Roguely Stated

On August 30th, U.S. Senator Barack Obama wrote on op-ed for the New York Daily News about the need to confront the challenge posed by Iran. He goes on to make some valid observations: the Iranian government does present a strategic challenge to the US, the war in Iraq severely limits American policy options throughout the region, and diplomacy needs to be significantly better utilized as an aspect of national power. As President, the senator says that he will use all elements of American power to pressure the Iranian regime, including the power of tough, smart and principled diplomacy.

For diplomacy to work, we need to dial up our political and economic pressure - not just our tough talk. Iran’s troubling behavior depends in large part on access to billions of dollars in oil and gas revenue. That is why I introduced the Iran Sanctions Enabling Act last May, to build on a movement across the country to divest from companies that do significant business with Iran. This would send a clear message about where America stands, increasing Iran’s isolation and hitting the Iranian regime where it hurts.

I agree with Senator Obama’s assertion that the “conventional Washington thinking says we can only talk to people who agree with us …[and] that strong countries and strong Presidents shouldn’t be afraid to talk directly to our adversaries to tell them where America stands”. US history supports the senator’s conclusion. From 1947-1991, the United States was embroiled in a cold war with the Soviets - an adversary that swore to destroy us, was armed with extensive conventional military forces, had nuclear weapons ready to launch on a moment’s notice, and battled (albeit, mostly by proxy) for control and influence across the globe. President Reagan even referred to them as “The Evil Empire”.

Yet, somehow, we managed to hold an open dialogue with this adversary. During the same time period, we also used the tremendous economic power of the U.S. to our advantage - not only in the form of sanctions and trade embargoes, but also foreign direct investment, foreign aid, increased trade. A tactic employed with both friends and enemies.

The Marshall Plan was an excellent example of what incentives can do - an idealistic policy that improved the lives of millions, grew the economies of Europe, and laid the political foundation for the European alignment with the west (not a forgone conclusion in the immediate post WWII era). In my opinion, the ability to have both a public and private dialogue contributed greatly to adverting (potentially catastrophic) misunderstandings during the Cold War, while the use of incentives played to the American strengths of idealism, representative government, transparency and economic opportunity.

I believe the same general philosophy could be effective regarding our relationship with Iran.

Now, to say that the current U.S.-Iranian relationship is an adversarial one is putting it mildly. Following its own geopolitical designs, Iran’s authoritarian government has contested American efforts throughout the region and supported a foreign policy of terrorism when it suited their interests. In a recent speech to the American Legion, President Bush described Iranian activities this way:

Iran has long been a source of trouble in the region. It is the world’s leading state sponsor of terrorism. Iran backs Hezbollah who are trying to undermine the democratic government of Lebanon. Iran funds terrorist groups like Hamas and the Palestinian Islamic Jihad, which murder the innocent, and target Israel, and destabilize the Palestinian territories. Iran is sending arms to the Taliban in Afghanistan, which could be used to attack American and NATO troops. Iran has arrested visiting American scholars who have committed no crimes and pose no threat to their regime. And Iran’s active pursuit of technology that could lead to nuclear weapons threatens to put a region already known for instability and violence under the shadow of a nuclear holocaust.

Current U.S. rhetoric describing the Iranian threat is similar in tone to U.S. rhetoric describing the Communist threat. Unsurprisingly, many of the policy options touted by the administration are similar as well - with one extremely important exception. It is extraordinarily heavy on coercive options …and very light on qualitative incentives and the exercise of diplomacy. This is a critical shortcoming in the construction of our overall policy and is the result of a total failure to understand Iran’s fears and motivations …and our own strengths (our national values).

Unfortunately, while Senator Obama rightfully criticizes the administration’s current conventional wisdom, his policy prescriptions (as stated in the article) are extremely conventional as well. His sanctions policy has the fingerprints of the conventional foreign policy establishment all over it: Anthony Lake, Mark Lippert, and to some extent, Zbigniew Brzezinski (my guess after his endorsement of Obama). Now, to be completely fair, Senator Obama has not really fleshed out what a comprehensive diplomatic effort might look like - other than what is laid out in the Iran Sanctions Enabling Act.

