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    Middle East
     Oct 7, 2010


IRAN VERSUS SANCTIONS, Part 3
Time for US to get real
By Hossein Askari

This article concludes a three-part report.
Part 1: A history of failure
Part 2: US shuns the obvious

In the last part of this three part series, we tackle the all-important question: should the US and the United Nations continue with sanctions on Iran, possibly modified and strengthened, or change course?

At the outset, we should recap a few points. First, there are sanctions and associated policies that would, with very high probability in my opinion, destabilize the Iranian economy in quick order and put widespread pressure on the regime to change its ways or be overthrown - from the wealthy bazaar merchants, from the rich, from those who have saved a little for a rainy day, and

 

the average person who relies on government subsidies to survive.
As important, this would bare the regime's economic failures as never before, its total incompetence and the dismal future in store for generations of Iranians to come.

Briefly and as discussed in Part 2, the sanctions that can pressure the regime in Tehran are financial. Financial sanctions today are more precise than blanket embargoes on trade. Financial sanctions can pinpoint activities that the US wants cut off, such as various imports; that is, they can make the cost of trade prohibitive (with no bank willing to issue letters of credit) and pressure the mullahs into submission.

Most importantly, additional financial sanctions that require no UN support (just US political will to fine banks that cooperate with the mullahs) can raise the cost of trade further (sanctioning the Iranian central bank) and cause a financial panic (initiating a run on the Iranian currency, the rial).

An important reason for the predicted success of financial success on Iran is the fact that the regime and its supporters are corrupt. Money is all that matters to them; they want political power to accumulate wealth, wealth is their ultimate target. In today's Iran there is no politics, there is only political economy.

While the success of thoughtful and comprehensive financial measures is highly probable, the US has taken a more timid approach. One step at a time. Appealing to other countries and the UN. And professing the protection of average Iranians from additional hardship. Is the US position believable? Is the US serious? And what is the best course of action for the US and in the longer-term interest of the majority of Iranians?

One step at a time
As with anything in life, there is a threshold level of pressure before change can be achieved. So it is with sanctions. There has to be a sufficient level of pressure to force a target to change its policies. In the case of sanctions on Iran, the US has never adopted a comprehensive approach. It is all ad hoc, a little of this now and later a little of that. Although today there is more pressure than ever before, it is still not at that threshold level, causing some pain but less than likely to succeed. Pain with no little likelihood of success should never be the approach.

Let me give some examples. Why just freeze the foreign accounts of a few prominent Iranians such as senior members of the Islamic Revolutionary Guards Corp (IRGC)? As mentioned before, their foreign banks accounts are unlikely to be under their real name. So why not freeze foreign bank accounts of all Iranian residents that are in excess of a certain amount, say exceeding US$1 million or any other reasonable number.

Most Iranian residents (probably over 99%) don't have foreign bank accounts, and a majority of those that have sizeable foreign bank accounts are members of the regime or support it for financial gain. Yes, a few who are independently rich and that have nothing to do with the regime may unfortunately get caught in the net, but they are not average Iranians by any stretch of the imagination. This may be the price of exacting change. In their cases, they can be allowed to appeal and if their appeal is supported there accounts can be quickly unfrozen.

Why hasn't the US sanctioned the central bank of Iran? Well, there are two empty excuses that are often provided. It may violate the International Monetary Fund's Articles of Agreement. But that's never bothered the US before; just recall the unilateral abrogation of dollar conversion on August 15, 1971, that destroyed the Bretton Woods exchange-rate system; also the central bank of Iraq under Saddam was sanctioned.

The other reason given is that the US needs the support of other central banks to do so. Again, the US has and continues to use threats when it really wants to do something; if another central bank violates US sanction on the central bank of Iran the US can threaten not to transact with them.

These are doable. They would tighten sanctions many, many notches. But the US continues with a little here and a little there, prolonging the insufficient pressure and getting nowhere.

UN support
The UN, China and Russia are the most convenient crutches used by the US. The US bestows various benefits on China and Russia to get their support at the UN Security Council for watered-down sanctions that are at best symbolic. Instead, if the US were serious, it would use its threat of banning countries and their companies from access to the US market and imposing large fines as it has done with less than a handful of companies for breaking US sanctions. This has become a powerful weapon to enforce sanctions.

Getting China and Russia aboard and going to the United Nations takes time, costs the US something, and the results in the end are not worth very much.

Hardship on average Iranians
The US has expressed concern about the adverse effect of sanctions on average Iranians. There are a number of problems with the US position and its credibility.

For many Iranians, especially those that suffered in the Iran-Iraq War, the US claim of overriding concern for average Iranians is not credible. The reason why Iranians by and large support the regime's nuclear enrichment program is the vivid memory of the Iran-Iraq war. The UN said little and even did less when Iran was invaded. The US and other Western powers supported Saddam and Iraq, even when Saddam used banned chemical weapons on Iranians. The regime defended Iran. Iran survived as a nation. As a result the rule of the mullahs took hold.

After this experience, Iranians do not believe in the UN and the rule of international law. Nuclear Enrichment is an insurance policy against external aggression. The regime in Tehran will not give up enrichment. It is just about the only policy that the majority of Iranians support. So the only way Iran's enrichment program may be terminated is if there is regime change and Iran receives almost ironclad guarantees that it will not be left defenseless to be butchered by outsiders ever again.

