Iran’s Regime, Not Sanctions, is Culprit for Nation’s Economic Woes

On August 6, the Trump administration took its first concrete steps toward withdrawal from the 2015 Joint Comprehensive Plan of Action (JCPOA) by re-imposing a tranche of sanctions that had been suspended under the terms of nuclear deal. According to President Trump’s executive order, the reinstated sanctions include restrictions on Iran’s automobile industry, precious metal trade, and ability to purchase U.S. bank notes.

The president’s stated rationale for putting the sanctions back in place is “to advance the goal of applying financial pressure on the Iranian regime in pursuit of a comprehensive and lasting solution to the full range of the threats posed by Iran, including Iran’s proliferation and development of missiles…, its network and campaign of regional aggression, its support for terrorist groups, and the malign activities of the Islamic Revolutionary Guard Corps and its surrogates.” A second round of sanctions targeting Iran’s port operators, as well as its energy, shipping and shipbuilding sectors is slated for reinstatement in November.

Proponents of the JCPOA have resurrected a number of discredited arguments against sanctioning the Iranian regime in the wake of the Trump administration’s decision to reinstitute sanctions. A recent post on LobeLog, for instance, by National Iranian American Council (NIAC) President Jamal Abdi and Research Associate Sina Toossi featured the following canards: “Trump’s punishing use of sanctions will wither away Iranian civil society by impoverishing Iran’s middle class. The sanctions will serve to increase control of the Iranian economy by unaccountable and repressive forces. If U.S. policymakers wish to increase room for political dissent and civil society in Iran, they should remove obstacles to improving the standard of living and wellbeing of the Iranian people.”

Arguments such as these are a misguided attempt to shift blame for Iran’s economic woes to external actors when, in fact, culpability belongs squarely with Iran’s ruling regime. The trajectory of Iran’s economy and escalation of malign regional activities since the JCPOA went into effect (cataloged here by UANI) underscore the absurdity of such claims.

U.S. policymakers, in conjunction with the P5+1, laid the groundwork for conditions which should have served to raise the standard of living of the Iranian people on January 16, 2016, Implementation Day of the JCPOA. The JCPOA rescued Iran’s economy from the brink of calamity with an infusion of $50-100 billion in previously frozen assets and opened up the Iranian market to foreign trade and investment. However, the economic opening provided by the JCPOA did very little to benefit lower and middle class Iranians.

Instead, the benefits accrued virtually exclusively to Supreme Leader Ali Khamenei and his associates, as well as the Islamic Revolutionary Guard Corps. A January 2017 Reuters analysis of foreign business transactions in Iran found that 90 out of 110 accords, accounting for over $80 billion, inked since the JCPOA was reached in July 2015 were with state-controlled entities. It is utterly disingenuous to claim that sanctions will “increase control of the Iranian economy by unaccountable and repressive forces” when, in fact, lifting sanctions had the exact same effect.

JCPOA proponents, who believed that the nuclear deal could moderate Iran by opening it up to foreign markets and investments, were up against insurmountable structural impediments. President Hassan Rouhani did, in fact, recognize that from a pragmatic standpoint, opening Iran’s economy would present the strongest path for relieving economic pressure and enhancing the long-term sustainability of the ruling regime. However, Rouhani’s preferred path was doomed from the start, as Supreme Leader Khamenei, who is endowed with the ultimate authority over Iran’s domestic and foreign policy, advocated for a “resistance economy” based on self-sufficiency.

Khamenei did greenlight the nuclear negotiations, operating from a strategic playbook in which he seeks to play Iran’s various political factions off each other. However, he never gave economic openness the oxygen needed to succeed, instead backing the “resistance economy” path due partially to mistrust of the West, but mainly to ensure that he and his cronies, including the IRGC, retained their monopolistic control over virtually every sector of the Iranian economy.

Even as the Obama administration went above and beyond its obligations in the JCPOA to encourage international trade, investment, and banking in Iran, the full benefits of the nuclear deal hoped for by Iran’s repressive and unaccountable leadership never materialized. Many European companies recognized the legal, political, financial, and reputational risks associated with doing business in Iran, and therefore stayed away. Those that did choose to do business in Iran did so in spite of the fact they would likely be contributing to the coffers of Khamenei and the IRGC.

Iran’s sanctions relief windfall freed up tens of billions of dollars, thereby contributing to an Iranian military buildup and enabling the escalation of Iran’s malign conduct at home and abroad. After the nuclear deal took effect, Iran stepped up its meddling in Syria and Yemen, advanced its ballistic missile program, and escalated its harassment of U.S. naval vessels in the Persian Gulf.

­Iran also increased funding for its terrorist proxies around the Middle East, such as Hezbollah and Hamas. In the years prior to the JCPOA, Iran provided Hezbollah with an estimated $200 million per year for both its militant and social/political activities. Immediately preceding the JCPOA, international sanctions and falling oil prices led Iran to reportedly cut its monetary support to Hezbollah by 40% in 2015. The lifeline provided by the JCPOA enabled Iran to drastically escalate its funding of Hezbollah. In 2017, Iran reportedly quadrupled its pre-JCPOA funding of Hezbollah, upping its aid to $830 million per year. Iran had also pledged $30 million in annual support for Hamas’ anti-Israel operations dating back to 1993. Following the nuclear deal, Iran reportedly upped its funding to the group to between $60 and $70 million annually.

Iran’s destabilizing regional activities, coupled with its economic corruption and mismanagement, have served as the primary obstacles to greater economic integration. While the JCPOA was in effect, Iran failed to structurally reform its antiquated, opaque banking system, which the U.S. Treasury Department had labeled a jurisdiction of primary money laundering concern.

Supreme Leader Khamenei himself remarked on August 13 that, "More than the sanctions, economic mismanagement (by the government) is putting pressure on ordinary Iranians ... I do not call it betrayal but a huge mistake in management." Khamenei’s statement is absolutely correct, but it is also a glaring elision of his own role in Iran’s economic downturn. The greed and avarice of Khamenei, who presides over a $95 billion economic empire has fueled a rejuvenated and increasingly emboldened protest movement since late December 2017.

Secretary of State John Kerry predicted that Iran would divert some of its sanctions relief to terrorism, but the lion’s share would go to badly needed infrastructure and development projects. Instead, Khamenei and the IRGC prioritized lining their own pockets and pursuing Iran’s destabilizing hegemonic regional agenda. The suffering of ordinary Iranians has therefore only increased since sanctions went into effect. If the situation in Iran continues to deteriorate, the blame will belong solely to the Iranian regime.