Talk of sanctions, as considerations of their efficacy show, are but prelude to military action on Iran and evidence of failure among US strategists, writes Mustafa El-Labbad* The world is awaiting the next scheduled meeting of the International Atomic Energy Agency's board of governors, which is expected to transfer Iran's nuclear file to the UN Security Council. Until this meeting, so important regionally and globally, is held, capitals involved in making such global decisions are studying the sanctions that should be placed on Iran in response to its persistence in pursuing nuclear technology. The term "economic sanctions" has thus become a buzzword of late in research centres, the media, and the corridors of political activity, despite the lack of an international agreement on its implications and political utility. The internal logic of sanctions, regardless of their various definitions, lies in the political use of economic pressure to make the targeted state turn back from its course. In following, economic sanctions against Iran will only be a new stage in the administration of a struggle over its nuclear file that is conducted via non-military means. Economic sanctions are not a uniform group of measures employed in blanket fashion on all states to be punished. It is expected that the member states of the Security Council will, from now and until the beginning of next month, weigh the various forms of sanctions with regard to their effect on political decision-making in Iran. The internal logic of sanctions rests on the basic assumption that the political leadership in the penalised country will submit, at a certain point, to external pressures in order to preserve its political authority. The classic formulation of economic sanctions is to restrict economic transactions, which is more successful and effective when the penalised state's economy depends heavily on such transactions. Negative effects on such penalised states appear in various forms, including price hikes for consumers, increased unemployment and losses for business owners. Given the organic connection between politics and economics, negative economic effects are directly translated on the political front. The negative economic ramifications of sanctions stretch to questions being asked as to the political utility of particular decision-makers in the penalised country, which in the end affects their political standing and may lead to their replacement. With some degree of simplification, it is possible to divide economic sanctions into three basic kinds: commercial and investment, financial, and so-called "smart sanctions". Close inspection of Iran's external commerce suggests that imposing oil sanctions and a sea blockade, prohibiting oil exports and investment in the energy sector, would serve a severe blow to the Iranian regime. Oil forms 80 to 90 per cent of Iran's exports, and oil exports fund 40 to 50 per cent of Iran's income. As Iran wants to expand its oil extraction from known fields and discover more, it requires large-scale investment in the oil sector. Oil sanctions coupled with a halt of external investment in the energy sector (oil and gas) would logically lead to wide- ranging effects on Iran's economy. Yet despite the apparent soundness of this assumption, previous experience has shown that totalitarian regimes do not necessarily fall due to economic decline. In Iran, despite crises of the political system based on the "rule of the clergy", there remains a margin for opposition and criticism by individuals and civil organisations. Neither personalities nor parties can politically invest in the economic situation to pressure the regime, however, due to Iran's internal balance of power. In light of Iranian nationalist feelings and wide-scale insistence on the nuclear project, it is expected that this kind of sanctions would in fact shore up Iranian national unity and rallying around the flag. Yugoslavia in the 1990s serves as an example. The Milosevic government at the time employed the economic sanctions on Yugoslavia to justify many economic strangleholds and actually exploit them to feed Serbian nationalist emotions. The primary benefactor of these sanctions was the Yugoslavian mafia, which exploited tight living conditions to pile up profit while large segments of the Yugoslavian middle class emigrated. Only years later, the costs to the political leadership in Belgrade grew more than it could handle, forcing it to bow to the will of those placing sanctions on it and to pressure Bosnian Serbs to accept the Dayton Peace Accords. Yet as Yugoslavia, worn out economically and militarily and fragmented geographically, cannot be compared to the Iranian situation today, one cannot fully predict the extent to which the Iranian political regime would lose legitimacy were this type of sanctions imposed upon it. Neither can the extent of compulsion placed on it to change its policies in order to preserve its power be estimated. What is certain is that should oil sanctions be placed on Iran, the price of this strategic commodity would make an unprecedented jump, and this would negatively affect the global economy. Iran is the fourth largest source of oil in the world, which places it in an exceptional position within the global energy market and strips oil sanctions of any real political viability. In contrast to commercial and investment sanctions, it is expected that financial sanctions on Iran will gain wider international acceptance with the primary target of high-ranking commercial and industrial interests. In addition to freezing government assets and those of companies and individuals of the penalised state's nationality, an important aspect of financial sanctions is that they obstruct state investments. Such sanctions also complicate the conditions for rescheduling debt payments, which amplifies the crisis of foreign debt and places extreme pressure on the country's economic decision- makers. It also places pressure on the penalised country's hard currency reserves, which are consumed in paying off interest and instalments on foreign debt. In this context, industrial states may halt export loans granted to domestic companies exporting to the penalised state. Export loans are a form of facilitation offered by governments to their country's companies in order to cover the costs of goods until they are received by an importing country with the goal of enhancing their competitiveness in the global market while, consequently, increasing the attraction of the importing country to exporters. Halting such loans for exports to the penalised country puts exporters in a position whereby their advantages are discontinued. This form of sanctions also removes the penalised country's currency from international exchange boards, which not only complicates commercial transactions but also mars the country's international economic reputation. Despite these ramifications, financial sanctions will not be as influential in the case of Iran as it would be for other states as the rising price of oil over the last few months has led Tehran to store large monetary reserves for its nuclear face-off. Preparations were made even before the election of Mahmoud Ahmadinejad, in the summer of 2005. Moreover, Tehran is not a regular customer at the doors of international institutions giving loans. While the seven major industrial states have