The Return of U.S .S. . Sanctions, their ir Economic Im Impact, - - PowerPoint PPT Presentation

Back k to the Future: The Return of U.S .S. . Sanctions, their ir Economic Im Impact, and Iran’s Response

Contents

• 1. What are economic sanctions?

Success / failure factors

• 2. History of economic sanctions against Iran / JCPOA
• 3. US reinstatement of sanctions in Nov 2018
• 4. Impact of Sanctions
• 5. Iran’s potential response

What are economic sanctions?

“Economic sanctions are the deliberate government-inspired withdrawal, or threat of withdrawal, of customary trade or financial relations.”*

U.S. Sanctions apply to all persons subject to the jurisdiction of the U.S. US Person

• US citizen or permanent resident wherever located
• Anyone physically present in the US
• US corporations, partnerships, associations, including their non-US branches
• Also covers activities of non-US persons

*Hufbauer

Key message of economic sanctions

To target country: We do do no not ap appr prove of

• f yo

your r ac acti tions To allies: We mean ean wha hat we e sa say To domestic audiences: We are protecting our nation’s interests and ou

• ur

r val alue ues

Economic Sanctions

Types of Sanctions:

• Exp

xport

• Im

Import

• Fin

inancia ial l

• Loans, Banking

Asset Freeze

• Prim

rimary ry sa sanctio ions

• Se

Secondary ry sa sanctio ions

Goals of Sanctions:

• De

Deterrence

• Ass

sserting le lead adership ip

• Regime ch

chan ange

• Compensation for

nationali lized property

• Do

Domestic poli

• litical

l su support

Primary Sanctions

Prohibits “US persons” from conducting any business transactions with Iran

U.S .S. .

IR IRAN

Exam ample le: US oil and banking sanctions against Iran

Secondary Sanctions

7

Warns “third parties” to stop commercial dealings with Iran or lose the commercial relationship with US entities.

U.S .S. .

IR IRAN

Thir ird Par arties

Example: Secondary Sanctions warned financial institutions in other countries: either stop transactions with Iran or lose access to the US financial system.

Economic sanctions: Success Factors

• Economic size and trade size
• Type and combination of sanctions used

“Carrot and Stick”

• International support
• Duration of sanctions
• Target country’s:
• Government--democracy or autocracy
• Economic health and political stability

Economic Sanctions: Failure Factors

Sanctions:

• may unify the target country behind their leadership
• May prompt adversaries to assume the role of “savior” and

support the target country

• May alienate allies and certain domestic businesses
• may not be adequate

History of Iran Sanctions: A Summary

US Sanctions:

• 1979 –Hostage crisis
• 1984 –Support for Hezbollah
• 1992 –Weapons development
• 1995 –Trade
• 2001 –Asset freezes/travel bans
• 2007 –IRGC for destabiizing Iraq
• 2009 –IRGC for human rights

violations

• 2010 --CISADA
• 2011 –IRGC for interfering in Syria
• 2012 –Obama’s Executive Orders
• Leveraged CISADA* and expanded

sanctions

• Oil and petrochemicals
• Technology
• Blocked Iran’s access to

international financial system

* CISADA: Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010

UN Sanctions:

2006-2008 --Noncompliant with IAEA nuclear safeguards; embargo on nuclear-related materials; blocked financial assistance 2010 – UN Security Council Resolution 1929 supported by all allies, Russia and China

• -Oil restrictions; banking (CBI) and

financial sector

EU Sanctions:

2007 –Asset Freeze for Nuclear and missiles production 2010 –financial/banking; trade 2012 –Oil/petrochemical imports; shipping insurance; CBI asset freeze

CBI: Central Bank of Iran

Economic sanctions will be more effective if target country is dependent

• n industrial imports and has no strategic exports

STRATEGIC EXPORTS DEPENDENCE

• n IMPORTS

Lit Little le Effectiv ive High ighly ly Effecti tive Lit Little le Effectiv ive

?

