Media Guide: Sanctions Against Iran
/By Research Fellow Gabriela Billini
Sanctions are a perennial subject in American political discussion about Iran as the US tries to curtail what it views as Iran’s destabilizing activities in the region. Over the years, many rounds of sanctions have been imposed on Iran, in varying forms. Some have primarily targeted institutions and individuals related to Iran’s nuclear and ballistic missile programs, others have either directly or indirectly affected ordinary Iranian citizens.
This Media Guide will present a brief overview of the history of sanctions on Iran and highlight the effects that American and international sanctions have had upon the broader Iranian economy and average Iranians.
What are sanctions?
Economic sanctions are measures imposed by foreign countries or institutions that have the capacity to restrain a country’s business and trade relations with other states. They are typically used as a way to pressure a country to reconsider whatever behavior or acts they are engaging in that is believed to go against international norms or laws.
While the means of imposing sanctions have evolved over the years, sanctions are generally intended to be imposed on select individuals, companies and governments that are seen as directly involved with the issue at hand. They typically involve issues relating to human rights abuses, or, where Iran is concerned, terrorism and ballistic missiles.
Who can impose sanctions?
● UNSC:
The primary, most effective source for international sanctions is the United Nations Security Council (UNSC). To impose sanctions, the Security Council must first find that there is a threat to peace and/or security under the UN Charter Article 39 by the hands of the state in question, and make a recommendation as to how the body should proceed. If the state does not comply with the call to refrain from its threatening actions, it will impose sanctions under Article 42 to deter the state from engaging in the matter concerned. Each Security Council Resolution is to be respected by all member states of the United Nations. Article 25 of the UN Charter says that all states “agree to carry out and accept the decisions of the Security Council in accordance with the present Charter.” Once the United Nations Security Council enacts sanctions, all sovereign states must adopt the Security Council Resolution in its own state. The Security Council is capable of imposing many types of sanctions. The most common are economic and trade sanctions, but it can also impose “more targeted measures such as arms embargoes, travel bans, and financial or commodity restrictions.”
● States:
Sovereign states also have the right to impose their own sanctions, however they are done unilaterally. In the US, sanctions are imposed by executive order by the president or after a bill has passed through both bodies of Congress. The President of the United States can also issue an Executive Order to impose economic and/or financial sanctions by declaring a national emergency because of the specific circumstances. Both types of sanctions can reduce or entirely cease all economic relations between the US and that country. The same applies to other countries who prefer to take a firmer stance against a state on any given issue. With European states, sanctions are imposed by the courts of the European Union, as opposed to each individual EU state and each state must follow the legislation. The member states must offer unanimous consent to the Council for sanctions to be implemented.
What sanctions have been imposed on Iran?
The first sanctions that were imposed on Iran were after the Islamic Revolution because of the Iranian hostage crisis, by President Jimmy Carter on April 17, 1980. Among other things, the sanctions stopped all trade, travel, exchange of money, and flights between the two countries.
This piece will cover sanctions that have been imposed on Iran since 2006 through the United Nations Security Council. Over time, international sanction through the United Nations were imposed on Iran for a variety of reasons, including its alleged military grade nuclear ambitions, its ballistic missile program, its sponsorship of terrorism, and human rights. Details of these measures are below:
○ 1696 (2006)
The first Resolution that began the UN sanctions regime due to the Iranian nuclear program was Resolution 1696, passed in June 2006. The resolution emphasizes concerns over Iran’s nuclear aspirations, highlighting the International Atomic Energy Agency (IAEA) Director General’s reports that state Iran’s nuclear intentions are unclear.
It “demands” Iran to suspend all enrichment-related and reprocessing activities to its nuclear program. Further, it “calls upon all states” to refrain from transferring any items/materials/goods that can contribute to the enrichment and ballistic missile programs. The Resolution brings attention to the matter and gives Iran an opportunity to come forward and declare the nature of its program and asks that Iran complies with the IAEA.
