Economic sanctions or the threat of economic sanctions are one of the main foreign policy tools of the West, especially the U.S. This tool is used to put pressure on other countries even more often than weapons or the threat of using weapons.
Iran as a Target of Economic Sanctions
A classic target of sanctions is Iran. Since 1979, when the shah was overthrown in Tehran, the U.S. has constantly kept Iran in the sights of its economic sanctions. Bans were imposed on the import of Iranian oil, the export of a wide assortment of goods ranging from high-tech equipment to medications, and payments and other transactions with Iranian banks, and Iran's currency reserves were frozen as well. At the end of last year Iran's frozen currency reserves in foreign banks were estimated at $100 billion.
This was a severe hardship for Iran, especially after Washington forced the European Union to stop importing Iranian oil. From the middle of 2012 to the beginning of 2014 the daily export of «black gold» from Iran went down from 2 million barrels to 1 million. Recently introduced new sanctions have weakened other sectors of the economy as well, including Iran's once very successful automotive industry. It was traditionally in second place after the petroleum industry; in 2011 it produced almost 10% of the GDP, and almost 1 million people were working in automobile manufacturing. In 2011 1,500,000 new automobiles were manufactured in Iran; today production has fallen to 800,000. Today the industry is on the brink of collapse because in 2011 imports of automobile manufacturing equipment and some parts were banned.
Civil aviation is in decline. Since 1979 Iran has been cut off from the market of new Western airplanes and parts. Iran's national airline maintains its fleet of aircraft by using improvised parts and purchasing outdated Soviet planes from some CIS countries. It goes without saying that there is a severe shortage of certain consumer goods, medical equipment, medications and some food products in the country.
The Geneva Talks and Economic Sanctions against Iran
After the change of presidents in Iran, talks began in Geneva regarding Tehran's nuclear program, which the West names as the main reason for economic sanctions. On November 24, 2013 an agreement between Iran and six international mediators (the five permanent members of the UN Security Council plus Germany) was signed. The essence of the agreement is that Iran is to stop enriching uranium to levels over 5%, while the West is to partially lift sanctions and, most importantly, unfreeze $4.4 billion deposited in foreign banks. Furthermore, it is to allow the import of some goods to Iran. The P5+1 also promised not to introduce new UN, EU or U.S. sanctions. The Geneva resolution has already brought results. In early February 2014 Iran received a $500 million installment of its assets which had been frozen by Western banks.
The P5+1's decision made November 24 of last year has evoked great interest from business circles in a number of countries. Delegations from Great Britain, France, Italy, Austria, Georgia, Kazakhstan, Turkey and many other countries are being drawn to Iran. Up until now Iran has had a very limited number of business partners: China, Russia and India. Now entrepreneurs from other countries have decided that they need to act quickly to cash in on the Iranian «Klondike». Iran has about 80 million consumers and an economy with a gross domestic product of around $500 billion dollars, the third largest in the region after Turkey and Saudi Arabia.
The Easing of Sanctions is a Reversible Process
However, things are not that simple. First, this is only a partial lifting of sanctions. Less than 4% of Iran's currency reserves are to be unblocked. The ban on oil exports remains in place for now. The list of goods which are allowed to be imported into Iran is very limited. Second, U.S. President Obama has repeated many times that the decisions made with regard to Iran are «reversible» in nature. Put simply, at any moment the West can return to its original position on sanctions if it thinks that Iran is not complying with the Geneva agreements.
