Economic Sanctions and the Iran Experience

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Fifty-two Americans were taken hostage in Iran on November 4, 1979. Ten days later, in circumstances to be related, President Carter froze all assets of the government of Iran in the United States and under the control of U.S. banks, businesses and individuals outside the United States. This action, and related measures taken later, deprived Iran of the use of more than $12 billion in bank deposits, gold and other property. The President also cut off most export and other transactions between the United States and Iran and asked the U.N. Security Council to vote similar sanctions. U.N. action was blocked by a Soviet veto on January 13, 1980, but other nations gradually reduced their commerce with Iran. As the hostage crisis dragged on, these sanctions deprived Iran of critical supplies and spare parts and forced it into expensive deals with unreliable middlemen.

The Iran-Iraq war started in September 1980, and by the late fall Iran was bogged down in a costly war of attrition. Its receipts from the sale of oil dropped to virtually nothing, and its lawsuits to recover the $12 billion in frozen assets stalled or failed. Although Iran was able to keep some imports flowing, it found the volume of supplies necessary to conduct a shooting war increasingly expensive and hard to obtain. Its financial reserves were dropping rapidly and, unless replenished, would have soon limited Iran's ability to pay for imports.

We do not know precisely why Iran decided after 14 months to agree to the Declarations of Algiers and release the 52 hostages on January 20, 1981. Holding them had become an embarrassment rather than a domestic rallying point. The issue diverted Iran's leaders from their official duties and impeded efforts to gain support against Iraq in the United Nations and from other nations. These were undoubtedly important factors not connected directly with any U.S. action.