Beyond sanctions and war: US policy options toward Iran

Since the Islamic Revolution of 1979 and the Iran hostage crisis, the key component of the United States policy toward the Islamic Republic of Iran (IRI) has been “containment”. This was, and continues to be, executed through a number of means including a balance-of-power strategy during the Iran-Iraq War (1980-1988), the creation of an American-backed regional security architecture through the Gulf Cooperation Council (GCC) and most recently through a direct American military presence on nearly all of Iran’s borders- especially since 2001.

One of the most consistent strands of containment have been US sanctions aimed at reducing Iran’s economic and military capabilities. Military sanctions, beginning in the early 1980s, effectively grounded Iran’s conventional military forces (which had been largely built from US and other Western military hardware and training) during its war with Iraq. These include the Iran – Iraq Arms Nonproliferation Act of 1992, Iran & Syria Nonproliferation Act of 2005, and the Stop Arming Iran Act of 2007. Economic sanctions, including the Iran – Libya Sanctions Act (ILSA) of 1996 (which became the Iran Sanctions Act of 2006), Accountability for Business Choices in Iran Act of 2009 and the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010 have undermined Iran’s ability to fund its military and maintain economic stability. As Professor Stephen L. Carter pointed out on The Daily Beast, economic sanctions also put pressure on low- and middle-income people, causing social discontent against the regime.

Military sanctions

Yet over the course of the last 32 years, the IRI appears to have systematically undermined the very basis of sanctions by devising unique defenses and economic doctrines. In the area of defense in particular Iran, has leveraged asymmetrical warfare to counterbalance its inability to procure high-tech weapons on a large scale, especially from Western suppliers. During the Iran-Iraq War, the new revolutionary regime under the Ayatollah Ruhollah Khomeini was confronted by the specter of a well-armed and well-funded Baathist Iraq under Saddam Hussein. Unable to rely on the politically suspect regular military built by the Shah which relied heavily on Western support to function, Khomeini and his praetorian guard, the Islamic Revolutionary Guard Corps (IRGC), devised a simple and bloody method of warfare to enable the regime to survive: Mobilizing hundreds of thousands of patriotically and religiously motivated volunteers, known as the Basij, using mainly light weapons to overcome Iraq’s military by sheer force of numbers. Iran became famous for human-wave attacks which resulted in high casualties but, in cooperation with the regular military, were effective in blunting Saddam’s advance and eventually taking the war to Iraq’s soil.

The IRGC and Basij’s desperate strategy and tactics were not a function of their religious zealotry as often highlighted in the West and even within Iran, but rather the urgent nature of the crisis, lack of arms, and proper training. Iran was thus able to meet the first major vulnerability caused by US sanctions, a weakened conventional military in the face of Iraqi invasion, by creating a broad-based popular militia which used crude weapons and large numbers to protect Iran’s borders. This capability was augmented after the war by procuring high-impact and low-quality weapons systems from the ex-Communist-bloc (especially Russia, China and North Korea), replicating them domestically and producing them cheaply in high quantities. The result today is the Shahab and other missile platforms scattered throughout the country which can devastate ground targets throughout the Middle East and parts of Europe and light assault boats using swarm tactics that can impede traffic in the Persian Gulf.

While this gave Iran a reasonably strong defensive capability, Iran lacked a strong offensive means that would serve as a deterrent to future attacks and give it the ability to make war on its enemies (especially within the Middle East) when and where it saw fit, especially medium- and long-range missiles, long-range aircraft, submarines, aircraft carriers and weapons-of-mass-destruction. To this end, Iran initially supported international Islamic terrorism and eventually created and/or backed insurgent groups which, while maintaining a degree of independence, were also instruments of Iranian defense and foreign policy. While Hezbollah in Lebanon is the first of such groups to come to mind, this network extends across the Middle East and also includes Iraq, the West Bank and Gaza, Yemen and elsewhere. Through them, Iran could strike devastating blows against its enemies such as the US and Israel while retaining plausible deniability, fighting shadow wars in place of the conventional ones it could not win. Thus through a popular militia, large quantities of cheap high-impact low-quality weapons and a network of insurgent groups across the Middle East, Iran has been able to somewhat overcome the effect of sanctions on its military capabilities.