○ 1737 (2006)
Six months after R1696 was passed, the Security Council reconvened on the matter to draft Resolution 1737 under Chapter VII in December 2006. The Resolution reaffirms R1696 and its commitment to abide by the policies of the IAEA, as well as reiterating its concerns about the Iranian nuclear and ballistic missile programs. It also asks Iran to sign the additional protocols of the IAEA Safeguards Agreement. Since it is under Chapter VII, it is the first Resolution to impose pointed economic sanctions on material, equipment, goods and technology related to proliferation and missile technology. The sanctions would be lifted in 60 days if Iran complied with the Security Council’s requests and worked with the IAEA. Iran did not comply with the Resolution.
○ 1747 (2007)
Since Iran did not comply with R1737, the Council reconvened in March of 2007 to pass Resolution 1747 which reaffirmed Resolutions 1696 and 1737 and imposed more stringent sanctions by expanding the transfer of technology ban to combat aircrafts, attack helicopters, warships, and other ‘tools’ of war. It also prohibited Iran from exporting arms. Further, it expressed its conviction that the suspension set out in Resolution 1737, as well as full, verified Iranian compliance with the IAEA Board of Governor’s requirements, would contribute to a diplomatically negotiated solution that guaranteed that Iran’s nuclear program was for exclusively peaceful purposes. Again, Iran did not comply with the Resolution.
○ 1803 (2008)
To follow up on Iran’s third failure to comply, the UNSC reconvened in March 2008 to implement Resolution 1803, which reaffirms the prior Resolutions (1696, 1737, 1747), reiterate that Iran has not suspended enrichment and reprocessing activities, and has not made contact with the IAEA on its nuclear program. The Resolution insists that states must respect the list of sanctioned individuals and entities, shall continue to restrain them if entering their countries, which are individuals listed in the Annex who are connected to Iran’s nuclear program. It also prevents all states from supplying, selling or transferring of any good that may benefit Iran in its nuclear ambitions. As with previous resolutions, Iran chose not to comply.
○ 1929 (2010)
The most significant Resolution, and the one that was active the longest against Iran, was Resolution 1929. It imposed a fourth round of sanctions and added an extra step where any cargo that was headed to or coming from Iran was subject to inspection by any state that ships would cross through. Any state concerned about the content in such cargo was required to seize and dispose of any prohibited items found. It also went a bit further regarding sanctioned groups by calling out IRGC and its role in nuclear and ballistic proliferation and asked states to stop any transactions related to IRGC and its agencies. It also froze assets to some IRGC-tied companies.
After four years of sanctions under Resolution 1929, it was announced in February 2014 that Iran would enter into negotiations regarding its nuclear program with the P5+1 - US, France, Russia, China, the United Kingdom and Germany. After several months of negotiations and a few extensions, on July 14, 2015, Iran and the P5+1 announced that they reached an agreement, called the Joint Comprehensive Plan of Action (JCPOA).
○ 2231 (2015)
In the days following the signing of the landmark Plan, the UN Security Council implemented Resolution 2231. It dictates that Iran has agreed to follow a roadmap set forth by the IAEA in order to ensure that its nuclear technology is for peaceful purposes, is being monitored by the IAEA for compliance, and have agreed to not pursue military-grade nuclear technology for 13 years. In response to the exportation of arms in R1737, Resolution 2231 requires Iran to obtain Security Council approval to export arms for a maximum of five years.
Both the JCPOA and Resolution 2231 stopped the United States and all other sovereign nations from sanctioning Iran, individuals or corporations in Iran relating to Iran's nuclear program. They also required the removal of all nuclear-related sanctions on individuals, companies and entities.
Background on US sanctions against Iran
Relations between the United States and Iran eroded after the Revolution in 1979, and since then the US has implemented a variety of unilateral sanctions. Because of the hostage crisis, the US froze the equivalent of $12 billion of Iranian government assets and later graduated to a full ban on trading between the United States and Iran, lasting until 1981.
