in the coming months, the administration will confront a tumultuous regional and global map whose contours will be shaped by three intersecting waiting games: one played by the United States, another by the Islamic Republic, and a third by a group of countries seeking to sustain the 2015 Joint Comprehensive Plan of Action (JCPOA). While these competing moves play out, Iran will continue to try to shape the region’s geostrategic map in ways that will protect its basic interests. The capacity of the United States and its regional friends to affect this map could diminish further as flaws in the American strategy become more evident.

The White House Game

If Secretary of State Mike Pompeo’s recent Foreign Affairs article is any guide, the White House assumes that reimposing sanctions on Iran will produce one or more of the following outcomes: compel it to renegotiate the nuclear deal on US terms; force Tehran and its regional allies to reduce or end their activities in the region; and/or allow sanctions to wreak economic havoc, thus strengthening the will and capacity of the Iranian people to confront the regime and perhaps topple it.

This three-pronged, sanctions-based strategy is rooted in one master idea: that the Islamic Republic’s political system is similar to that of the former Soviet Union, and thus it will fall victim—sooner rather than later—to the same forces that undermined Soviet control. As Pompeo wrote, all the plan needs is a little shove from President Donald Trump, who will do for Iran what former President Ronald Reagan supposedly did for the USSR.

The problem with this analogy is twofold. First, Trump is no Reagan. Beside casting aspersions on the Soviet Union and the policy of détente itself, Reagan engaged Russia’s leaders in a manner that helped to accelerate internal political change. By contrast, Trump rejects the very idea of diplomacy and instead advocates an approach that will in fact undermine the very prospects for political openness that he supposedly wants to encourage.

Second, the Islamic Republic is very different from the USSR in that its system never pivoted around one grand state ideology or one ruling party. Rather, it worked by allowing space for competing political visions and institutions, including those that valorized greater freedom and pluralism. Iran’s reformists do not command the coercive resources that their hard-line rivals in the Islamic Revolutionary Guard Corps and clerical establishment enjoy. Therefore, they tried to push their agenda by competing in elections, advocating change publicly and in the press, and supporting a western engagement policy that they hope will increase their capacity to push for economic and political reforms. In fact, President Hassan Rouhani and his allies in the reformist camp pushed hard for the JCPOA not only to attract foreign investment but also to gradually reopen a political system suffering from hard-line political control and repression.

Pompeo’s article and the statements and speeches by President Trump and National Security Advisor John Bolton clearly show that the White House believes that internal struggles between Iran’s elites are little more than a smokescreen to maintain unity in the face of American power. This is a basic misreading of Iranian politics that has led the administration to abandon an agreement that could have helped to engage Iran on several issues other than the nuclear program. It also has undermined the fragile alliance of reformist and conservative leaders whom President Rouhani had assembled in his bid to pursue political détente both at home and abroad.

Disregarding Iran’s internal political struggles, the administration apparently thinks it can pursue a sanctions-based policy that will compel Tehran to capitulate to US demands. In addition to the 12 demands in Pompeo’s article, the White House said that it will not negotiate until Iran agrees to respect human rights. Coming from an administration that does not have a good record on the issue, it is hardly surprising that all wings of Iran’s political elite view Pompeo’s talk as mere window dressing for a policy of regime change, one that no Iranian leader can accept.

The White House Plays Its Hand

The administration has eagerly begun playing its game by imposing all remaining nuclear-related sanctions that are bound to negatively impact Iran’s oil production of 3.4 million bpd, despite the waivers given to its customers. With a large portion of  the government’s revenue coming from oil sales, inflation at 18 percent, the rial continuing to decline, a 47.5 percent rise in basic goods prices in October alone, and strikes occurring daily, more sanctions will surely cause more pain. Indeed, on October 4, Iranian newspapers simultaneously published an editorial warning that “sanctions have brought about destructive repercussions for the lives of millions of Iranian citizens.” But with both the ruling establishment and the wider populace outraged by the US administration’s repudiation of the nuclear agreement, the idea that such protests will force Tehran to capitulate to the White House’s unilateral demands appears to be a pipe dream.

The United States could obviously threaten Iran will military action. But apart from the likelihood that such a threat would elicit (and indeed already has) defiance, Pompeo himself has emphasized that Americans “have a president” who does “not want another long-term U.S. military engagement” and who is thus “not eager to use” military force.

For the White House, this leaves two possible tasks for sanctions. One task, Pompeo argues, is to force Iran and its regional allies to cease their military actions in Syria, Iraq, Lebanon, Palestine, Yemen, and beyond. However, there is zero evidence to support the administration’s assumption that reducing oil revenue would compel Iran to cease military actions that it deems vital to its security and regional ambitions. The other is to economically starve the regime, such as “those at the top” of the Islamic Revolutionary Guard Corps, and supposedly reveal for the “Iranian people … the grotesque level of self-interest that fuels the regime’s actions” and corruption, and thus strengthen their resolve to oppose their rulers. While Pompeo holds that the White House merely wants Iran’s leaders to “change entrenched habits,” from Tehran’s perspective the ultimate purpose of sanctions is to destroy the Islamic Republic.

