Sanctions against Iran

UN sanctions against Iran

The UN Security Council passed a number of resolutions imposing sanctions on Iran, following the report by the International Atomic Energy Agency Board of Governors regarding Iran's non-compliance with its safeguards agreement and the Board's finding that Iran's nuclear activities raised questions within the competency of the Security Council. Sanctions were first imposed when Iran rejected the Security Council's demand that Iran suspend all enrichment-related and reprocessing activities. Sanctions will be lifted when Iran meets those demands and fulfills the requirements of the IAEA Board of Governors. To-date, Iran sanctions are the toughest the world community has imposed on any country.

Non-UN-mandated sanctions against Iran

The European Union has imposed restrictions on cooperation with Iran in foreign trade, financial services, energy sectors and technologies, and banned the provision of insurance and reinsurance by insurers in member states to Iran and Iranian-owned companies. On 23 January 2012, the EU agreed to an oil embargo on Iran, effective from July, and to freeze the assets of Iran's central bank. The next month, Iran symbolically pre-empted the embargo by ceasing sales to Britain and France (both countries had already almost eliminated their reliance on Iranian oil, and Europe as a whole had nearly halved its Iranian imports), though some Iranian politicians called for an immediate sales halt to all EU states, so as to hurt countries like Greece, Spain and Italy who were yet to find alternative sources.

On 17 March 2012, all Iranian banks identified as institutions in breach of EU sanctions were disconnected from the SWIFT, the world's hub of electronic financial transactions.

One side effect of the sanctions is that the global shipping insurers based in London are unable to provide cover for items as far afield as Japanese shipments of Iranian liquefied petroleum gas to South Korea.

Reasons for sanctions

On the web site of the U.S. Department of State is written as follows:

In response to Iran’s continued illicit nuclear activities, the United States and other countries have imposed unprecedented sanctions to censure Iran and prevent its further progress in prohibited nuclear activities, as well as to persuade Tehran to address the international community’s concerns about its nuclear program. Acting both through the United Nations Security Council and regional or national authorities, the United States, the member states of the European Union, Japan, the Republic of Korea, Canada, Australia, Norway, Switzerland, and others have put in place a strong, inter-locking matrix of sanctions measures relating to Iran's nuclear, missile, energy, shipping, transportation, and financial sectors.

The website of the U.K. government states:

On 16 October 2012, the EU adopted a further set of restrictive measures against Iran as announced in Council Decision 2012/635/CFSP. These measures are targeted at Iran’s nuclear and ballistic programmes and the revenues made from these programmes by the Iranian government.

In November 2011 the IAEA reported "serious concerns regarding possible military dimensions to Iran's nuclear programme" and indications that "some activities may still be ongoing."

According to the Supreme leader of Iran, the real objective of sanctions is "to prevent Iran from reaching a prominent civilizational status" (as in history).

Legal challenges to the sanctions

Europe's General Court overturned European sanctions against two of Iran's biggest banks (Bank Saderat & Bank Mellat); the two banks had filed suit with the European court to challenge those sanctions.

The European Union – which for years had condemned America's prospective "extraterritorial" application of national trade law and warned it would go to the WTO's Dispute Resolution Mechanism if Washington ever sanctioned European firms over Iran-related business. Russia, China and the other BRICS have also accommodated Washington’s increasing reliance on the threatened imposition of "secondary" sanctions against third-country entities doing business with Iran.

Removing sanctions against the banks would severely weaken Europe's sanctions regime. Other major players in Iran's economy, including the Central Bank of Iran and the National Iranian Oil Company, are now challenging their own sanctioned status.

Effects

The sanctions bring difficulties to Iran's $483 billion, oil-dominated economy. Data published by the Iranian Central Bank show a declining trend in the share of Iranian exports from oil-products (2006/2007: 84.9%, 2007/2008: 86.5%, 2008/2009: 85.5%, 2009/2010: 79.8%, 2010/2011 (first three quarters): 78.9%). The sanctions have had a substantial adverse effect on the Iranian nuclear program by making it harder to acquire specialized materials and equipment needed for the program. The social and economic effects of sanctions have also been severe, with even those who doubt their efficacy, such as John Bolton, describing the EU sanctions, in particular, as "tough, even brutal." Iranian foreign minister Ali Akhbar Salehi conceded that the sanctions are having an impact. China has become Iran's largest remaining trading partner.

