Ever since the mullahs seized power 32 years ago, Washington and its allies have looked for a “silver bullet” to compel Tehran to modify aspects of its behaviour.
The list of sanctions against Iran would be as long as Tolstoy’s War and Peace. It includes freezing of assets, ban on the supply of arms, ban on investment in energy industry, blacklisting regime figures, international arrest warrants for officials, including “Supreme Guide” Ali Khamenei, and cutting Iran’s access to capital markets.
None of that produced the desired effect.
For years, experts claimed that stopping Iran’s gasoline imports was the “silver bullet”. This, they argued, would bring the Khomeinist train to a stop. Two years later, that has not happened.
Other “silver bullets” included the closure of Iranian banks abroad and, recently, the quarantining of the Central Bank of Iran.
Tehran reacted by opening a new uranium enrichment plant and a show of force in the Strait of Hormuz.
On Monday, the European Union approved another “silver bullet”: a ban on imports of Iranian oil.
Surely, you might say, this must be the final straw that breaks the camel’s back!
Well, don’t hold your breath. Even if this straw did break the camel’s back, it won’t change the animal’s behaviour.
Don’t’ get me wrong. I am not repeating the cliché that “sanctions never work!’
Sanctions do work by creating economic hardship, social disruption, and missed opportunities for nations subjected to them. However, they seldom achieve the results desired by those who impose them.
Sanctions have helped make Iran an underachiever. As far as its economy is concerned, despite significant human and natural resources, Iran has wasted three decades. In 1977, resource-rich Iran’s economy was twice that of resource-poor South Korea. In 2011, the South Korean economy was three times bigger than Iran’s. In 1977, a US dollar was worth 70 Iranian rials. In 2012, 18,000 rials buys one US dollar.
In 1977, 27 per cent of Iranians lived below the poverty line. In 2012 that figure is around 40 per cent.
Not all of Iran’s economic failure is due to sanctions. Mismanagement and rampant corruption have also contributed to the tragedy.
The Iranian people have paid a heavy price while the behaviour of the regime has got worse.
Why is this so?
Inebriated by a lunatic ideology, Iran’s current leaders are captives of a pattern of behavior that they cannot, even if they wanted to, easily change.
Khomeinists are not alone in spinning their prison with a cobweb of self-delusion, hubris and braggadocio. Iran’s modern history includes several similar situations.
In the 19th century, the mullahs whipped up frenzy for Jihad against the Russian “Infidel” and cast Fath Ali Shah as the Ghazi who would ride his white horse to Moscow. Fatah Ali believed, or pretended to believe, the myth and declared war on the Tsar. The result was the biggest loss of territory Iran had suffered in centuries. Even when the British proposed mediation to limit the Shah’s losses, he could not afford to appear to be surrendering.
Fast forward to 1940 when Britain and the Soviet Union, at war against Germany, asked Reza Shah to allow supplies to Russia through Iran. Having imprisoned himself in a “no compromise” policy, the Shah wouldn’t budge. So, he had to be budged by an Anglo-Russian invasion of Iran.
More than a decade later, Iran had another “no compromise” leader: Muhammad Mosaddegh appointed Prime Minister by the Shah shortly after Iran had nationalized its oil.
Mosaddegh, too, was struck by folie de grandeur; all he could do was say “no”, including to deals mediated by Washington. Although Britain had managed to impose an embargo on Iran’s oil exports, Mosaddegh wouldn’t budge. Between 1950 and 1954, a year after the Shah dismissed Mosaddegh, Iran lived without oil exports. Only Mosaddegh’s removal changed Iranian behaviour.
So, why should a ban on Iran’s oil exports work this time?
If the aim is to change Tehran’s behavior, my guess is that it won’t.
The EU’s ban concerns a quarter of Iran’s oil exports. The remaining 75 per cent goes to countries unlikely to join the embargo. Even in the case of EU members the ban will not come into effect for another six months.
Also, oil trade today is different from the 1950s when the “Seven Sisters” acted as a cartel, setting, and, when it suited them, breaking the rules. Today, oil market has thousands of players with more opportunities for under-the-counter deals than a Persian bazaar.
More importantly, the Iranian economy is not entirely dependent on oil. In 2010, oil exports accounted for around 12 per cent of Iran’s gross domestic product (gdp). A cut in oil income would create hardship in some sectors but could boost others, notably agriculture.
Talk about oil embargo has already led to a massive devaluation of the rial. That may not be a bad thing in the long-term by making imports more expensive and (non-oil) exports cheaper. For example, Iran’s textile industry has all but vanished because of cheap imports from China. (China maintains its currency, yuan, at an artificially low rate whilst the Iranian rial is still ridiculously expensive.)
Because, oil dollars go to the state, a devaluation of the rial would also reduce the government’s budget deficit. (Fewer dollars would be needed to cover public expenditure which is in rials.)
There may be another twist to this tale. Khamenei might conclude that he could live with a partial loss of oil exports. That, in turn, might make him more defiant in the belief that, if the 11th hour came, he could always back down. The trouble is that the 11th hour comes and goes before champions of defiance have time to play games.
The daily Kayhan, published by Khamenei’s office, suggested Monday that the US and allies might “soon realize that they have no arrows left in their bag of sanctions.”
Kayhan did not contemplate the implications of its suggestion. If the US and allies conclude that Tehran won’t change behavior through diplomacy, carrot-and-stick sanctions and even threats of military action, what would they do?
They would face a terrible choice: surrender to the Islamic Republic or go for regime change in Iran.