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Sanctioning Iran Has Reached its Limits as a Policy Tool

Over the past decade, the imposition of comprehensive U.S. and multilateral sanctions remained the core Western policy to deter and contain the multiplicity of threats posed by the Islamic Republic of Iran. When U.N.-backed and widely enforced by U.S. allies during 2012-2015, sanctions brought Iran to the bargaining table and ultimately agreed to abide by strict limitations of those aspects of its civilian nuclear program that could be used to develop a nuclear weapon. In 2018, the Trump Administration withdrew from the multilateral nuclear agreement (Joint Comprehensive Plan of Action, JCPOA), reimposed all U.S. sanctions, and subsequently added sanctions as part of a “maximum pressure” campaign to pressure Iran to change its regional behavior. Companies in the European Union countries, which had re-entered the Iran market when the JCPOA was in full effect, largely pulled out of Iran’s economy as of 2018 to avoid being excluded from the $24 trillion U.S. economy.

The Economic Impacts of U.S. Sanctions

There is no economic sector of Iran’s economy that escapes U.S. sanctions. Iran’s banks are isolated from the global banking system. Foreign companies that conduct transactions with Iran’s ports, agricultural sector, shipping and shipping insurance sector, mining industry, pivotal oil and gas sector, manufacturing entities, and the civilian airline industry are all subject to U.S. penalties and excluded from the U.S. economy. More than 80% of the $100 billion in foreign exchange assets that Iran’s Central Bank holds in accounts outside Iran are under significant restrictions, enabling the accounts only to purchase humanitarian goods from the countries where accounts reside. The economic sanctions reinforce far-reaching sanctions that remain in place for decades on Iran’s defense sector, its nuclear program and missile, chemical, and biological weapons programs, and on Iranian military and intelligence entities involved in supporting regional armed factions such as the Lebanese Hezbollah group. Hundreds of Iranian entities and persons have been sanctioned for human rights abuses, cyber-attacks, foreign election interference, corruption, dissemination of disinformation, and illicit money transfers, preventing sanctioned persons from holding assets outside Iran and from traveling to the United States.

Still, it is clear that the objectives of the sanctions—to fundamentally alter Tehran’s behavior and render the country less able to threaten Western interests—have not been achieved. Iran has been able to alleviate the economic pressures of the sanctions by identifying and engaging with countries and entities that are not deterred by U.S. penalties. As an example, Chinese oil traders continue to import (or resell to other buyers) large volumes of oil—nearly 1 million barrels per day—defying potential penalties from several laws authorizing the U.S. government to sanction companies and persons that purchase or trade Iranian oil. In some cases, the China-based energy entities undertaking the importation of Iranian crude oil do not have any U.S.-based property subject to blockage, and therefore might feel free to continue the activity without concern for potential exclusion from the U.S. market. However, the government of China has not discouraged its energy entities from trading with Iran.

U.S. Sanctions Failed to Deter Behavior

Sanctions have reached their limit to deter Iran or alter its conduct. Further sanctions, or any new designations, would likely impart only a negligible, almost imperceptible, impact on Iran’s economy. The U.S.-led sanctions have undoubtedly strained Iran’s economy, but they have not precipitated its collapse, nor is a collapse imminent. The recent unrest shaking Iran since September is primarily attributable to the regime’s oppressive measures and laws rather than any direct relation to U.S. or other international sanctions. Therefore, addressing the many challenges posed by Iran moving forward will necessitate strategies that transcend the application of additional U.S. or international sanctions.

Even a full return of United Nations sanctions—an option provided for under U.N. Security Council Resolution 2231 and urged by experts and some Western officials—would have no more than a marginal effect on Iran’s economy, or its behavior. A critical mass of EU-based companies is already refusing to do business with Iran, even though the EU is technically still implementing the JCPOA and did not re-impose EU sanctions on Iran. More Western sanctions will not cause any material change in EU corporate policy than is in force already. Companies outside the U.S., EU, and allied countries that are currently doing business with Iran will not likely leave the Iranian market even if there is a U.N. sanctions snapback.