“This legislation makes use of one of the most successful diplomatic tools available to discourage Iran from developing nuclear weapons: the financial vise,” said Tom Lantos, chairman of the House Foreign Affairs Committee. “We can put the squeeze on Iran using this tool; it encourages companies and individuals to remove their money from any investment that might support Tehran’s heedless quest for nuclear weapons.”

After reading the Iran Sanctions Enabling Act he has proposed, I’m concerned that Sen. Obama (along with many others) misunderstand the policy tool known as “economic sanctions”. In order to explain what I mean by that, allow me to digress for a moment and discuss sanctions and political strategies in general.

There are three broad strategies that a government may employ for political ends. First, there is diplomatic persuasion (i.e., diplomacy, international organizations, international law, public diplomacy and information). Second, there are incentives (i.e., foreign assistance, trade policy and alliances). Lastly, there is coercive diplomacy (i.e., sanctions, covert action and force without war). In my opinion, coercive diplomacy has been the conventional wisdom policy tool of choice for Republicans and Democrats alike - while the other two strategies have been largely ignored and neglected in the post 9/11 world.

A colleague mentioned to me recently, “the US has economic muscle and should use it when appropriate. Sanctions can be an effective tool …when applied to the correct type of regime” [emphasis added]. The last part of this sentence is the key in understanding how, when and where to use sanctions. Like the application of military force, sanctions are not universally successful, nor will they work under all conditions. A detailed understanding of the targeted country in question and its responses to coercive pressure are paramount in determining the construction of any sanctions regime.

According to a 1999 paper from the National Defense University, sanctions work well when: they are multilateral, specifically targeted, and used in conjunction with other policy instruments. I would add the following condition to that list - sanctions work when the target country is a functioning part of the international system. However, sanctions do not work well when the target country feels alienated from that system and then decides to operate outside that system.

Obviously, intent is only one component of a State’s ability in successfully resisting sanctions. Another is the capability to do so. That capability is developed over time, usually after being placed on the periphery of the community of nations; ironically often due to prolonged diplomatic and economic isolation. In order to survive, these States develop alternate methods for accomplishing their goals and achieving their desires. Illicit trafficking, money laundering, along with various other types of criminal activities are key to building this capability. Lastly, it is helpful to have a “trump card” to help break coalitions aligned against you. Examples of this trump card are: possession of strategic natural resources ( i.e., oil, natural gas), a strategic weapon (nuclear), or a strategic location.

It is important to note that sanctions can also be counterproductive when dealing with States that have already framed the international environment as hostile. Isolated countries can use the very international pressure intended to change behavior to fan the flames of nationalism, thus strengthening the State’s domestic position, instead of weakening it. This phenomenon is accentuated when civilians bear the brunt of the sanctions, as is often the case. The sanctions imposed in Iraq following the 1991 Gulf War are a text book example of this burden falling on civilians, as demonstrated by the child morbidity rate illustrated below:

Excess deaths (deaths in excess of the lowest annual rate [1990] during this time period) among Iraqi children per year since the Gulf war and sanctions*

*Citing information on maternal and child mortality rates collected by UNICEF, Professor Richard Garfield estimates that between 1991 and 2002, the number of excess deaths in Iraq among children under age 5 is 343,900 to 525,400.

In order to get a better picture of what I’m talking about, let’s look at some real world examples - both successful and unsuccessful.

The classic, text book example that demonstrated the success of economic sanctions is the case of South Africa. South Africa saw itself as a democracy in the western tradition and a legitimate member of the western dominated international system (setting aside the obvious contradiction of Apartheid rule). So when the western powers told South Africa that its policies were no longer acceptable and imposed sanctions, the South African business community really felt the bite. The combination of economic pressure and international ostracism convinced white South Africans that change was preferable to the continuation of the status quo. Sanctions were a significant part of the coercive economic pressure, which resulted in forcing the South African government to change its policies on a wide range of issues from labor reform to the release of political prisoners.

To some extent, sanctions were also effective in forcing Slobodan Milošević to sign the Dayton Peace Accords and then later, in impacting Belgrade’s capitulation over Kosovo. However, sanctions regimes have not been effective on numerous occasions. The longstanding sanctions on North Korea and Cuba immediately come to mind.

Which brings us back to Iran.