Sanctions have reduced Iran's access to products needed for the oil and energy sectors, have prompted many oil companies to withdraw from Iran, and have also caused a decline in oil production due to reduced access to technologies needed to improve their efficiency. According to Undersecretary of State William Burns, Iran may be annually losing as much as $60 billion in energy investment. Many international companies have also been reluctant to do business with Iran for fear of losing access to larger Western markets. As well as restricting export markets, the sanctions have reduced Iran's oil income by increasing the costs of repatriating revenues in complicated ways that sidestep the sanctions; Iranian analysts estimate the budget deficit for the 2011/2012 fiscal year, which in Iran ends in late March, at between $30bn to $50bn. The effects of U.S. sanctions include expensive basic goods for Iranian citizens, and an aging and increasingly unsafe civil aircraft fleet. According to the Arms Control Association, the international arms embargo against Iran is slowly reducing Iran's military capabilities, largely due to its dependence on Russian and Chinese military assistance. The only substitute is to find compensatory measures requiring more time and money, and which are less effective. According to at least one analyst (Fareed Zakaria), the market for imports in Iran is dominated by state enterprises and state-friendly enterprises, because the way to get around the sanctions is smuggling, and smuggling requires strong connections with the government. This has weakened Iranian civil society and strengthened the state.

The value of the Iranian rial has plunged since autumn 2011, it is reported to have devalued up to 80%, falling 10% immediately after the imposition of the EU oil embargo since early October 2012, causing widespread panic among the Iranian public. In January 2012, the country raised the interest rate on bank deposits by up to 6 percentage points in order to curtail the rial's depreciation. The rate increase was a setback for Ahmadinejad, who had been using below-inflation rates to provide cheap loans to the poor, though naturally Iranian bankers were delighted by the increase. Not long after, and just a few days after Iran's economic minister declared that "there was no economic justification" for devaluing the currency because Iran's foreign exchange reserves were "not only good, but the extra oil revenues are unprecedented," the country announced its intention to devalue by about 8.5 percent against the U.S. dollar, set a new exchange rate and vowed to reduce the black market's influence (booming, of course, because of the lack of confidence in the rial). The Iranian Central Bank desperately tried to keep the value of the rial afloat in the midst of the late 2012 decline by pumping petrodollars into the system to allow the rial to compete against the US dollar. Efforts to control inflation rates were set forth by the government through a three-tiered-multiple-exchange-rate; this effect has failed to prevent the rise in cost of basic goods, simultaneously adding to the public's reliance on the Iranian black-market exchange rate network. Government officials attempted to stifle the black-market by offering rates 2% below the alleged black-market rates, but demand seems to be outweighing their efforts.

Sanctions tightened further when major supertanker companies said they would stop loading Iranian cargo. Prior attempts to reduce Iran's oil income failed because many vessels are often managed by companies outside the United States and the EU; however, EU actions in January extended the ban to ship insurance. This insurance ban will affect 95 percent of the tanker fleet because their insurance falls under rules governed by European law. "It's the insurance that's completed the ban on trading with Iran," commented one veteran ship broker. This completion of the trading ban left Iran struggling to find a buyer for nearly a quarter of its annual oil exports. Iran has sought to manage the impact of international sanctions and limit capital outflows by promoting a "resistance economy," replacing imports with domestic goods and banning luxury imports such as computers and mobile phones. This is predicted to lead to an increase in smuggling, as "people will find a way to smuggle in what the Iranian consumer wants." To sustain oil imports, Iran has also provided domestic insurance for tankers shipping Iranian oil. Iran had hoped to sell more to Chinese and Indian refiners, though such attempts seem unlikely to succeed, particularly since China—the single-largest buyer of Iranian crude—has been curtailing its oil imports from Iran down to half their former level.