If sanctions have exhausted their capacity to deter and restrain Iran,  the more challenging task becomes identifying an alternative array of strategies that could influence Iranian leadership to reconsider their current path. These changes include: ceasing the growth of Iran’s nuclear program; ending the provision of arms and funds to a diverse range of militant factions; refraining from actions that threaten international shipping in the Persian Gulf or jeopardize the safety of its Gulf neighbors; withdrawing material support for Russia’s war efforts in Ukraine; and suspending the development and testing of advanced ballistic and cruise missiles, as well as armed drones. A consensus exists that the West lacks practical means—through sanctions, military intervention, covert operations, media broadcasting, support for civil society activists, or any other initiative—to instigate a regime change in Iran.

The Potential for Military Measures

There is, by contrast, a range of military options available to U.S. and allied leaders that could blunt the threat from Iran and potentially affect the calculations and actions of Iran’s leadership. Because of the costs and risks involved, U.S. and allied leaders continue to avoid, although not dismiss outright, considering the option of a major ground offensive against Iran along the lines of Operation Iraqi Freedom that removed Saddam Hussein in Iraq or Operation Enduring Freedom that ousted the Taliban from power in Kabul in 2001. On the other end of the spectrum, a wide range of experts assess that the small-scale U.S. retaliatory attacks on Iranian and Iran-backed groups that have been taken periodically—generally in response to Iranian or Iran-backed militias actions in Iraq and in Syria that resulted in U.S. casualties—are insufficient to deter Iran or change Iran’s behavior. The Trump Administration’s January 2020 targeted killing of the Islamic Revolutionary Guard Corps – Qods Force (IRGC-QF) commander Qasem Soleimani shocked Iran’s leadership but did not result in any measurable changes in Iranian policy.

Should policymakers decide to place pressure on Iran militarily, there are many options available to a military as large, advanced, and capable as that of the United States. But policymakers would undoubtedly try to balance the anticipated effects on Iranian behavior against the costs and risks of any action, including the potential for conflict with Iran to escalate into a broad regional war. The options that policymakers might consider, for example, include retaliatory attacks on IRGC Navy forces that conduct “dangerous and harassing approaches” of U.S. naval vessels in the Persian Gulf. U.S. forces in the Gulf could be directed to destroy Iran’s coastal defense missile installations, Persian Gulf ports operated by the IRGC Navy, or Iran-based IRGC forces involved in weapons shipments to Iran-backed factions in the region. U.S. and coalition forces do interdict Iranian shipments to Houthi fighters in Yemen, when discovered, but such shipments have been diverted, to date, not attacked militarily.

The possibility of escalating to a strategic strike on Iranian missile or armed drone bases or manufacturing plants, nuclear installations, combat aircraft, or other conventional forces—on Iranian territory—is always part of any U.S. and allied discussions of military options against the Islamic Republic. If policymakers are willing to escalate as necessary, military action might bring about desired changes in Iranian behavior, although the regional risks will increase in direct proportion to the degree of U.S or allied escalation. Whether policymakers are actively considering significant military action is an open question, but the growing realization that sanctions have been exhausted is inevitably producing more open discussion of that option.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.

Issue: U.S. – Gulf Policy
Country: Iran

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Dr. Kenneth Katzman is a Senior Fellow at The Soufan Center, a Senior Non-Resident Fellow at Gulf International Forum, and Senior Research Adviser at Global Insights Group. His work focuses on geopolitical and regional dynamics in the Middle East—with a focus on Iran—as well as United States strategy. In late 2022, Dr. Katzman retired from his longtime position as a Senior Analyst with the Congressional Research Service (CRS), an arm of the U.S. Congress that provides analysis and advice to members of the U.S. Congress in their legislative and oversight responsibilities. In that post, Dr. Katzman served as a senior Middle East analyst, with special emphasis on Iran, Iran-backed groups operating in the Middle East and South Asia, the Persian Gulf states, Iraq, and Afghanistan. During his more than 30-year tenure at CRS, he provided reports and briefings to Members of Congress and their staffs on U.S. policy on these countries and issues, and provided analysis of related legislative proposals.


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