China’s Economic Reckoning
The Price of Failed Reforms
As negotiations over Iran’s nuclear program resume in Geneva this week, observers and policymakers are sharply divided on the role of economic sanctions. Those who want to give negotiations a chance, including U.S. President Barack Obama and Secretary of State John Kerry, believe that the United States and its allies should be willing to ease sanctions in exchange for Iranian cooperation. Those who remain suspicious of Iran’s intentions, including many in Congress, maintain that the United States should double down on sanctions to force Iran to comply with its demands.
History suggests that once imposed, the promise to lift sanctions often offers more leverage than efforts to keep them from leaking. To be sure, there is no question that the sting of economic sanctions contributed to Iranian President Hassan Rouhani’s recent charm offensive. But sanctions were hardly the sole reason he came to the table: The window for negotiations opened only after Mahmoud Ahmadinejad, a president who Iran’s supreme leader, Ayatollah Ali Khamenei, no longer trusted, was replaced by someone he does -- at least for now. Domestic politics in Iran and the United States will determine whether that window stays open or slams shut once more. To keep it open, Rouhani will have to show his audience at home that he can win some relief. And in the United States, Congress will have to allow Obama sufficient flexibility to use sanctions as the bargaining chip they are.
Throughout history, sanctions have rarely caused countries to capitulate outright. Colleagues from the Peterson Institute for International Economics and I analyzed 204 instances of sanctions in the twentieth century (all the cases we could identify). We found that they achieved part of their goals about a third of the time. Indeed, most of the successful examples involved compromise and partial accomplishments. Only in 12 cases did sanctions lead directly to their intended results.
Overall, we concluded, sanctions were most likely to be effective when the sanctioner’s goals were relatively modest, the targeted government was at least somewhat democratic, relations between the sanctioning and target governments were friendly rather than hostile prior to sanctions being imposed, and the economic costs imposed on the target were proportionate to the goal sought. Finally, when sanctions were carried out with ambitious objectives, success depended on international cooperation from allies or international organizations.
Unfortunately for Washington, the Iran case does not meet the first three conditions. The goal, suspension of Iran’s nuclear program, involves a core national security concern for Tehran. Further, Iran is only nominally democratic. Iranians vote -- but only for candidates the Supreme Leader and Guardian Council approve. Finally, relations between Iran and the United States, and increasingly between Iran and much of the rest of the world, are hostile.
Balancing against that, though, is the unusual degree of international cooperation that the United States has corralled to impose and enforce economic sanctions. A Congressional Research Service report estimates that sanctions have halved Iranian oil exports, which once accounted for as much as 80 percent of the country’s exports, 50 percent of the government’s revenues, and 20 percent of the economy. By our conservative estimates, the sanctions cost Iran at least 5.5 percent of its GNP once the EU oil boycott was fully implemented. That is a higher toll than in all but 28 of the 204 cases we surveyed. It is also in line with the average cost to targeted countries in cases where the goals were very ambitious and sanctions contributed to positive results, including, for example, the extensive UN sanctions against the former Yugoslavia that led to the signing of the Dayton Peace Accords and the end of the Bosnian conflict in the 1990s.
High economic costs, however, are no guarantee of political results. The cost of sanctions for Iraq in the 1990s was ten times as high as for Iran today, yet that sanctions regime was inadequate to force Saddam from power, as some had hoped, or coerce his cooperation in the UN-led effort to find and destroy Iraq’s weapons of mass destruction. Moreover, the severe humanitarian impact of the sanctions, which were the most globally comprehensive ever, eroded political support for the tough approach and thus undermined the United Nations’ ability to enforce it.
The backlash against the sanctions in Iraq also led the United Nations, the United States, and the European Union to shift focus toward more narrowly defined sanctions, such as arms embargoes, travel bans, and asset freezes, all of which target officials, not regular citizens. This type of sanction, a wealth of evidence shows, is more effective as a signal during later negotiations than as a means to coerce major behavior changes. Sometimes, of course, sanctioners’ goals are ambitious and require just such change. In those cases, sanctioning countries feel pressed to ratchet up the pressure, as in Iran. And then, they must strike a tricky balance between sanctions that get the target’s attention and those that are so harmful to ordinary citizens that they become unsustainable.
TIME TO TALK
Those in Washington who are pushing for tighter sanctions are working against recent trends. They want to cut off Iranian energy exports and thus bring the economy to its knees. Ordinary Iranian citizens could not possibly escape unscathed. And the Iranian government is already trying to build international humanitarian concern by publicizing the impact of sanctions on food prices and access to medicines. As in Iraq, pictures of hungry children and the deathly ill will undermine political support for sanctions, erode enforcement, and increase the pressure to lift sanctions.
A related problem is that U.S. sanctions already cover all trade and financial transactions (with the exception of humanitarian items). In other words, U.S. policymakers can put more pressure on Iran only by coercing third parties to either forgo business with Iran or risk losing access to the U.S. financial market. If Congress continues to push for sanctions against allies and other parties that still import oil from Iran, as is currently permitted by UN Security Council resolutions, it could make the European Union and others simply stop cooperating.
For now, those who continue to oppose pursuing a negotiated solution argue that the talks will allow Iran to buy time and continue developing its nuclear capability. But their alternative, more sanctions, would also take time to work. And with talks moving forward, trying to use them to bring the country to its knees will simply increase the odds that the world will end up having to contain a nuclear Iran. Negotiations with Iran will not be easy, and an acceptable compromise may be out of reach. But the possibility of easing sanctions has to be on the table for there to be any chance of success. Congressional action to deny the president that option or pile on more sanctions will likely make the Iranian regime feel more threatened and more convinced that a nuclear weapon is necessary for its security. The current sanctions against Iran helped open the window for a diplomatic resolution. The question now is whether the United States and its allies will pry the window wider or slam it shut on their own fingers.