Iran has a desire to be free of American influence and power and therefore operates outside of the international system; partly because they have been forced to by the United States, and partly by choice - in that, by doing so, it gives them more options in an already strained environment. For example, since January, the U.S. Treasury has barred U.S. banks, including US branches of foreign banks, from facilitating any dollar transactions for banks dealing with Iran’s state-owned Bank Saderat or Bank Sepah. This is significant, because almost all oil contracts are negotiated in dollars. But as the U.S. tries to squeeze Iran’s oil industry with these tactics, Iran re-writes the international rules and begins to conduct oil transactions, not in dollars, but in Euros or Yen, which simultaneously circumvents and undermines the American-dominated financial system.

But the U.S. failure to grasp the negative system-level financial effects of our actions is not the only downside to our current approach. Consider what a complete sanctions package would do to Iran’s economy and its population. Who would get hurt worse, the mullahs? …or the average citizens?

Victor Comras, an attorney and special counsel to Eren Law Firm (a firm that purports to specialize in economic sanctions) said in a statement to the U.S. Senate: “Iran’s fledgling commercial class has become very reliant on …trade. And it is this very commercial class that provides the greatest number of employment opportunities in Tehran and Iran’s other urban centers. Sanctions that threaten to constrict this trade could have a considerable impact on this commercial class, placing further distress on Iran’s vulnerable economy and high urban unemployment”.

While Comras believes that this overt and deliberate targeting of the Iranian people will result in the population placing pressure on the regime, Comras’ belief is built on hope, not analysis. For it is widely understood that if the population bears the burden of the sanctions, then they could just as easily rally around the government - even an domestically unpopular one. Additionally, a policy of purposely targeting innocent civilians with coercive measures seems to run contrary to stated U.S. national values.

So how vulnerable is Iran’s economy to such pressure?

A quick look at some economic statistics is illustrative. According to the World Bank, employment creation is not sufficient to keep up in the labor force growth, inflation is high and rising; price subsidies and controls hinder efficiency; and major structural impediments prevent private sector development. With respect to social protection programs, extensive subsidies, including energy subsidies, and credit subsidies that are excessively large (the energy subsidy alone is estimated at more than 12 percent of GDP) don’t reach the poor particularly well. Subsidies for bread and medicine, for example, are highly untargeted vis-à-vis the poor. Iran’s Revolutionary Guard Corps, the country’s 125,000 strong elite military branch, is also embedded in public sector manufacturing and services, making the success of any sanctions package highly unlikely at best.

“They are heavily involved in everything from pharmaceuticals to telecommunications and pipelines — even the new Imam Khomeini Airport and a great deal of smuggling,” said Ray Takeyh of the Council on Foreign Relations. “Many of the front companies engaged in procuring nuclear technology are owned and run by the Revolutionary Guards. They’re developing along the lines of the Chinese military, which is involved in many business enterprises. It’s a huge business conglomeration.”

The primary impact of US sanctions and rhetoric to date has been to delay Iran’s development of its energy resources, push the average Iranian to become more nationalistic and supportive of the mullahs, and increase their sense of insecurity in the global system. As can be seen by the World Bank figures, if the conventional use of sanctions continues, they will probably have a significant negative impact on major sections of the Iranian population - which we have stated, is not the target of our efforts.

So where have we gone wrong? Tom Barnett, for one, thinks we have difficulty breaking out of our own biases and understanding the perspectives of others …and are completely focused on the wrong issues when it comes to Iran:

“We need to get off this myopic focus on mechanisms (weapons of mass destruction) and instead focus on motivations (fear of a U.S.-led regime change). Asking the Iranian people to choose between nationalism and humiliation will never work”.

As evidence of our U.S.-centric mindset, President Bush issued a warning to Iran during his latest speech:

To Iraq’s neighbors who seek peace: The violent extremists who target Iraq are also targeting you. The best way to secure your interests and protect your own people is to stand with the people of Iraq. That means using your economic and diplomatic leverage to strengthen the government in Baghdad. And it means the efforts by Iran and Syria to undermine that government must end.

Iran’s response to the President’s warning? Ayatollah Ali Khameni declared victory.

