Sanctions on Iran: Bark or bite?

The current effort by the regime to save money by cutting subsidies might in fact expose a domestic Achilles heel.

By YOEL GUZANSKY, JONATHAN SCHACHTER
Iran nuclear talks (photo credit: Associated Press)
Iran nuclear talks
(photo credit: Associated Press)
US Secretary of Defense Robert Gates recently said that the sanctions imposed on Iran “are biting more deeply” than the Iranian regime anticipated. So far, they have forced Iran to examine the costs and benefits of its behavior, but have not led to any greater flexibility in its position on nuclear development.
Some argue that the sanctions have even led Iran to harden its stance.
Recent domestic developments, however, suggest that the sanctions’ bite is growing stronger.
Though it is difficult to determine by exactly how much, the sanctions have taken a toll on government revenue. As a result, the regime has announced plans to reduce the subsidies it provides the population, which cost the treasury up to $100 billion per year (25% of GDP).
These cuts and the public’s response to them have the potential to pose a considerable challenge to the status of the regime, and even to its stability.
The anticipated result is a significant rise in the prices of cooking gas, electricity, water, foodstuffs and transportation.
Especially important is the expected rise in gas prices. While gasoline will remain very cheap relative to the rest of the world, previous efforts to reduce government subsidies (through rationing) resulted in public resentment, demonstrations and the burning of gas stations.
In the current political environment, it is likely that the opposition will exploit these economic “reforms” to gain support – a possibility for which the regime is preparing. Among other things, the regime in recent weeks deposited funds into the bank accounts of approximately 70 million Iranians as preemptive compensation for the expected price hikes.
Iran has invested great effort trying to cope with the various sanctions imposed on it since 2006. On the one hand, these efforts suggest that the country is vulnerable to sanctions. On the other, they also show that it is committed to advancing its nuclear program even at high cost.
This month, in an unusual step, Supreme Leader Ali Khamenei asked the Iranian people to be patient so the country could overcome the problems it is facing as a result of the sanctions.
IT APPEARS that the West has not decided yet what price it is willing to pay in order to prevent Iran from crossing the nuclear threshold; the UN Security Council sanctions represent the lowest common denominator.
Nevertheless, the sanctions are meaningful.
The Security Council resolution has provided legitimacy to states that have taken actions against Iran above and beyond what is required, and which otherwise would not have been taken at all. Additionally, more reluctant actors, like Russia and China, have been supportive of sanctions despite their reservations because until diplomatic efforts have been exhausted, war remains a more distant option.
The sense in the West that there are “no good options” and that the sanctions have exhausted their potential is perhaps premature. The current effort by the regime to save money by cutting subsidies – a step unprecedented since the 1979 Islamic Revolution – in fact might expose a domestic Achilles heel.
That is, the regime’s efforts to mitigate the effects of the sanctions could leave it even more vulnerable to them.
The most effective way to further constrain Iran’s financial resources is by continued and even increased pressure on the country’s limping energy sector, which accounts for 80% of export-related state revenue.
Taking advantage of this dependence on a single commodity has the greatest potential to change Iran’s cost-benefit calculations.
As is always the case, multidimensional problems demand multidimensional solutions. Sanctions by themselves are unlikely to put an end to Iran’s nuclear program. It is in this context that recently reported sabotage of uranium enrichment activity should be seen; this activity makes enrichment more costly and complements sanctions by giving them more time to work. At the same time, Western efforts – strongly encouraged by Iran’s Arab neighbors, as evident in the documents revealed by WikiLeaks – to present a credible military threat to Iran’s nuclear facilities are intended to convince the Islamic Republic that time is not on its side.
One could conclude from Iran’s actions that it is not particularly interested in compromising with the West, in part because it continues to prepare to weather sanctions for an extended period.
Only if the regime decides that the road to completing its nuclear program is too long and the price too high will there be even a chance of increased flexibility in its position.
The writers are research fellows at the Institute for National Security Studies at Tel Aviv University.