Another effect of the sanctions, in the form of Iran's retaliatory threat to close the Strait of Hormuz, has led to Iraqi plans to open export routes for its crude via Syria, though Iraq's deputy prime minister for energy affairs doubted Iran would ever attempt a closure.

After Iranian banks blacklisted by the EU were disconnected from the SWIFT banking network, Israeli Finance Minister Yuval Steinitz stated that Iran would now find it more difficult to export oil and import products. According to Steinitz, Iran would be forced to accept only cash or gold, which is impossible when dealing with billions of dollars. Steinitz told the Israeli cabinet that Iran's economy might collapse as a result.

The effects of the sanctions are usually denied in the Iranian press. Iran has also taken measures to circumvent sanctions, notably by using front countries or companies and by using barter trade. At other times the Iranian government has advocated a "resistance economy" in response to sanctions, such as using more oil internally as export markets dry up and import substitution industrialization of Iran.

In October 2012, Iran began struggling to halt a decline in oil exports which could plummet further due to Western sanctions, and the International Energy Agency estimated that Iranian exports fell to a record of 860,000 bpd in September 2012 from 2.2 million bpd at the end of 2011. The results of this fall led to a drop in revenues and clashes on the streets of Tehran when the local currency, the rial, collapsed. The output in September 2012 was Iran's lowest since 1988.

Iranian Foreign Ministry spokesman Ramin Mehmanparast has said that the sanctions were not just aimed at Iran's nuclear program and would continue even if the nuclear dispute was resolved.

In the face of increased economic pressure from the United States and Europe and a marked decrease of oil exports, Iran is seeking to build a resistance economy as well as ongoing gold imports from Turkey.

Political effects

94 Iranian Parliamentarians signed a formal request to have Ahmadinejad appear before the Majles (parliament) to answer questions about the currency crisis. The Supreme Leader terminated the parliament's request in order to unify the government in the face of international pressure. Nonetheless, Ahmadinejad has been called to questioning by parliament on a number of occasions, to justify his position on issues concerning domestic politics. His ideologies seem to have alienated a large portion of the parliament, and stand in contrast to the standpoint of the Supreme Leader.

A recent report by Dr. Kenneth Katzman, for the Congressional Research Service, listed the following factors as major examples of economic mismanagement on the part of the Iranian government:

Effect on oil price

According to the U.S., Iran could reduce the world price of crude petroleum by 10%, saving the United States annually $76 billion (at the proximate 2008 world oil price of $100/bbl). Opening Iran’s market place to foreign investment could also be a boon to competitive U.S. multinational firms operating in a variety of manufacturing and service sectors.

In 2012, the U.S. Energy Department warned that imposing oil embargoes on Iran would increase world oil prices by widening the gap between supply and demand.

On the other side, according to a US bipartisan study, oil prices "could double" if Iran is permitted to obtain a nuclear weapon. U.S. gross domestic product could fall by about 0.6% in the first year—costing the economy some $90 billion—and by up to 2.5% (or $360 billion) by the third year. This is enough, at current growth rates, to send the country into recession.

Humanitarian impact

Pharmaceuticals and medical equipment do not fall under international sanctions, but Iran is facing shortages of drugs for the treatment of 30 illnesses—including cancer, heart and breathing problems, thalassemia and multiple sclerosis (MS)—because it is not allowed to use international payment systems. A teenage boy died from haemophilia because of a shortage of medicine caused by the sanctions. Deliveries of some agricultural products to Iran have also been affected for the same reasons.