In the 1980’s and 1990’s, the aim of economic sanctions was towards tilting the balance of power in the Iran-Iraq War towards Iraq, and also stopping Iran from supporting terrorist acts. Specifically, in 1987, the US Treasury stated another embargo would be implemented, "as a result of Iran's support for international terrorism and its aggressive actions against non-belligerent shipping in the Persian Gulf.” Then with Executive Order 13059, in August 1997 the United States banned all trade and investments between Americans and Iran. President Clinton cited “unusual and extraordinary threat to the national security, foreign policy, and economy of the United States” as the cause for a termination of trade relations between the US and Iran, among other aspects of hindered relations.
Coming on the heels of suspicions that Iran built a nuclear facility near Natanz and Arak in 2002, US sanctions in the 2000s were primarily focused on Iran’s nuclear program. More recently, however, since the JCPOA and Resolution 2231 forbade new sanctions from being imposed on any agency, group or individual relating to Iran’s nuclear program, US sanctions are now focused on issues like ballistic missile testing and human rights abuses.
There are two distinct forms of sanctions that individual states can impose, which are primary and secondary sanctions. Primary sanctions are those in which the state in question bars any of its own citizens and businesses from having economic relationships with entities on the sanctioned list. As Doreen Edelmen, a contributor at The Hill, says, “[t]his means that U.S. entities cannot export to, import from, provide services to, or support or facilitate any transactions with or in Iran.” These can have a significant economic impact on the sanctioned-country when imposed by the United States because the US has such a strong hold on the international economic system.
Secondary or extraterritorial sanctions are when the state imposes a variety of restrictions on entities of a third country who are financially linked to the original blacklisted state. For example, if secondary sanctions are imposed against French businesses that are working with a sanctioned company in Iran, the US Government can select from a range of measures to penalize the French entities with regards to its American business. The United States government has been utilizing secondary sanctions primarily on Iran and North Korea, not without fierce debate because the penalties go beyond American jurisdiction. Some argue that such sanctions are permissible if the claims are exclusively on the territorial grounds in the question of territorial and nationality jurisdiction. Many argue that extraterritorial sanctions are illegal under international law and is a violation of the entities in the third state’s sovereignty involved. The United States has imposed secondary sanctions on Iran since about 2012, primarily related to their nuclear proliferation ambitions. With the signing of the JCPOA, all sanctions related to Iran’s nuclear program were lifted. US primary sanctions, as well as all secondary sanctions related to Iran’s support for terrorism, human rights abuses and its ballistic missile programs still remain.
How have sanctions affected Iran?
● The Government:
The Iranian government has historically and proudly defended the idea that unilateral sanctions had no major effects on Iran because of the ‘resistance economy’ Iran has carefully developed, allowing it to become self-sufficient. This resistance economy, as the Council of Foreign Relations explains, is “an economy that weans itself off oil exports, seeks to safeguard domestic industries from foreign competition, eschews trade in favor of local markets, and keeps its money out of international banks.”
Foreign Minister Mohammed Javad Zarif stated that economic sanctions during the Obama years failed because Iran was actually able to increase its number of nuclear centrifuges tenfold. "The reason Obama came to the negotiating table was because sanctions did not work," Zarif told CNN.
● Islamic Revolutionary Guard Corps:
The Congressional Research Service has put out a research document discussing the effect of sanctions on Iran. In it, they state that sanctions have not had much of an effect on Iran’s involvement in proxy wars or missions abroad. Though economic and diplomatic sanctions since 2006 have been intended to keep Iran from supporting Shiite paramilitaries and committing human rights abuses[1], the evidence reaffirms that they have not been successful. The report also states that Iran’s activities in the region appear to have maintained the same level as before sanctions were lifted.”[2]
The Congressional Research Service notes that measuring the effects of sanctions on human rights abuses is very difficult. It does state that “reports by the State Department and the U.N. Special Rapporteur on Iran’s human rights practices assess that there has not been measurable overall improvement in Iran’s practices in recent years, particularly on the issue of allowing freedom of expression.”[3]
● The general public:
Sanctions have produced some adverse humanitarian-related effects, “particularly on the population’s ability to obtain Western-made medicines, such as expensive chemo-therapy medicines. Some of the scarcity was caused by banks’ refusal to finance such sales, even though doing was not subject to any sanctions.”[4] The New York Times reported that Iranians have died of treatable diseases because of the sanctions, which prevent crucial Western medicine from entering Iran. Despite the exception of allowing humanitarian goods to be traded with Iran, it still makes access to medicine very difficult. Some of these drugs include ones for chemotherapy and blood clotting agents. It also has prevented sales of machinery that is necessary for domestic production of some pharmaceuticals.
