Sanctions Against Iran Would Work; Too bad they won't be tried

by Olivier Guitta
The Weekly Standard

After nearly four years of fruitless negotiations between the EU-3 (France, Germany, and the United Kingdom) and Iran over the nuclear issue, the U.N. Security Council on December 23 passed Resolution 1737. It imposed limited, almost meaningless, sanctions on the mullahs' regime. But it also set a clock ticking: If Iran has not agreed to suspend its enrichment of uranium by February 21, the Security Council may contemplate more severe sanctions.

The evidence that sanctions could work is significant. Consider the economic picture inside Iran. A roughly 100-page report prepared by the foreign affairs and defense commission of the Majlis, the Iranian parliament, and dated September 2006 was recently leaked to the French daily Le Monde. The report analyzes the economic and social consequences of potential international sanctions. The product of six months' intensive discussion among economists and oil specialists, it was circulated at the highest levels of the regime, and to president Mahmoud Ahmadinejad.

The report underscores the vulnerability of the Iranian economy--especially the oil sector--to sanctions. At first glance, it might seem that a country with the second-largest gas and oil reserves in the world has nothing to worry about. But as the report notes, 85 percent of Iran's revenue comes from the sale of oil abroad. At the same time, Iran imports most of the refined products it uses, like gasoline. Iran consumes half a million barrels of petroleum products per day, of which 40 percent is imported, at a cost of $3 to 4 billion a year. In the last few years, Iran's consumption of petroleum products has increased 10 percent per annum, putting added pressure on the oil sector. Rising consumption should come as no surprise, given population growth and the government-subsidized price of gasoline, among the lowest in the world at 800 rials a liter, or about 33 cents a gallon. Iran exports 2.5 million barrels of oil a day (3 percent of world consumption). An embargo on these exports would have a great impact, though it would not be felt for at least a year.

Heightening the vulnerability of the Iranian economy to sanctions is the fact that half of its imports come from Western countries, including 40 percent from the European Union. In the event of sanctions, the bulk of Iranian industry would be paralyzed after just three to four months. Iran would lose between $1.5 and $2 billion in annual revenue. Not surprisingly, the authors of the report note: "It is important to delay any measures which could affect the population because of the risks of instability."

The Majlis report recommends "making every political effort to prevent the imposition of sanctions, while protecting the interests of the country and the national honor." It mentions that Iran can use economic leverage with countries that depend on it for oil (Japan, China) and "political and military dissuasion" with others.

An embargo would destabilize Iran's economy and weaken its rate of exchange, while discouraging private investment. As a result, the report says, Iran "would be forced to modify its national priorities, and to devote the bulk of its resources to preventing major social upheaval, which could cause a deterioration of living standards for an important part of the population." It also insists on the need to continue threatening Western nations with a "cold winter," a way of stressing that rising oil prices would have a huge negative impact on Western economies.

The report amounts to a warning to the regime that it could not withstand major economic pressure, because of the structural weaknesses of the Iranian economy and its fragile financial situation. According to the report, "the members of the regime who were interviewed by the commission indicated that any deterioration of the economic situation could cause social disturbances that would weaken domestic stability." Interestingly, the commission seems to distance itself from the hard line personified by President Ahmadinejad. It concludes that the simultaneous freezing of Iranian reserves abroad, imposition of an embargo on Iranian crude exports, and a ban on refined petroleum imports would plunge Iran into a deep hole both economically and socially. The implication is that sanctions could seriously weaken the regime.

Unrelated confirmation that isolating Iran might be an effective policy comes from the French experience in the late 1980s. Knowing of Iranian involvement in 11 terrorist bombings in the streets of Paris between December 1985 and September 1986, Jacques Chirac, then prime minister, decided to act. Longtime Chirac observer Franz-Olivier Giesbert, in his biography of Mitterrand, quotes Chirac as speaking contemptuously of the mullahs: "Like all people, Iranians hate losing face. They have their dignity. So if you treat them like chimpanzees . . . " And, "as long as you behave like savages, we will not have diplomatic relations with you."

France severed diplomatic ties with Iran on July 17, 1987. Less than a year later, on June 16, 1988, it restored relations--after five French hostages in Lebanon (kidnapped by Iran's proxy, Hezbollah) had been freed, attacks on French soil had ceased, and Tehran had sought a rapprochement. In that instance, French firmness worked. Apparently Tehran was unwilling to be cast as a pariah on the international scene, preferring to compromise to regain its honor.

There's no reason it wouldn't do so today--if it were actually forced into a corner. For either economic or diplomatic isolation to be fully effective, however, every major nation would have to be on board. And the prospects of this are getting dimmer by the day.

It is clear that Russia and China went along with Resolution 1737 only because its sanctions were so mild. In addition, none other than France is now going wobbly. While official French policy remains that a nuclear-armed Iran is unacceptable, President Chirac--who a year ago was leading the effort to secure a tough condemnation of Iran by the U.N. or, failing that, the E.U.--gives every indication of rejecting serious sanctions. While he tried to explain away as an off-the-record slip his statement on January 29 that he could live with one or two Iranian bombs (the real problem, he said, is proliferation), he made the statement in a recorded interview with the New York Times and other major publications. And there are grounds to believe that this backtracking reflects a good deal more than presidential inadvertence.

First, there is France's alliance with the Gulf monarchies. In the late 1990s, France signed treaties with the United Arab Emirates and Qatar obligating it to intervene militarily to defend these countries. Naturally, in the tense atmosphere of the region, the Gulf states are worried about Iran. Last year, the Saudi daily Al Riyadh reported that the leaders of the Iranian Revolutionary Guard, angered by Qatar's alliance with the United States and allegedly Israel, were threatening to attack Qatari oil and gas facilities by sea and air should a military confrontation occur between the United States and Iran over the nuclear crisis. In any such case, France would be treaty-bound to send troops to the region to retaliate against Iran. Qatari diplomats have been reminding France of its commitments. Such intervention is surely not a prospect Chirac enjoys; so toning town the rhetoric towards Tehran is de rigueur.

Second, Lebanon. Chirac is obsessed with the Lebanese imbroglio, for a number of reasons. Rafik Hariri, the former prime minister of Lebanon assassinated on February 14, 2005, was a close friend of his. Then, too, France has soldiers in the UNIFIL contingent in south Lebanon. And Iran has threatened to renew Hezbollah attacks in France itself if the French take a harsh stance against it at the Security Council. Relations between Hezbollah and France have been rocky in the past few months, and Chirac is probably seeking to avoid provocation.

Third, French business interests in Iran are huge: a staggering $35 billion in investments, excluding the oil company Total's contracts (Total has invested over $4 billion in Iran). France is Iran's second-largest source of imports (after Germany), claiming 8.3 percent of the country's total imports. Also, numerous French multinationals have entered the Iranian market in the past two years. Renault, the leading French automaker, for instance, has invested $2 billion in a joint venture with two Iranian automakers that will be Renault's second-largest operation in the world, turning out as many as 300,000 cars a year. In the event of economic sanctions, French companies would be hit hard. Chirac is surely taking this into account.

Whatever his reasons, it appears that even Chirac--until recently, one of the toughest on Iran--is giving up. Indeed, it may be that much of the world is resigned to letting Iran have nuclear weapons. But this cannot be the last word, given the stakes--the risk of losing the war on jihadist Islam and enduring a nuclear terror attack. If the United States and/or Israel are pushed to act militarily, some of the blame will belong in Paris as well as in Moscow and Beijing.

Olivier Guitta is a consultant on foreign affairs and counterterrorism in Washington.