Aaron Arnold: Speaking from the White House earlier this month, President Obama announced details of a framework agreement between Iran and the P5+1—the United States, Russia, China, France, the United Kingdom, and Germany—that limits Iran’s path to building a nuclear weapon over the next 10 to 15 years. Although negotiators will finalize technical details between now and the June 30 deadline, the parameters provide Iran with sanctions relief in exchange for limits on its uranium enrichment, converting its Arak heavy water reactor, limiting the number and type of centrifuges, and agreeing to intrusive inspections. Should Iran cheat or fail to uphold its end of the bargain, however, the United States and its allies reserve the right to “snap-back” into place tough economic and financial sanctions.
The view that holding out for a “better deal” by strengthening sanctions does not consider the reality of the current sanctions regime.
Myth No. 1: International partners will continue to support US-led sanctions. Sanctions on Iran’s energy, shipping, and insurance sectors, along with almost complete financial isolation, have taken a toll. It is easy to imagine that these tough sanctions brought Iran to the negotiating table and, therefore, that the United States should continue to apply sanctions in hopes of gaining a more comprehensive agreement.
Iranian oil exports currently hover at almost 1.1 million barrels a day, down from 2.5 million in 2011—costing Iran more than $40 billion in lost revenue in the last year alone. Globally, low oil prices and oversupply also mean that Iran will face stifff market competition. If sanctions were lifted, it is uncertain whether Iranian oil exports would return to pre-2011 levels.
Myth No. 2: “Snap-back” sanctions will be ineffective against economic momentum in Iran. Critics of the feasibility of snap-back sanctions fail to recognize a number of challenges that Iran will have to overcome once the United States, the European Union, and the United Nations begin to lift nuclear-related sanctions.
For one, President Hassan Rouhani’s austerity budget does not take into account a deal with the P5+1.
Tehran’s second challenge would be re-joining the international banking system, which it has been increasingly frozen out of since 2011 when the United States designated Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act.
Iran will also have to contend with its continued designation by the Financial Action Task Force (FATF)—the global standard-setting body for money laundering and terrorist financing—as a high-risk jurisdiction.
Myth No. 3: The United States can continue to control the world financial system. Although not without controversy, the extraterritorial provisions of US-led sanctions provide the backbone to freezing Iran out of the global economy.
The effectiveness of these provisions, however, relies in part on the structure of the international financial system; imposing tougher sanctions for a better bargain rests on the premise that this structure will remain intact.
Reality versus myth. Calls for a “better deal”—relying in part on strengthening sanctions—do not take a realistic view of the current state of the global sanctions regime against Iran. The system is changing, and domestic politics has yet to catch up.