In both the Congress and the administration of the U.S., proponents of maintaining high pressure on Tehran hold strong positions. Testimony on the topic of regulating the Iranian nuclear problem made by Under Secretary of the Treasury David Cohen at hearings of the U.S. Senate Committee on Foreign Relations is worth taking note of. Cohen is responsible for issues related to fighting financial support for terrorism and financial intelligence. He stated that, despite the fact that the P5+1 had reached a preliminary agreement with Tehran, «the core architecture of U.S. sanctions remains firmly in place». «We are continuing to implement and enforce our oil sanctions, which have driven down Iran's oil exports by more than 60% over the last two years…our financial sanctions, which require the payment for oil imported from Iran by the six current customers to be paid into accounts that can be used only to facilitate humanitarian transactions or bilateral trade between the importing country and Iran…our banking sanctions, which… have largely cut-off the Iranian banking sector from the international financial system… [and] our sanctions on…significant investment in Iran's energy sector and on the sale of significant goods or services that could be used in Iran's energy sector», stated Cohen. The U.S. Under Secretary of the Treasury continued: «To ensure the force and scope of our sanctions, we are continuing our long-standing efforts to work with our international counterparts in the application and enforcement of our sanctions… over the last six weeks, I have traveled to the UK, Germany, Italy, Austria, Turkey and the United Arab Emirates carrying the same message: Iran is not open for business.» According to Cohen, Washington is «poised to deploy our tools against anyone, anywhere, who violates our sanctions». This statement brought hearty approval from the upper house of Congress. There a bill is being drafted which would call for the full restoration of the economic sanctions against Tehran. U.S. Under Secretary of State Wendy Sherman has stated that the current easing of sanctions against Iran is «limited, temporary, and reversible». At a meeting with French Foreign Minister Laurent Fabius in January 2014, U.S. Secretary of State John Kerry, in speaking of the visit of a French trade delegation to Iran to explore the possibility of signing contracts and making investments in the Iran’s economy, warned that such activities on the part of European business are premature.
Economic Sanctions and Iranian-Russian Economic Relations
The instability of the situation surrounding Iran can be sensed both in the country itself and in the countries which are its traditional trade and economic partners. Nevertheless, barter deals are being made at full throttle, and trade is being conducted using gold and the national currencies of partner countries for payment. Up until recently Turkey was trading with Iran using gold (it is unknown whether it is still doing this, as Washington has imposed a ban on payments in gold). China pays for Iranian oil in yuans, and India in rupees.
At the very beginning of 2014 a report appeared in the media that an agreement had been reached between Tehran and Moscow on a large barter deal. Russia would receive 500 million barrels of oil per day from Iran, and in return it would supply various capital and consumer goods. Sources do not reveal the details of this agreement. In particular, it is not fully clear whether this plan would be used after all limitations on the export of Iranian oil are lifted, or whether it will be used even if the limitations are still in place. Russia itself is one of the largest exporters of black gold; therefore, the point of this plan is that Russia is prepared to act as a trade intermediary, re-exporting the Iranian oil and buying the goods needed by Tehran on the money it receives.
This information was highly disturbing for Washington. Under Secretary of State for Political Affairs Wendy Sherman said during hearings in the upper house of the U.S. Congress with regard to the potential Russian-Iranian agreement, «We are very crystal clear that anything like such an agreement between Russia and Iran might have potential sanctionable action and would likely create tremendous risk…which would make coming to a comprehensive agreement all the more difficult if not impossible,» meaning the negotiations on Iran's nuclear program. There have been a number of calls in the American press for the U.S. government to return to its original economic sanctions against Iran if such a plan for trade and economic cooperation between Russia and Iran were to be launched, as well as imposing sanctions against Russia. It must be said that Washington has already threatened Russia with economic sanctions on a number of occasions, for example, during the military standoff between Russia and Georgia in August 2008. They made threats last year as well in connection with Russia's support for Syria. Not once, however, have the threats been realized. The economic and political costs of imposing sanctions against Russia are too high for Washington.
But Iran will most likely have to continue using «gray» trade schemes, for the easing of sanctions is «limited, temporary and reversible». In Washington's eyes Iran's nuclear program is in a sense only a pretext to use the negotiating table to bring Tehran back into the orbit of its economic and political influence, including forcing Iran back into the petrodollar system. Paradoxically, all of Washington's sanctions against Iran have only succeeded in freeing this enormous oil-producing country from the snare of the petrodollar standard which appeared forty years ago. And today Iran is more likely to agree to shut down its nuclear program than to once again submit to the petrodollar dictates of Washington…