Economic sanctions and the Yaraneha plan

Yet it is in its economy that sanctions have had the worst impact. During the 1980s the effects precipitous decline of Iran’s economy and international oil prices (income from oil exports are the pillar of the state budget and national economy) were kept under control through redistribution of wealth, subsidies and rationing. The first two of these three policies continued well beyond the war years to present day. Yet as Iran once more came under military and economic pressure during the War on Terror under the George W. Bush administration, redistribution and subsidies were insufficient to meet the needs of a large young population which suffered from high unemployment, inflation and stagnant economic growth. Since the 2009 Iranian presidential election crisis, and ratcheting up of sanctions under the Barack H. Obama administration, the downward spiral of Iran’s moribund economy has become more acute, meaning that at first sight economic sanctions may have finally achieved their goal of fundamentally undermining Iran’s economic stability and creating social discontent.

But as several sources have recently indicated [1][2], this may be an illusionary narrative woven by hopeful policymakers, experts and journalists in the US as well as the Iranian opposition in exile which is eager to give the impression that the regime will falter at any moment. The implementation of the Yaraneha plan, Iran’s subsidy reform program, may be particularly crucial in the analysis of whether Iran’s economic policy has been able to sufficiently address its sanctions Achilles heel.

To begin, since the election of President Mahmoud Ahmadinejad in 2005, Iran’s economy has relied on two methods to keep its economy functioning under increasing strains from years of mismanagement and sanctions. First, fickle Western investment of capital and technology has been replaced with the Chinese, Russians and others more willing to work in Iran’s environment and less concerned about Iran’s treatment of its domestic population or regional ambitions. Second, an extensive smuggling network operated by state security bodies has ensured a steady flow of imports to meet basic needs. Still, this has been insufficient to address the issue of Iran’s declining oil and gas revenues due to under-investment in its petroleum sector.

The Yaraneha plan attempts to address the issue of under-investment and economic discontent (especially by the lower-classes) in one bold but risky stroke: Eliminate billions of dollars in subsidies in a relatively short span of time. While subsidies have historically been a cushion against shrinking incomes and rising prices in Iran, they also promote waste in the consumption of basic goods by dramatically lowering prices. This is especially a problem in the area of refined gasoline, which Iran (a major producer of crude oil) has been forced to import at an alarming rate. Cutting subsidies has thus addressed the issue of high consumption and waste. The impact of subsidy reforms on the lower and middle-classes have in turn been balanced out by small onetime cash payment of $45 per person per month made to 72.5 million people. While it is too soon to tell, the IMF appears optimistic that Iran may be able to get its economy on track if it is able to control spending, cut inflation, and if oil prices remain high. The savings from the Yaraneha plan, estimated to be around $14 billion, in turn can be used to make critical investments needed to save the ailing petroleum industry and other economic sectors.[3]

Is the Yaraneh plan the vaccine to Iran’s economic sanctions virus? It is clearly too soon to tell. However, if this is the case, then it may suggest the failure of a major pillar of US containment strategy toward Iran for the time being. It increasingly appears that Iran has mastered living in the hostile environment the US has created for it, and in fact may not be able to survive without it! After all, the ever tightening grip of the IRGC on Iran’s economy is largely dependent on its state of isolation. If sanctions have failed to fundamentally change Iran’s behaviour, it may mean that containment may also be failing- especially in the context of the weakening US security architecture in the Middle East in the wake of the Arab Spring.

Beyond sanctions and war: US “soft-power” options

This poses a second even more important question for US policy toward Iran: How should it be changed to be more effective? The military attack option has been on the table since 1979 and have become relevant again since the Bush administration, especially in regard to Iran’s nuclear program. However, it is likely the least optimal option for a host of reasons including US military over-extension, Iran’s ability to retaliate, the potential of the conflict to spread, the effect on the price of oil and perhaps critically that military intimidation is unlikely to change the behaviour of Iran’s leaders but only embolden them. While the US may choose to continue containment, and even sanctions, or engage Iran in talks that eventually lead to détente, there is something that can be additionally done that the IRI has feared for years. Iran has called the promotion of democracy and human rights the “soft war” which it views as a bigger danger than anything else because of its ability to change its citizenry’s thoughts and empower them to take actions against the regime. The Obama administration has been empowering those opposing the IRI from within Iran through the Iranian Digital Empowerment Act, Stand with the Iranian People Act, Victims of Iranian Censorship Act (VOICE) and Iranian Cyber – Suppression Act, all since 2009. Yet a more comprehensive effort may be needed. While the US should be highly skeptical of supporting existing opposition groups, strongly promoting the broader goals of democracy and human rights and enforcing these in international arenas may pay dividends that more expensive hard-power options have not been able to so far.