August 26, 2011

The Iran Sanctions Fallacy

The economy, and its poor performance, is a major concern for average Iranians [GALLO/GETTY]

Iranians’ displeasure with their government is palpable and
transcends demographics. Before the contested 2009 presidential
election, few were satisfied with the government’s performance. Since
then, this displeasure has only increased – but not for the reasons that
many assume. More than politics, the state of Iran’s economy is the
greatest source of discontent. Despite record profits from high oil
prices, many Iranians are forced to navigate an economy plagued with
unemployment, inflation and corruption. However, the assumption in the
West that sanctions will aggravate Iranian government mismanagement to
the point of popular revolt is largely misguided.

This presents an arduous task for American policymakers. Publicly,
they justify broad-based sanctions as punishment for the Iranian
government’s refusal to yield to pressure over its nuclear programme.
That is a hard sell to even the most liberal 30-something in urban
Tehran – and the majority of Iranians residing outside the capital are
far less progressive and politicised. They embrace neither sanctions nor
their own governments’ malfeasance. From Ahvaz to Mashhad, Iranians
outside Tehran are undoubtedly dissatisfied with the status quo, but
their political discussions focus more on skyrocketing prices and
dwindling employment rather than the lack of political and social

During my experience living and traveling throughout Iran, I spoke
regularly with global business executives, entrepreneurs, bazaaris,
intellectuals and students. I witnessed first-hand their struggles
managing day-to-day and future planning of business affairs in a damaged
economic climate. Conversation about the impact of mismanagement and
sanctions on their businesses and families was a frequent topic of
conversation at meetings and social gatherings. When I speak with those
same friends and associates today, they are vexed by an environment in
which mismanagement persists and sanctions increasingly bite. Many
Iranians are unclear about how to manage the present and plan for the
future, as this toxic combination limits their ability to make business,
career and investment decisions.

Potential unreached

To be clear, politicised economic decision-making has long caused the
Iranian economy to underperform.  Despite this, the Islamic Republic
has important building blocks in place that are critical to fulfilling
its vast economic potential: a young, dynamic society; a vibrant private
sector culture; material wealth; and diversity of economic sectors.  

It is this vast potential that makes the Iranian government’s
self-induced shortcomings all the more tragic: imbalanced distribution
of wealth; financial and administrative corruption; and an overall lack
of economic doctrine, efficiency and structure – a recipe for economic
disaster in any country that does not possess massive energy resources.

And therein lies the rub: with buoyed oil prices, economic reform
discipline drops and political survival is prioritised. The root cause
of Iran’s economic malaise is government induced, but broad-based
sanctions worsen this languor and the costs are passed down from the
government to the people.

Some factions within the Iranian government tried – with some success
– to bolster the private sector in an effort to relieve this burden on
middle-class Iranians. However, the conservative factions currently in
power enjoy windfall oil revenues – and do not depend on taxes to
replenish government coffers. Therefore, they do not need a dynamic
middle class or productive economy to ensure political survival.
Instead, many Iranians depend on the government in some fashion to help
make ends meet. 

Sanctions exacerbate this dependence on the government. By raising
the costs of doing business in Iran, sanctions slow economic development
and decrease employment options for the middle class. When fewer
companies invest in Iran, there are fewer jobs for skilled middle-class
workers; fewer opportunities to develop professional skills; and less
socially-conscious investments while the government prioritises
differently to combat foreign pressure. Alternative options for Iran’s
middle class are increasingly narrow: unemployment, emigration, or
becoming state employees. As a result, many middle-class Iranians not
employed by the government live on unsustainable sources of income such
as second jobs and remittances from family abroad.  Survival for the
middle class is at best unstable, and the conservative factions in power
prefer to keep it that way – a struggling middle class focused on
making ends meet is easier to control. 

Conservative power

Sanctions have in fact strengthened the hand of conservative factions
that increasingly disregard economic reforms from the 1990’s and early
2000’s. Instead, they have favoured economic populism and tighter
government control of resources. This allows Iranian hardliners to kill
two birds with one stone: reallocating resources to lower-class Iranians
in an effort to expand their political base, while squeezing
middle-class Iranians that are the backbone of Iran’s pro-democracy
movement. Together, these policies increase the percentage of the
population beholden to the state for its livelihood. With no compelling
alternative in sight, Iranians are less likely to revolt and bite the
proverbial hand that feeds them.

While the Iranian government is less popular today than any time in
recent memory, little support for broad-based economic sanctions exists
in Iran because they collectively punish Iranians. Ironically, the group
least affected by these sanctions are political and military elites
that control Iran’s nuclear program – who sanctions ostensibly target.
Iranians are therefore more likely to turn against countries that impose
such sanctions, rather than their own government for inducing them.
Simply put, most Iranians are not sympathetic to the fact that the
impetus for sanctions is Iran’s nuclear program. They are even less
sympathetic to the prevailing assumption in Washington that Iranians
will eventually revolt if their economic infrastructure is decimated by
sanctions. This process upsets Iranians now, and contrary to popular
assumption, that negative feeling will not wane over time. 

I have seen first-hand how indiscriminate sanctions kill hope in
Iran, rather than fuel it in the way that economic opportunity can.
Iranian history demonstrates how hope fuels change, while economic
misery kills the development of democratic institutions and principles.
Iranians who can afford it will continue buying imported iPhones and
luxury cars, but the lower and middle classes will have steadily
decreasing chances to compete. It is worth repeating that sanctions
alone are not to blame for Iran’s economic maladies, but we should not
neglect the fact that they are increasingly hurting the people that
America says it seeks to help. As a new generation of Iranians assumes
positions of power in the coming years, they will increasingly hold
their current leaders accountable for the damage caused by poor economic
management. However, they are just as likely to begrudge, rather than
trust, an American government responsible for economic damage inflicted
by broad-based sanctions that inhibit their ability to build a better

Marashi is Director of Research at the National Iranian American
Council and a former Iran desk officer at the US Department of State.




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