Drug imports to Iran from the U.S. and Europe decreased by approximately 30 percent in 2012, according to a report by the Woodrow Wilson International Center for Scholars. In 2013, The Guardian reported that some 85,000 cancer patients required forms of chemotherapy and radiotherapy that had become scarce. Western governments have built waivers into the sanctions regime to ensure that essential medicines get through, but those waivers conflict with blanket restrictions on banking, as well as bans on "dual-use" chemicals that might have a military as well as a medical application. An estimated 40,000 haemophiliacs cannot get blood-clotting medicines, and operations on haemophiliacs have been virtually suspended because of the risks created by the shortages. An estimated 23,000 Iranians with HIV/AIDS have severely restricted access to the drugs they need. The society representing the 8,000 Iranians suffering from thalassemia, an inherited blood disorder, has said its members are beginning to die because of a lack of an essential drug, deferoxamine, used to control the iron content in the blood. Further, Iran can no longer buy medical equipment such as autoclaves, essential for the production of many drugs, because some of the biggest Western pharmaceutical companies refuse to do business with the country.

Journalists have reported on the development of a black market for medicine. Though vital drugs are not affected directly by the sanctions, the amount of hard currency available to the minister of health is severely limited. Marzieh Vahid-Dastjerdi, Iran's first female government minister since the Iranian Revolution, was dismissed in December 2012 for speaking out against the lack of support from the government in times of economic hardship. Furthermore, Iranian patients are at risk of amplified side effects and reduced effectiveness because Iran is forced to import medicines, and chemical building blocks for other medicines, from India and China, as opposed to obtaining higher-quality products from Western manufacturers. Because of patent protections, substitutions for advanced medicines are often unattainable, particularly when it comes to diseases such as cancer and multiple sclerosis.

Civil movement against sanctions

The "Civil Movement" was initiated by two prominent Iranian economists—Dr. Mousa Ghaninejad, of Tehran's Petroleum University of Technology, and Dr. Mohammad Mehdi Behkish, of Tehran's Allameh Tabatabaei University—on 14 July 2013. They described the sanctions as an "unfair" and "illogical" tool, arguing that a freer economy would lead to less political enmity and encourage amicable relationships between countries. They also noted that sanctions against one country punish not only the people of that country, but also the people of its trade partners.

The movement was supported by a large group of intellectuals, academics, civil society activists, human rights activists and artists. In September 2013, the International Chamber of Commerce-Iran posted an open letter by 157 Iranian economists, lawyers and journalists criticizing the humanitarian consequences of sanctions and calling on their colleagues across the world to pressure their governments to take steps to resolve the underlying conflict.

Frozen assets

After the Iranian Revolution in 1979, the United States ended its economic and diplomatic ties with Iran, banned Iranian oil imports and froze approximately 11 billion 1980-US dollars of its assets.

In recent years, billions of dollars of Iranian assets abroad have been seized or frozen, including a building in New York City, and bank accounts in Great Britain, Luxembourg, Japan and Canada.

In 2012, Iran reported that the assets of Guard-linked companies in several countries have been frozen but in some cases the assets have been returned.

The chairman of the Majlis Planning and Budget Committee says $100 billion of Iran’s money is frozen in foreign banks because of the sanctions imposed on the country. As of 2013, only $30 billion to $50 billion of its foreign exchange reserves (i.e. roughly 50% of total) is accessible because of sanctions.

Sanctions relief

With the accord between Iran and the P5+1 now reached, sanctions relief will affect the economy of Iran in four principal ways:

1. Release of Iran’s frozen funds abroad, estimated at over $100 billion as of 2015, of which approximately $29 billion was blocked.
2. The removal of sanctions against exports of Iranian oil.
3. Allow foreign firms to invest in Iran’s oil and gas, automobiles, hotels and other sectors.
4. Allow Iran to trade with the rest of the world and use the global banking system such as SWIFT.

According to the Central Bank of Iran, Iran will use funds unfrozen by its nuclear deal mainly to finance domestic investments, keeping the money abroad until it is needed.

On 16 January 2016, it was announced by the International Atomic Energy Agency that the nation had adequately dismantled its nuclear weapons program, allowing for the United Nations to lift sanctions immediately.

According to the Washington Institute in 2015: "The pre-deal asset freeze did not have as great an impact on the Iranian government as some statements from Washington suggested. And going forward, the post-deal relaxation of restrictions will not have as great an impact as some critics of the deal suggest."