Apart from the fact that this is no basis for negotiations, the theory that fostering social protests produces regime change (democratic or otherwise) is questionable. Such an outcome could take months or years—or never happen at all. The White House’s dreams of regime change provide no path to addressing its concerns with Iranian policies. On the contrary, sharing these dreams only reinforces Iran’s determination to show that it has the means, will, and time to expose the futility of Washington’s sanctions-based policy. That many countries, including those of the EU, share this desire is not good news for Washington.

Iran’s and Europe’s Waiting Games

Three elements loom large in Iran’s bid to undermine US sanctions. The first is to unite all key leaders behind one strategy. This requires subordinating factional differences to the shared goal of resistance that hard-liners and Supreme Leader Ali Khamanei have long advocated. President Rouhani has taken a first step by softening his criticisms of hard-line rivals and by echoing their hostile view of the United States. The Trump Administration, he insisted before the United Nations on September 25, is pursuing a policy of “economic terrorism.” Moreover, he argued that the Iranian people would overcome this threat not by confrontation, but rather through diplomatic engagement with like-minded countries. In making this argument, Rouhani was telegraphing Supreme Leader Khamenei’s own clever formula, namely that while “there will be no war” with the United States, neither “will we negotiate.” In short, Khamanei’s approach is to make the Trump Administration irrelevant.

The second element in Iran’s anti-sanctions strategy is to use a mix of methods and tactics to continue selling oil to as many potential buyers as possible. To this end, Iran will probably increase mechanisms it has long employed to great effect, including the clandestine shipping of oil in “unmarked” tankers and the use of overland smuggling. Ultimately, however, Tehran’s strategy will hinge on working with Western European countries to put into place mechanisms that will allow buyers to skirt the sanctions.

The first step was taken in August, when the EU passed a “blocking statute” that requires EU companies not to enforce US secondary sanctions. The Trump Administration has used these sanctions to go after companies that have refused to comply with primary sanctions. While not in place yet, the mere threat of these sanctions has convinced major companies, such a Total, Boeing, and Airbus, that they should pull out of lucrative investment plans in Iran. To dissuade other companies from following suit, the EU has created a “Special Purpose Vehicle” (SPV) that will protect them from being cut off from international dollar transactions by the United States. The SPVs will be especially useful for companies that do not rely on doing business with the United States, but they will not cover the larger firms, such as Total, that are invested in the US market.

The impact of the SPVs and other related measures are yet to be seen. The SPV is not yet operational, and even when it is, it may provide sufficient relief to compensate for the many companies that have decided not to invest in Iran. For Tehran—and for European states as well—this is a waiting game whose outcome is hard to predict.

In the meantime, Iran’s anti-sanctions strategy also relies on a third element, namely adhering to the JCPOA. Knowing that any violation of the agreement could give the EU, Russia, and China cause to support—or at least not undermine—US sanctions, Tehran has reiterated its commitment to the deal. But Iranian leaders have also hinted that their compliance is contingent on sustaining oil sales and preventing further investment back-outs by foreign firms. Tehran thus must strike a difficult balance between playing nice but also threatening to walk away from the agreement. As for the EU, its challenge is to sustain Tehran’s trust while warning of the consequences of Iranian bad behavior, including terrorism. Hard-liners attached to Iran’s Revolutionary Guard or intelligence services have the capacity and motivation to undertake attacks that, apart from doing real harm, could make it difficult if not impossible for the EU to play the waiting game.

Iran Makes Good on the Waiting Game

In the coming months all the key players will pursue a complex waiting game marked by uncertainty and surprise. Tehran should be reassured by the news that the EU is accelerating the SPV plan. For its part, Washington has issued temporary sanctions waivers to eight countries in the apparent hope that giving them some space to make adjustments will deter them from backing the EU’s effort to circumvent sanctions.

Still, this effort cannot compensate for a sanctions policy whose incoherent parts will certainly not produce Iran’s capitulation. Pompeo’s recent statement that Iran “must act like a normal country” will not improve matters because, in point of fact, White House hard-liners assert that Iran is not a “normal country” and thus, by implication, is incapable of real change. Their policy rides on the hope that Iran will follow the path of the Soviet Union by imploding from within—which is only a dream. Thus, Iran will weather the sanctions storm, backed by a political establishment whose internal differences on crucial issues––such as human rights—have now been subordinated to the priority of regime survival.

This will not be good news for the White House’s Middle East friends. They are reeling from Jamal Khashoggi’s murder, a bloody affair that has galvanized global opinion against Saudi Arabia. But the far larger concern for Israel, the United Arab Emirates, Bahrain, Egypt, and Saudi Arabia is that Iran has plied US policy incoherence to its advantage. The Russian-backed Astana process has excluded Washington from regional deliberations about the future of Syria. The October 9 hosting of a “Regional Security Dialogue” that brought China, India, Russia, and Afghanistan to Tehran underscores Iran’s determination to shape a Look East policy designed to leave the United States in the dust. Middle Eastern states that have a high potential for inflicting mischief may not ultimately benefit from a US administration whose president has only a rudimentary grasp of global affairs, and who is focused on a shifting domestic political arena that is largely shielded from the travails of US sanctions policy.

Daniel Brumberg is a non-resident senior fellow at Arab Center Washington DC where this piece originally appeared.