What Sanctions Will Do to Iran

As tensions rise between the United States and Iran, the Trump administration recently announced tough new sanctions against Iran in response to Iran’s attack on U.S. military bases in Iraq. Iran fired the missiles in retaliation for the American drone strike in Baghdad, Iraq that killed Major General Qasem Soleimani, commander of Iran’s elite Quds Force.

Existing sanctions against Iran are already steep, said Daniel Drezner, professor of international politics at The Fletcher School at Tufts. “A better way to think about it is, what haven’t we sanctioned?” he said. “Iran is one of those examples where from 1979 on, there’s been a panoply of sanctions, both trade-based and finance-based, put in place.”

Tufts Now asked Drezner to explain the strategy behind the current sanctions against Iran, what the sanctions target, and whether they’re likely to be effective.

Tufts Now: How is President Trump using sanctions to wage a pressure campaign against Iran?

Daniel Drezner: What Trump has done is to walk away from the Joint Comprehensive Plan of Action, or JCPOA, and reimpose all the sanctions that were in place prior to the creation of that deal in 2015.

When the sanctions were in place prior to the negotiations of the JCPOA, they were imposed with some degree of multilateral cooperation, first because of UN sanctions, but more importantly because the United States and the European Union agreed to apply pressure on Iran.

What’s different this time around is essentially the Trump administration is doing this unilaterally and pressuring SWIFT, which is the international messaging network that’s essential to engage in dollar transactions, to ensure that no commercial entity does business with the Central Bank of Iran or other various key Iranian financial actors. This essentially leads to sanctions that are more punishing than things we’ve seen before because it’s incredibly difficult now to do business with Iran if you also want the business of the United States, and more important, if you want to do business with U.S. dollars.

With so many sanctions in place against Iran, what other sanctions could be imposed?

Sometimes economic sanctions are imposed on a country, sometimes they’re imposed on a sector, and sometimes they’re imposed on targeted individuals. Trump could potentially use all of these.

The administration could probably expand the scope of who personally is under sanctions, or they could increase travel restrictions. They can try to increase what are called secondary sanctions, which are sanctions against countries that are doing business with Iran. You’ve seen that to some extent in terms of the oil sanctions. Some of these sanctions would be imposed on countries that were importing Iranian oil, like China and Russia.

What effects does the Trump administration hope the sanctions will have on Iran—and how are they different than other sanctions that have been used previously?

How sanctions are used has fluctuated from administration to administration. The George W. Bush administration, for example, sometimes seemed like they used sanctions to bring about regime change, sometimes it seemed they were more concerned about nuclear proliferation.

The Barack Obama administration made a calculation, particularly in the second term, that the purpose of the sanctions was to not bring about regime change, but rather to bring Iranian nuclear programs under international auspices. Essentially what the Trump administration has done is they’ve gone back to the idea that they want sanctions to essentially bring about regime change.

Secretary of State Michael Pompeo said his goal was getting Iran down to zero oil exports. Oil is primarily how Iran obtains hard currency, it’s primarily what fuels their economy. It makes them especially vulnerable to sanctions.

Also, Pompeo gave a speech in which he outlined twelve conditions the Iranian regime would have to adopt in order to lift sanctions. These demands are pretty onerous for the regime and basically amount to the end of the regime. In the end, this isn’t coercive bargaining. This is an effort to cause regime instability and the toppling of a regime.

Iran is suffering a fair amount from sanctions, there’s no denying that.

What are some side effects of U.S. sanctions against Iran?

One of the obvious side effects is that you are starting to see actors like India question their reliance on the U.S. dollar as the engine that fuels global capital markets. The dollar is what is referred to as a global reserve currency.

Most central banks in the world hold significant amounts of dollars, which is considered the currency everyone will accept. Most private sector actors desire to hold dollars as hard currency. The dollar is responsible for more than 50 percent of all global transactions just in general because it is easy. And the reason it’s like this is because there is a strong preference for having a single global reserve currency.

If, however, the European Union, China, India, and Russia decide that the dollar is not worth the trouble and develop another kind of currency so they’re not as dependent on access U.S. capital markets, that would be a significant hit to U.S. financial power.

Angela Nelson can be reached at angela.nelson@tufts.edu.