Tupolevs, Sanctions, and Their Victims

On Tuesday July 14, the Massachusetts legislature’s Joint Committee on Public Service discussed a bill that would require state owned retirement funds to be disinvested from stocks of companies doing business with Iran, in particular its petroleum sector. The next day, July 15, a Caspian Air (Russian made) Tupolev crashed near Ghazvin in Northwestern Iran killing all 168 on board. The two events being one day apart, one cannot fail to ponder the deadly consequences of sanctions for the Iranian people. This is not all. The Nabucco contract to transport Central Asian gas to Europe was signed by four European countries and Turkey without Iran’s participation. Thus, the country with the second largest gas reserves in the world was excluded from a very important deal.

The ramifications of sanctions go even further. Mr. Ahmadinejad made a big fuss over the murder of an Egyptian woman in Germany. Yet he did not dare to say a word about the Chinese massacre of more than a hundred Moslems. Similarly, the Iranian government, much like one of the satellites of the former Soviet Union, has not dared to criticize Russia for its atrocities in Chechnya. Apparently, the life of an Egyptian woman is far more valuable than the life of hundred Chinese and Chechens. Mr. Rafsanjani made a feeble gesture by offering the Chinese “brotherly advice” to treat Moslems somewhat better. But Turkey is not under sanctions, and Prime Minister Recep Tayyip Erdogan stood up to the Chinese and condemned them for their crimes.

Currently, further sanctions against Iran are being considered, and it is probable that Secretary of State Hillary Clinton will discuss with the Indian government a gasoline embargo against Iran.

In discussing economic sanctions, we need to distinguish three categories. First, there are the people of a sanctioned country who ultimately pay a heavy price. Iranians, Cubans, and North Koreans have paid the price with their lives, property, and self respect. Second are the governments under sanctions, which usually are nondemocratic and oppressive. These governments justify their behavior with reference to a (real or imagined) foreign threat. Such governments welcome economic sanctions. Third are the governments who impose sanctions, despite the fact that history shows that economic sanctions are ineffective in changing the political behavior of the sanctioned country. 

To discuss the detrimental consequences of sanctions on the people of sanctioned countries is to belabor the obvious. Iranians have felt the effects of sanctions in their daily lives, although only a part of Iran’s economic woes is due to sanctions.    

As a result of bad economic policies and imposed economic sanctions, the Iranian economy, which could have been flourishing, is in a miserable state suffering from a 25% inflation and 12% unemployment rate. Considering its human capital, its natural resources, and its strategic position, Iran could have been another Japan. Instead, Iranian leaders are hoping to emulate Malaysia. One might fear that in the near future Iranian politicians may look longingly toward the economic success of Pakistan and Afghanistan.

Despite the suffering of their people, governments of sanctioned countries benefit from international confrontation. Such governments declare that a foreign enemy is poised to strike at the independence and territorial integrity of the country. Therefore, personal freedoms have to be restricted and criticism of the government is tantamount to treason. Governments such as those in Iran, Cuba, Burma, and North Korea welcome economic sanctions and tensions with the world. Recently, President Obama lifted two restrictions on travelling and sending remittances to Cuba. He was expecting Cuba to reciprocate and free its political prisoners. Fidel Castro put an end to Mr. Obama’s expectation of “goodwill begets goodwill.” Castro added that Americans had misunderstood Raoul’s offer of negotiation on all outstanding issues between the US and Cuba.

A review of the past thirty years of Iranian history shows that the Islamic Republic has used crises and tensions with the West to solidify its grip on power. The hostage crisis of 1979-80 led to the invasion of Iran by Iraq. The result was close to a million casualties, thousands of homeless refugees, and enormous economic losses. Yet in the midst of the misery of war, the Islamic government vanquished its domestic enemies and challengers and established its control over the country. When the war was coming to an end, Mr. Khomeini issued Salman Rushdie’s death fatwa. Thus, another round of economic sanctions will worsen the economic conditions of Iranians but would be a boon to the Islamic Republic.

One might ask why the United States, the UN Security Council, and other countries impose economic sanctions if they are so ineffective. Before answering this question, we should point out that the sanctioning countries also incur economic losses. Companies of the sanctioning country lose their investment and trade opportunities to their Chinese and Russian rivals. The disinvestment bills under consideration in the Massachusetts legislature would hurt American companies, the Commonwealth of Massachusetts, and its retirement funds.

The reason some countries and the UN Security Council resort to economic sanctions is that they are confronted with countries that engage in dangerous behavior or conduct that violates international norms. In the case of Iran, the world cannot accept the murder of those who were peacefully protesting against the outcome of recent elections. Nor can the world remain indifferent to the violation of human rights and the dictatorial behavior of Mr. Khamenei. Similarly, the United States and Europe cannot remain indifferent to Iran’s nuclear program and its overt threatening of Israel. To remain silent would be morally and politically unacceptable. Yet military intervention has its own costs and political consequences. Economic sanctions, even if ineffective, can be adopted as a middle of the road option. Imposing economic sanctions gives the impression that something is being done. 

Some have suggested targeted sanctions. For instance, it is argued that if the West could deprive Iran’s oil industry of new investment and technology, it would cut into government revenue. Thus, it will have fewer resources to devote to the nuclear programs or to fund terrorism in the Middle East. First, such actions would be effective if they enjoy comprehensive international support. Since 1996, the US has prohibited investment that amounts to more than $20 million in Iran’s oil industry. Yet Iran has maintained its oil production around 4 million barrels per day. Even if such sanctions succeed in crippling the oil industry, they would not change the political behavior of the Islamic Republic. Cuba and North Korea do not have Iran’s financial resources. North Koreans are suffering from hunger and poverty, yet that country’s nuclear program and the luxurious life Kim Jung-Il continues.

Granted that the military option is still on the table, what else can be done? It seems that the following measures would be more effective in getting the Iranian government’s attention, if not changing its behavior.

1. Financial sanctions and the restriction of banking transactions by Iranian banks and companies. The United States is already imposing such sanctions. They have a more immediate impact and are less likely to affect ordinary people.

2. Restrictions on the officials of the Iranian government’s travel to Europe and the United States. Such restrictions could include the immediate members of their families.

3. Freezing the assets of Iran’s power elite outside Iran. Over the past thirty years many in positions of power have amassed huge wealth through sweet deals, corruption, and outright theft of government revenue. This is not based on some confidential report or the declarations of government foes. Rather it was President Ahmadinejad who made such accusations on the Iranian television. The government elites keep their ill-gotten wealth in Canada, Australia, the United Arab Emirates, and Switzerland in the form securities, bank accounts, and real estate property. Sometimes the loot is registered under the name of their children. Freezing or seizing such assets would be quite effective.

4. Identification and seizure of properties and companies directly or indirectly owned or controlled by Iran’s Islamic Revolutionary Guards Corps.

For the Iranian people, removing sanctions and integrating Iran into the world economy is the beginning of a better life. For the Iranian government, tension with the world and a crisis environment are a means of survival. Vis-à-vis Iran the United States and the West have two options. Either they have to accept the Iranian government as is, which implies living with its nuclear program and its support for terrorism; or to use military force. Negotiations and economic sanctions would not solve the Iran problem.