Sanctions have also affected food security for Iranians. In 2012, Iran suffered from a grain shortage, an indirect effect from international sanctions. Farmers faced a feed shortage for livestock due to limitations on banking and financial transactions. These payment blockades resulted in a shortage of grain that eventually created in a bread shortage; this is just one serious example of how everyday Iranians can be affected by sanctions aimed at the government.
Another external effect of sanctions has been a worsening of air quality. Since Iran has been forced to become self-sustaining because of severe sanctions, Iran has been producing its own gasoline. The resulting increase in gasoline production has contributed to concerning levels of air pollution in big cities.[5] Now that Iran produces enough to satisfy domestic consumption, it also produces a surplus, which it exports and provides additional income now that sanctions have been lifted.
● Iranian civil society on the economy
Rouhani’s capacity to negotiate the JCPOA gave Iranians confidence that he can continue to develop the benefits of open economic relations with the West, to improve the economic situation in Iran. A key component to Rouhani’s reelection was a hope to see the benefits of the JCPOA in a more meaningful way. Rouhani campaigned on a strong economic agenda, insisting that the success of the JCPOA is what will improve the economy, as soon as businesses find the necessary opportunities to invest. Further, Iran’s new oil exports helped Rouhani’s government reduce inflation, a big concern in Iranian civil society,
In the face of the 25 July sanctions, Iranians were supportive of their government in imposing countermeasures if the US implements the fresh sanctions on it, due to JCPOA agreements. A majority of Iranians even reject the notion that their government should be asked to renegotiate the JCPOA on any grounds.
The Effect of Sanctions on the Iranian Economy:
Given the scale of Iran’s economy – the second largest in the Middle East and North Africa after Saudi Arabia, with a GDP of $412 billion in 2016, it’s hard to identify the full effect of sanctions on the Iranian economy over the past few decades. The data that exists, however, does indicate that sanctions had an effect. Treasury Secretary Jacob Lew, for example, told a Washington, DC think tank on April 29, 2015, that Iran’s GDP shrank by 9% in the two years ending in March 2014, and was 15%-20% smaller than it would have been had post-2010 sanctions not been imposed. High unemployment and inflation rates are also considered an outgrowth of sanctions. In 2010 , after Resolution 1929, unemployment was at an all-time recorded high since 1991 of 13.5% unemployment. Then 2016 saw 11.27% unemployment.
Iran’s inflation rate has seen significant peaks and valleys since the UNSC imposed sanctions on it. In 2007, the inflation rate was about 16% but skyrocketed in 2008 at 26%. The following year, 2009, there was more stability with a rate of 14%, however it continued to increase steadily and in July 2013 the rate was at 44%. After the signing of the JCPOA and approval of Resolution 2231, the inflation rate has seen more stability at 14% in July 2015 and 11% in June 2017.
Perhaps the most apparent economic result of sanctions over the years has been a lack of international investment in the country. Now that international sanctions have been lifted, bids are coming in. In particular, modernization of the oil and gas sectors will be incredibly important for Iran’s post-sanction economy. For a detailed analysis of post-JCPOA investment in various Iranian industries, we recommend our Industry Spotlight series (link to this).
Despite the lifting of most multilateral sanctions and increased foreign investment, Iran’s economy has not seen the changes and immediate pickup that was expected. There are many reasons for this.
First, there is a lack of foreign capital into Iran because of poor infrastructure and the necessary support for foreign banks to enter the Iranian market. The Iranian market is not very transparent and not as modern or comparable to international norms, providing a deterrent to banks coming from more globalized markets.