But why should Iran cooperate? With the situation as it currently stands, I can’t see a reason why they should. The U.S. has not provided any reason whatsoever for Iran to see mutual gain in a relationship with us (even in private, behind the scenes diplomacy). In fact, just the opposite is occurring. Blake Hounshell writes in Foreign Policy magazine’s blog that from Iran’s perspective, the strategy of bloodying America’s nose in Iraq is working.

And on the nuclear front, the United States is having trouble convincing its European allies and Russia to back a third round of sanctions, at least for now. Iran’s leaders obviously have no moral hangups about slaughtering thousands of innocent Iraqis for raisons d’état, so it’s not as if they can be motivated by humanitarian concerns. Moreover, it would take a watershed moment or series of major confidence-building steps to get them to trust any U.S. security guarantees. So far, neither the incentives nor the disincentives have been great enough to get the Iranians to play nice. So why should they?

At this point, a review of the situation with regard to Iranian capabilities is in order.

Iran has been diplomatically and financially isolated by the United States since the 1979 Iranian Revolution and subsequent hostage crisis. President Bush has placed Iran in the “Axis of Evil”. Iran possesses strategic resources and is working furiously to develop a strategic weapon. Iran is not a member of the World Trade Organization, the world’s largest multilateral trading regime and therefore gains significantly less benefit by “playing by the rules”. The current U.S. policy effort fans the flames of nationalism and pushes a disaffected population closer to the authoritarian government. Iran also has both the intent and the capability to operate outside of the international system.

When all of these factors are combined together, Iran’s intransigence in the face of the current American policy begins to make sense. So what strategy will provide the type of response we are really looking for? Perhaps it’s not too late to consider a radical alternative to both the use of force and a complete sanctions regime. My recommendation?

Economic engagement. Incentives. Foreign Direct Investment and trade policy. A path to membership in the WTO.

Yes, you read that correctly. Economic engagement, as opposed to the conventional wisdom of economic isolation. I recommend investment in Iran and facilitating the opening up of their economy. More specifically, investment in small businesses and Iranian entrepreneurship. If we want a positive change in Iran (i.e., more liberal reforms and a truly indigenously led, bloodless transition to a less authoritarian government), we must realize that heavy-handed U.S. coercive methods will ultimately fail. Change in a society’s identity usually occurs simultaneously with the political and economic rise of a middle class. That middle class, in turn, wants better protections for their newfound wealth codified into law - which requires better representation in government. So, how can we foster the growth of a burgeoning middle class in Iran? …Investment and trade. Not with the large state-owned enterprises and Revolutionary Guard Corps’ businesses, but in smaller, entrepreneurial efforts from both Americans and Iranians.

A strategy of investment and economic connectivity, enforced by targeted sanctions when diplomatically appropriate, could even appeal to a wide constituency: Conservatives who want regime change, ideological proponents of capitalism’s virtues, big business interests (Iran holds significant reserves in oil and natural gas), as well as liberals who eschew war, unilateralism, and the inevitable human rights disaster that would follow either war or sanctions. Defense experts could even find common cause after examining successful counterinsurgency efforts in Iraq and Afghanistan. Of course, this strategy still requires the U.S. government to talk and act tough publicly, containing Iran’s geopolitical militarism in the region, while privately seeking out pragmatic opportunities for detente-like cooperation. The diplomacy and dialogue needs to begin now, if we are to find ways to make the current regime open up, join the international system’s benefits, and in turn - sow the seeds of their own downfall by opening up their economy.

Therefore, if Senator Obama can break out own his own conventional wisdom (and that of his advisers), avoid the mistakes of the current administration, and apply his unique vision of change - we just might be able to economically connect with Iran and end this futile attempt at isolation. Because that is a strategy that only plays into the hands of hardliners like Castro and Kim …and Ahmadinejad.

MORE:

Iran: U.S. Concerns and Policy Responses - CRS Report for Congress

Overview of Regulations involving Sanctions against Iran - US Department of the Treasury

Iran Sanctions and Halliburton - Victor D. Comras

The Ineptitude on Iran, by Numbers - by Hossein Askari

Illicit: How Smugglers, Traffickers, and Copycats are Hijacking the Global Economy - by Moisés Naím

Tags: Ahmadinejad, Barack Obama, Foreign Policy, Hezbollah, Iran, Iraq, Lebanon, nuclear weapons, oil, Russia, sanctions, UN, World Bank
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