Hig High Lo Low Lo Low Hig High

Effectiveness of economic sanctions: a few examples

STRATEGIC EXPORTS DEPENDENCE

• n IMPORTS

Ch Chin ina

Lib Liberia

IR IRAN

Nort

• rth

Korea

Little Effective Hig Highly Effectiv ive Little Effective

Hig High Lo Low Lo Low Hig High 1979 1979-2010 Som Somewhat effective 2012 2012-2015 Hig ighly effective

Advancement of science and technology, self sufficiency, and production of strategic goods create more immunity to economic sanctions

STRATEGIC EXPORTS DEPENDENCE

• n IMPORTS

Ch Chin ina

Lib Liberia

IR IRAN AN

Nort

• rth

Korea

Lit Little le Effectiv ive

Hig Highly Effectiv ive

Lit Little tle Effectiv ive

Hig High Lo Low Lo Low Hig High

Iran Nuclear Deal

• Also known as Joint comprehensive Plan of Action (JCPOA)
• A product of sanctions and intense diplomacy
• Made Iran compliant in nuclear area
• Group of 5 + 1 allowed Iran to once again trade oil

internationally

• Made sanctions subject to snapback for 10 years
• Sanctions remaining:
• Ballistic missiles
• Support for US-designated terrorist groups
• Human rights
• Financial transactions restrictions

Factors that made 2012-2015 Iran Sanctions very effective

Trade

Oi Oil Petrochemic icals Du Dual l Pur urpos

• se

Exp Expor

• rts

Sec Secondary ry Sa Sanct ctions Sh Shippin ing Insu nsurance

In International al Fin Financial al Tran ansac actions

Multi ltilateral: US, , UN, Group of

• f 5+1

+1

Effectiv ive So Some mewhat Effectiv ive Li Little le Effectiv ive

Leg Legend:

One ne ot

• ther key fac

actor r tha that, in in con

• njunction with

ith sa sanc nctions, led led to JCP JCPOA Agr greement was as in intensiv ive di dipl plomacy be between Ira Iran an and d the the ot

• ther

r pa part rties, esp especiall lly the the Uni nited St States.

President Trump’s unilateralwithdrawal from JCPOA has somewhat reduced effectiveness of US sanctions against Iran

Trade

Oil/ l/Petrochemic icals ls Dual al Pur urpose Exp Exports

Sec Secondary Sanc Sanctions Shi Shipping Ins nsurance

Internatio ional l Fi Fina nancia ial l Tran ansactio ions Effectiv ive So Some mewhat Effectiv ive Li Little le Effectiv ive

Leg Legend:

Unl nlik ike JC JCPO POA, wha hat see seems to be be ab absent fro from the the 20 2018 rein reinstatement of

• f

sa sanc nctio ions is is lack lack of

• f on
• ngoin

ing dia dialo logue be between the the Uni nited St States an and Ira Iran.

2012 vs. 2018: Is Iran in a better position to weather sanctions?

2012 2012

• Popular policies/Subsidy
• Unemployment 14%
• Inflation 30%
• Foreign exchange Reserves

$110B

2018 2018

• Reformist policies
• Subsidized food prices
• Unemployment 11%
• Inflation 10% - 30%
• Foreign exchange Reserves $130B
• More Support for domestic products
• Increased non-oil exports
• Willingness to implement banking

reforms

• Refine oil products domestically
• Greater unity

Despite a weaker impact, reinstatement of US sanctions will still take a heavy toll on Iran’s economy

OPPORTUNITIES CHALLENGES

Exporters Loss of Market

Share

Lower Gov Spending

Inflation Negative Growth Unemployment

Unce ncerta tainty/ Lower Inv nvestment

Technologiy knowledge Exchange

Poverty

Ine nequalit lity

Increased Innovation

Import Substitution

Black Market/High Costs

Intern’l Payments

Ind Indirect Imp Impacts: Di Direct Imp Impacts:

Depreciated Currency

High Interest Rates

Ot Other Imp Impacts:

Ne Negativ ive Imp mpact Posit

• sitiv

ive Imp mpact

Leg Legend:

2012-2015 Economic Sanctions

2012-2015 economic experience may provide insights into what Iran should expect under Trump’s sanctions

Source: World Bank, Fall 2018

2012-2015 economic sanctions contributed to increased poverty rate and more inequality

2012-2015 Economic Sanctions

Poverty rates varied across provinces, with Sistan-Baluchestan, Kerman and Golestanexperiencing the highest poverty rates (32%)

Source: World Bank, Fall 2018

Tehran, Qom and Alborz experienced the lowest poverty rates (2%)

F012-2016 Economic Sanctions

Groups most affected by poverty

Households:

• with more children
• headed by younger adults
• With head of household unemployed

Provinces with less urban population

• Impact more severe for rural households
• 18% of rural population with an employed head of

household below poverty line

Rouhani’s strategy to counter US economic sanctions

• Resistance Economy
• Oil export to eight exempted countries
• Accelerate bank reforms and FATF compliance
• Austerity measures
• Leverage EU’s Special Purpose Vehicle
• Subsidize basic food prices
• Use foreign exchange reserves wisely
• Support science and technology R&D
• Increase non-oil exports by:
• providing support for technology-oriented exports
• leveraging Iran Expo to promote Iranian products
• Use small- and medium-sized firms for trade

January 5, 2019 23

Are the benefits of economic sanctions worth the cost?

References (1)

Economic sanctions reconsidered, Hufbauer, Gary Clyde.; Schott, Jeffrey J., 1949-; Elliott, Kimberly Ann, 1960-; Institute for International Economics (U.S.), Washington, D.C. : Institute for International Economics; 1990 Economic sanctions reconsidered, Hufbauer, Gary Clyde.Washington, DC : Peterson Institute for International Economics; 2007 Biased Sanctions? Methodological Change in Economic Sanctions Reconsidered and Its Implications, Van Bergeijk, Peter A. G. ; Siddiquee, Muhammad S. H., Routledge, International Interactions, 03 September 2017, Vol.43(5), p.879-893 Multilateral Versus Unilateral Sanctions Reconsidered: A Test Using New Data, Bapat, Navin

• A. (University of North Carolina – Chapel Hill); Morgan, T. Clifton (Rice University), Harvard

Dataverse; 2018 Busted Sanctions Explaining Why Economic Sanctions Fail, Early, Bryan.Palo Alto : Stanford University Press; 2015 IMF Country Report No. 18/94, Islamic Republic of Iran, Selected Issues, March 2018 Iran Economic Monitor, Weathering Economic Challenges, world Bank Group, Fall 2018, The Long-term Impact of Economic Sanctions on the Technological Development of Iran, Hussein Fakhari in the Book “Development of Science and Technology in Iran”, edited by Abdol soofi and Mehdi, Goodarzi, 2017

References(2)

Valizadeh, A. (2012). Sanctions performance theories in international political economy, Journal of Policy, 41(1), 349-365.

• economy. Journal of Policy, 41(1), 349–365. AzizNejad, S. (2011). Effects of sanctions on the

Iranian economy with an emphasis on foreign trade. Journal of House and Research, 16(61), 165–210 Emomjomehzadeh, S., & Moradi, S. (2007). International sanctions and the formation, of subversive movements: Case Study Of Iran. Journal of Political and, International Approaches, 25, 37–62. Miremadi, T. (2012). A framework for evaluation of strategies to counter sanc- tions from the perspective of the national system of innovation. Journal of Science and Technology Policy, 3, 83–98. Fact Sheet: Sanctions Related to Iran, The White House, Office of the Press Secretary, For Immediate Release, July 31, 2012 Post-withdrawal Iran, Clément Therme, (2018) Post-withdrawal Iran, Survival, 60:6, 231-240, CISADA, COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY, AND DIVESTMENT ACT OF 2010 Iran Joint Comprehensive Plan of Action (JCPOA), US department of State, 07/14/15 Various periodical Articles