As important is the fact that the most effective sanction strategy would principally hurt regime insiders and its wealthy collaborators. To the extent that average Iranians are affected, the regime would do all it could to reduce suffering for its own survival (more on this below).

Moreover, for average Iranians the question is whether they prefer many more years of economic and social deprivation under this regime or a change for a better future, even if it means a little more short-run sacrifice. If the US truly pursues sanctions with no pain except to a few regime insiders then it is either naive or does not appreciate the workings of most sanctions.

Sanctions are not precise instruments. Invariably, average Iranians will be somewhat affected, be it directly or indirectly. If by this class of sanctions the US means freezing the accounts of senior IRGC members, then its claim that it wants to avoid adverse effects on average Iranians may be true but so is the fact that such sanctions achieve absolutely nothing. It is at best US grandstanding.

What next? We must stress an important fact. It is difficult to believe that the principal US goal is to reach an agreement on nuclear enrichment with the regime in Tehran. First, any agreement with the Tehran regime, be it with the Supreme Leader or with President Mahmud Ahmadinejad or both, will not be worth the paper it is written on. No reasonable person can believe that this regime will honor such an agreement. So, it makes little sense to strive for such a piece of paper.

Moreover, if Iranians believe this to be the US goal, then they have no reason to pressure the regime to change its policies and one of the major venues for affecting change is lost. Iranians want economic prosperity, opportunities for a better future, human rights, freedom to express their views, free press and free elections. An agreement to end nuclear enrichment does little to support these aspirations.

The only goal that makes sense is to affect regime change. Not with force or with outside interference, but at the hands of the people of Iran. To this end, the US should adopt a realistic approach to support the Iranian people.

First, the US should reduce its rhetoric about stopping Iran's enrichment program and support the aspirations of the Iranian people. The US should stress the failures of the regime to achieve economic prosperity and human rights. The regime has failed the people of Iran, not only the present generation but also future generations to come. That is why the young educated class is leaving in droves. Iran's economic failures are self-inflicted and are a result of mismanagement and corruption. Iran has fallen behind its neighbors and other countries around the world. There is no glimmer of hope as long as this regime stays in power. This should be the drumbeat of the US.

Second, the US should stress that in the past errors were made in relations with Iran, in the overthrow of Mohammad Mossadeq and in supporting Saddam during a senseless war that should have been ended immediately by the UN. Today is a new day. The US pledges that such errors will not be repeated. At the same time, the regime in Tehran has not served Iran well. Iranians should determine their own future. But the US will not collaborate and reconcile with a regime that does not honor basic human rights, defies the will of its people and threatens its neighbors.

Third, in the quest to enable Iranians to choose their own leaders, the US will do what it can to force the regime to honor the will of its people, to allow free and open elections. Surely this quest was at the foundation of the Iranian Revolution but has been buried by the current regime in Tehran.

To these ends, the US should adopt a comprehensive set of measures to force the regime in Tehran to honor the will of its people. These measures would be calibrated to achieve a certain threshold of pressure on the regime:
  • The US should freeze all foreign bank accounts with a balance of over $1 million that are owned by residents of Iran; Iranians, not only those belonging to key regime figures, but also those belonging to rich merchant class. This would threaten the financial interests of all who benefit from the regime, not those of average Iranians. Targeting a few bank accounts does nothing because most of the individuals targeted by the US have accounts under false names or in their partners' names.
  • The US should further tighten Iran's isolation from the international financial system by sanctioning every Iranian financial institution, including the central bank of Iran. Again, any financial institution that does not cooperate would face US fines and exclusion from the US market. Cutting off the central bank and all Iranian financial institutions would basically increase the cost of Iranian imports because Iran could not use letters of credit but would have to rely on barter or cash to buy what it needs. Either regime insiders would be forced to forego their own economic interests or finance basic necessities to keep prices from soaring and resulting in a popular uprising.
  • The US could spark a financial panic by motivating Iranians, as well as expatriates residing in the US and worldwide, to liquidate their assets in Iran and to convert them into foreign currency (dollars, euros, pounds, Swiss francs and yens) and take their money out of Iran. The wealthy would rush to liquidate their assets in Iran and to take their money out, fearing a collapse in asset prices and in the value of the Iranian currency, the rial. The regime would have no choice but to block the outflow of funds from Iran; the black market exchange rate would jump; import prices and eventually inflation would soar. A week ago, a minor panic devalued the Iranian currency by 20%. These US actions should cause a collapse of the rial.


    These measures - the financial sanctions and initiatives to spark a financial panic in Iran - should be adopted simultaneously so as to have the maximum effect; adopting them one by one would not inflict the needed level of pain on the regime and its supporters.

    This is about the only viable approach for the US. The ongoing sanction strategy and the singular goal of reaching an agreement with the Tehran regime to end nuclear enrichment is not a policy that will bear fruit. If the US cannot adopt a new approach, for instance the one elaborated here, then it may be better to do nothing at all.

    Hossein Askari is professor of international business and international affairs at George Washington University.

    (Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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    (24 hours to 11:59pm ET, Oct 5, 2010)

     
     



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