barred the World Bank from offering loans to Iran, the small size of such loans make the political and economic dimensions of this measure extremely limited and do not surpass the symbolic level. It is useful to note in this context that Tehran has not submitted any loan requests to the International Monetary Fund, and that until now, Iran has gained a good international reputation as an importing country and market for high quality industrial goods. As such, prohibiting export loans to European companies wishing to export to Iran would affect these companies before affecting Iran. And as the Iranian riyal is not exchangeable except via other currencies on the global market, as is the case for all non-oil producing Arab states, removing it from international exchange boards would only have a limited effect upon it. For all these reasons, it is not expected that financial sanctions would reap any immediate benefit or rapidly influence Iranian political decision-makers. However, joining these measures to what can be termed "smart sanctions" may have an effect in the mid-term. "Smart sanctions" target elite sectors within the penalised country by striking their interests and driving them to pressure the political regime. In their initial stage, smart sanctions do not collide with the penalised country's general public, thus giving them an advantage over traditional forms of economic sanctions by preventing the regime from investing in and employing them to tie the masses to the regime's political projects. Smart sanctions affect the regime as a whole by placing pressure on it and removing support for it. Yet they require, like all other forms of sanctions, international coordination on technical and political levels; something that is provided if they are draped in the cover of international legitimacy through a resolution by the Security Council. A bundle of smart sanctions might include halting the export of advanced technological goods to Iran on the pretext that they may be used for military or nuclear purposes, like the ban the Western world placed on Eastern bloc states during the Cold War. It might also extend to banning Iranian civilian airplanes from landing on international runways and may restrict Iran's naval routes. Within this same context, Iranian sports teams (particularly for wrestling and soccer, the two most popular sports in Iran) may be barred from participating in world championships in order to affect both Iranian public opinion and Iran's elite. Such sanctions might also include placing members of Iran's elite on blacklists for entering various countries around the world. This measure's political import is highly significant and would imply that Iran's nuclear policies are cause for international isolation. The flight of Iranian capital is estimated by Iranian experts at approximately $3 million per year, which has two extremely important implications in this context. On the one hand, this means that the commercial bourgeois sector -- the bazaar -- is not confident in investing in its own country. On the other, it indicates the relatively high degree of connection between "bazaar capital" and global capital centres to which Iranian millions are sent annually. The bazaar, which is historically inimical to foreign imports into Iranian markets, funded the two Iranian revolutions of the 20th century, the Constitutional Revolution of 1905 and the Islamic Revolution of 1979, due to the Qajar and Pahlavi political authorities' submission to global capital and industrial goods. Yet the magnitude of flight of Iranian capital indicates that the bazaar's animosity towards global capital is limited. The bazaar has faith in its stable balances in cities around the world; it just doesn't want competition within Iranian markets. In other words, the deep-rooted nature of the bazaar's animosity towards the West, which has become a given within Iranian politics since the 1979 Revolution, is in fact relative. The bazaar has played a historical role in shaping Iran's social and political structure. The major domains of the Iranian political system have predominately been, and remain, political variations of economic-social melodies. Bazaar interests can thus be viewed as a standard behind which the leading personalities of the Iranian state line up, regardless of their social origins. The Iranian commercial bourgeoisie, or bazaar, is a fundamental pillar in the ruling Iranian alliance that also includes the clergy. On the basis of this background, it is expected that this kind of sanctions will place real pressure on the interests, profits and assets of the Iranian bourgeoisie and negatively affect the concord of the Iranian political system's two wings. Such sanctions would create a conflict of interests, although it would take a great deal of time for such conflict to mature, let alone to activate it and invest in it. In light of American impatience to besiege Iran and tighten sanctions on it, it is not expected that this form of sanctions will gain the satisfaction of hawks in Washington due to the time they would take to mature. Given the problems generated by all the various forms of economic sanctions, smart sanctions are realistically the most likely to gain international acceptance at this stage of placing pressure on Tehran. Yet smart sanctions and other economic forms alike are but a tool of foreign policy and cannot be considered an alternative to a clear strategy to influence political decision-making in Iran. The economic sanctions Washington placed on Iran in 1980 support this argument, as the American blockade was absorbed by Iran, which opened its doors to other international entities. American companies were thus harmed most by US sanctions against Iran. American policy alone cannot affect the equations of Iranian loss and gain in a manner that compels Tehran to change its policies. The effect of the American economic blockade was limited, by realistic assessment, to losses of one to 3.6 per cent of Iranian GNP between 1998 and 2001. It is more likely that Washington will now strive to place gradual economic sanctions on Iran, beginning with smart sanctions, followed by financial and then commercial and investment sanctions, in order to meet two goals. The first is to intensify the blockade of Iran with Security Council resolutions, to reduce its legal standing to a state under sanctions by international governing bodies. The second is to prepare global public opinion for subsequent military escalation against Iran under the pretext of economic sanctions not having succeeded in compelling Tehran to relinquish its nuclear ambitions. The economic sanctions now preoccupying the world are nothing more than a way station before expanding the arena months later to discuss scenarios of a military strike. While economic sanctions were originally formed objectively upon the rules of political economics, they are now being used as an alternative to the lack of an American strategy to deal with Iran and its regional alliance, despite the immense media mobilisation against it. The sanctions against Iran that will be decided on next month will enter history from a new door this time -- an American door. They will do so not in response to the possibilities of political economics, but rather as an expression of political bankruptcy. * The writer is a political analyst specialised in Iranian affairs.
