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The Iran sanctions are bound to fail

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Today marks the end of the first benchmark in the new U.S. policy of requiring American companies and financial institutions to comply with reinstated “maximum pressure” sanctions on Iran. This is a result of President Trump withdrawing the United States from the Iran nuclear deal. In this first phase, American companies and investors must show they are “winding down” economic exchanges with the Iranian metal and auto industries, as well various financial activities involving the Iranian rial and sale of U.S. banknotes. The second phase, ending in November, requires compliance with the heaviest sanctions on the Iranian oil and energy sectors, as well as the central bank and other financial institutions.

To increase the bite of these sanctions on the Iranian economy, President Trump also reinstated secondary sanctions, imposing the same restrictions on all economic entities outside the United States that continue economic engagement with Iran in prohibited trade or finance. As these deadlines loom, most E.U. companies and banks will forgo their ventures with Iranian partners in favor of retaining access to more profitable U.S. markets. At the same time, the European Union has invoked a blocking statute to insulate its companies from these as best as it can.

{mosads}Following the decision to reinstate secondary sanctions, Secretary of State Mike Pompeo unveiled 12 demands for changed Iranian behavior in Syria, in its support for terrorism, and in its repression of human rights. Punishing sanctions, with secondary sanctions as a cornerstone, can achieve these policy goals. The administration soon after acknowledged that full regime change in Iran is the preferred outcome of this strategy. But will these secondary sanctions attain these goals? Despite their strength, my prognosis is negative.

First, sanctions attract allies only if they are mechanisms in service to a foreign policy that also employs other diplomatic tools to attain their goals. To impose secondary sanctions on friend and foe alike so they join this coercive campaign demands a smart appeal to the political economy concerns at stake in each relationship. For friends to support sanctions despite the economic losses requires the United States to articulate the shared goals of the wider policy that makes their pain temporary and worth it. With foes, the United States must either make it far too costly for the foe to assist the primary target, or to offer incentives on other tension points in exchange for cooperation in economic targeting.

Any honest assessment shows the administration has not articulated a coherent foreign policy that will lead to sanctions success. Nothing could more undermine the forming of an effective sanctions coalition than a tariff and trade war that attacks friends and sends contradictory signals to foes. Most damaging is the deprecating diplomatic behavior of President Trump toward allies and then imposing secondary sanctions that follow tariffs on their companies. Moreover, the allies reject categorically the U.S. withdrawal from the Iran nuclear deal as the basis for new sanctions and believe that the demands are not best realized by sanctions.

Our foe, Russia, is already under heavy Western sanctions. But isolating Iran from Western money and companies permits Moscow to fill the market void in various high profit areas. For China, facing a growing trade war with the administration, the United States stands ready to further punish Beijing unless it ends its purchase of Iranian oil, which will not happen. Even worse, there is no vision in Washington for how to keep China committed to full implementation of North Korean sanctions in light of these other punishing measures the United States is enacting.

Finally, most economists believe a variety of factors, including the recent growth of the Iranian business and labor, will permit Tehran to withstand new sanctions. New trading and investment partners, including Turkey and India, wait in the wings alongside Russia and China to replace Western market share. Moreover, the quick uptick in oil prices triggered by announcing these latest sanctions illustrates that market volatility may result in more negative global impact from sanctions than foreseen. Thus, Iran can hold much of the economic pain of sanctions at bay.

This failure of the current U.S. sanctions strategy will not be due to its lack of punishing power. Rather, the administration is singularly pursuing regime change through the misapplication of the sanctions tool. This is not the best foreign policy to use here. Secondary sanctions imposed during a chaotic trade war ignore costs to allies, provide advantages for our foes, and will have limited impact on the Iranian economy.

George A. Lopez is the Hesburgh Professor Emeritus at the Kroc Institute for International Peace Studies at the University of Notre Dame. He served on the United Nations Security Council panel of experts for North Korea sanctions and was vice president at the United States Institute of Peace.

Tags Donald Trump Global Affairs Iran Mike Pompeo sanctions United States

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