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This is how sanctions are impacting Iran

Hassan Rouhani

When dealing with Iran, the “resiliency of the regime should never be underestimated,” Geneive Abdo, resident scholar at the Arabia Foundation, said at an event on U.S.-Iranian relations organized by the Center for the National Interest on October 2, 2018. Despite speculation in Washington that the Trump administration seeks regime change in Iran, Abdo reminded those gathered that the high costs of such a policy made it one of many other options “that will never be realized.” This, she says, has pushed the Trump administration to try to coerce Iran towards more desirable policy decisions via sanctions. This effort has had inconclusive results at best. Along with Abdo, the discussion included Patrick Clawson, the Morningstar Senior Fellow and director of research at the Washington Institute for Near East Policy; and Barbara Slavin, head of the Future of Iran Initiative at the Atlantic Council. The event was moderated by Gil Barndollar, the director of Middle East Studies at the Center for the National Interest.

 

The panel concurred that in recent years, Iran has engaged in a variety of policies that have angered the United States and its regional allies, particularly the Gulf States and Israel. From Lebanon, Syria, and Yemen to Iraq, Iran’s Revolutionary Guard Corps (IRGC) has been training, funding, and arming militants, and regularly acting in opposition to U.S. policy objectives. Iran has been generally opportunistic in its pursuit of greater influence in the Middle East, contended Barbara Slavin. She identified multiple occasions when Iran has worked to exploit power vacuums in its neighborhood, including after the U.S. invasion of Iraq in 2003, Bahrain’s 2011 Shia uprising, and Saudi Arabia’s 2015 intervention in the Yemeni civil war. However, unlike Iran’s participation in the Syrian Civil War, it is noteworthy that Iran has had a lighter footprint in these other cases, providing Tehran with a degree of political deniability while also not overextending its beleaguered economy.

 

Yet, despite this, Abdo noted that her recent trip to Iraq left her “astonished” at how pervasive Iranian influence has become in deliberations over forming a new government in Baghdad. This has been seen as a failure of U.S. policy in Iraq and is indicative of a broader growth in Iranian influence over the Middle East, leading the Trump administration to try to reverse this trend. However, Abdo observed that the risks of directly confronting Iran remain exceedingly high. Thus, U.S. policymakers are seeking to address perceived Iranian transgressions through means other than military force.

 

According to Abdo, if the Trump administration’s goal is to weaken the Iranian economy and, therefore, weaken the regime, then “the sanctions are working.” Prior to the reimposition of international sanctions this year, the International Monetary Fund and the World Bank had projected that the Iranian economy was on track to grow by over 4 percent this year and next. However, as of October, major international companies with “high-profile contracts” have withdrawn from Iran and oil exports have fallen, leading the Iranian rial to plummet in relation to the dollar. Analysts now expect the Iranian economy to expand by just 3.1 percent this year and a mere 0.9 percent next year.

 

Moreover, despite the murkiness of U.S. strategy towards Iran, Slavin largely agreed with Abdo’s assessment that sanctions have had a “devastating” effect on the Iranian economy. Yet Slavin also asserted that the effect of sanctions on Iran’s regional foreign policy will be far less pronounced since Iran can support its proxies “on the cheap.” Even if the Trump administration is correct that Iran spends $750 million annually propping up its largest proxy, Lebanese Hezbollah, much of this funding comes from illicit activities such as drug trafficking and remittances from the Shia diaspora. Considered in tandem with Iran’s large hard currency reserves, she said sanctions are unlikely to constrain the IRGC too tightly or have their desired effect on coercing Iran to change its destabilizing regional behavior.

 

On the economy, Patrick Clawson remarked that he “happens to agree with the Supreme Leader [Ayatollah Khamenei] . . . [that] the basic problems facing Iran’s economy are internal, and not due to sanctions.” Clawson noted that President Hassan Rouhani’s ostensibly technocratic administration has failed to achieve the promise of economic growth that helped propel him to victory in Iran’s 2013 election. He said this failure, in addition to measures taken by the Iranian government to hide rampant corruption and create perceptions of financial stability, erodes the Iranian people’s confidence in both Rouhani’s administration and the country’s economic stability. For example, Clawson noted that it took four years for the Rouhani government to finally acknowledge that government debt is 50 percent of GDP versus the 20 percent figure the government has long claimed.

 

According to Clawson, the Iranian economy is now performing so poorly that financial analysts predict that it will soon enter a recession which will last into the foreseeable future. Furthermore, he observed that the Trump administration is set to claim credit for a declining economic situation in Iran “that would have happened anyway.” This puts Iran in a precarious situation with no easy remedy, the panel cautioned.

 

Despite its economic problems, the panel was skeptical that internal challenges could topple the regime. Slavin asserted that popular discontent may be rising within Iran, but Iranians do not want to see the chaos that has gripped Iraq and Syria replicate itself within their borders. Likewise, Abdo warned that the Iranian people do not have a good chance of success even if they decide to revolt against a historically unpopular regime. “The genius of Iran,” she offered, “is how the whole system is structured—it’s almost indestructible—for example, it’s almost impossible to remove the Supreme Leader from power,” and the Basij popular forces and IRGC are “hugely powerful” within the country.

 

Slavin agreed that despite the Iranian government being very unpopular, the chances of internal revolt are low, given that between 12–25 percent of the Iranian population is reliant on the regime or part of its security establishment for employment. Moreover, it is Iran’s “theocratic overlay” that makes it difficult for the elected institutions to function, effectively making them beholden to the security establishment and Iran’s octogenarian Supreme Leader. Both Clawson and Slavin agreed that the Supreme Leader’s death will be the next turning point for Iranian society, but they do not foresee a positive outcome.

 

Years of sanctions and pressure from the United States and more recent attacks by terrorist groups in Iran have raised support for the security establishment at the expense of Iranian reformists. As the panel noted, this is evidenced by the growing domestic popularity of IRGC Commander Qasem Soleimani. Furthermore, Khamenei has used his authority to balance the growing rivalry between the Rouhani government and the IRGC. There is no one set to take on that role when he disappears from the scene.

 

Clawson observed that the IRGC’s regional successes are being juxtaposed in Iranian media with the Rouhani administration’s domestic economic and political failings. He reasons that the Supreme Leader’s death will lead to regime change but that it will result in a regime where the IRGC is more powerful than ever. “We have altered the trajectory of Iran,” asserted Slavin, “but not in a good way.”

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