The Cost (To The U.S.) of Iran Sanctions

Flynt and Hillary Mann Leveretts’ blog, The Race For Iran, has had some excellent reflections on the recent Charlie Rose interview with Stuart Levey, Undersecretary of the Treasury for Financial and Terrorism Intelligence. (The full interview can  be viewed here.)

Levey has served as the chief architect of U.S. sanctions policy under both George W. Bush and Barack Obama. The Leveretts blast the U.S. sanctions as “profoundly dysfunctional”, where Levey considers they can work at both formal and informal levels.  While the formal level has proscribed categories of prohibited activities, the “informal level” of sanctions enforcement—deterring banks and businesses from doing business with Iran out of a concern over “reputational risk”– can limit trade in ways that formal sanctions are unable.

Their October 7th blog post concludes:

The interview underscores just how profoundly dysfunctional U.S. sanctions policies are.  We have criticized sanctions as being futile and counterproductive, in that America’s continued resort to multilateral and unilateral sanctions against Iran undermines whatever credibility U.S. offers of “engagement” might otherwise have.  But, the Levey interview makes clear that the damaging effects of sanctions go beyond even this.  Levey says that sanctions are meant to press Iran to engage in serious diplomacy witht the United States and the international community.  But, he has, in effect, created a sanctions policy which will be very difficult for the United States to walk back, even as part of a process of negotiation and prospective rapprochement.  We suspect that this is precisely what Levey intends.  That President-elect Obama moved so rapidly to retain Levey was a sad indicator of how internally contradictory and incoherent the Obama Administration’s Iran policy would turn out to be.

The Leveretts are correct to point out the Obama administration is painting itself in to a potentially difficult corner. Hooman Majd’s Washington Post blog post last week, as discussed here on LobeLog and on The Race For Iran, outlined the cultural and historical reasons why a confrontational sanctions policy is not likely to force Iran to give up its nuclear program.

The Leveretts’ and Majd’s insights into Iranian history and political trends are useful prisms for understanding the relative effectiveness of U.S. sanctions policy. However, it is important to examine the impact  sanctions will have on U.S. trading relationships and bilateral relationships if, as some Iran-hawks have suggested, the United States should demand total conformity to sanctions from large, and notoriously independent, countries such as Russia and China.

As the extent to which sanctions are intended to “bite” or “cripple” the Iranian economy grows, so too do the challenges of holding other countries to the sanctions regime. Last week’s announcement by South Korea–a country which has a historically far closer relationship with the U.S. than China or Russia–that it will find new ways to finance trade with Iran is just another example of  the challenges facing Stuart Levey and the sanctions regime which he is piloting.

Eli Clifton

Eli Clifton reports on money in politics and US foreign policy. He is a co-founder of the Quincy Institute for Responsible Statecraft. Eli previously reported for the American Independent News Network, ThinkProgress, and Inter Press Service.