Secondly, banks around the world are reluctant to invest given ongoing US sanctions and the possibility of future snap-back. Prior to the JCPOA, there were a few European banks that were heavily fined for conducting business with countries that were sanctioned. Now, they are hesitant to find themselves in a similar situation with Iran. BNP Paribas, a French bank, was fined $8.9 billion and five-years’ probation over sanctions violations against Sudan, Cuba and Iran, just as was the case with JP Morgan which paid a fine of $88.3 million.
Further, because the US government continues to sanction other entities under Iran’s ballistic missile program, banks must be even more careful that they are not working with corporations and individuals that are sanctioned under the new conditions. Though European banks have gone to Iran with an interest in investing, this added complexity leaves the country with no success. This is even more troubling because of the Islamic Revolutionary Guard Corp’s sizeable investment in the economy and their current sanctioned status.
Third, the political uncertainty that President Trump has cast over Iran has continued to challenge investment and integration of Iran into the global market. The travel ban is an example of the challenges that his presidency brings to Iran’s political and economic engagements with countries around the world.
On 13 October, President Trump decertified Iran’s compliance to the JCPOA. This opens up the possibility of a new wave of sanctions on behalf of the United States regarding Iran’s nuclear program. If Congress decides to impose new sanctions on said grounds, this scraps the JCPOA completely, allowing Iran to return to its pre-Resolution 2231 activities. This can include developing a nuclear weapon, which would in turn encourage other states to impose more sanctions, possibly in the UN Security council again.
● Most recent sanctions regime
On June 15 2017, the US Senate approved an unprecedented sanctions bill on Iran, said to be so strong they make former nuclear-related sanction “look like child’s play in comparison.” This time, the Senate is imposing the sanctions due to Iran’s ballistic missile program, its investments in terrorist organizations, and its human rights abuses. The justification to these sanctions used by the United States is the wording in 2231, where the UN “calls upon” Iran to not undertake any activity related to ballistic missiles that are capable of carrying nuclear material. Despite the political commentary that surrounds this wording, there is no legal obligation for Iran to stray from developing and testing its ballistic missile program.
Further, on July 22, the House of Representatives continued the efforts of the Senate and has prepared new sanctions against Iran, as well as Russia and North Korea. Democratic Whip Steny Hoyer of Maryland that these new sanctions "will hold Russia and Iran accountable for their destabilizing actions around the world."
Despite overwhelming Congressional and European support for certification on the JCPOA, the President’s decertification raises many questions on what Congress will do next. Congress has three options: a) re-impose sanctions that were shelved after Resolution 2231, effectively dismantling the deal b) do nothing regarding certification which leaves the JCPOA active c) within the allotted 60 days readjust the Iran Nuclear Regulatory Authority so that certification every 90 days is no longer a legal necessity.
Conclusion:
Strategically, economic sanctions can be used by one or multiple countries to strongly convey the norms they stand by. In the case of Iran, sanctions have been imposed on the country for over 36 years on behalf of the US for an array of reasons that have not always had the intended effect of weakening the government or changing its actions. In fact, the sanctions have in some ways strengthened Iran’s self-sustaining anti-West model and instead hurt the Iranian citizens. Now that the JCPOA has been signed and implemented, Iran has the legal freedom to welcome foreign capital, but not the political or infrastructural capability yet to jolt the economy out of its shell. The existence of sanctions hurt the Iranian economy and their removal was not quite enough to rehabilitate the ailing country back into the international market. Now with the threats that hang on the JCPOA, the possibility of the US re-imposing of sanctions on nuclear matters is in the thoughts of many.
[1] Abdo, Geneive. The New Sectarianism. Page 26.
[2] Congressional Research Service – Iran Sanctions. Page 53.
[3] Congressional Research Service – Iran Sanctions. Page 54.
[4] Congressional Research Service – Iran Sanctions. Page 67.
[5] Congressional Research Service – Iran Sanctions. Page 67.
