Iran: Interim Nuclear Agreement, and More from CRS

New products from the Congressional Research Service that Congress has withheld from online public distribution include the following.

Iran: Interim Nuclear Agreement and Talks on a Comprehensive Accord, November 26, 2014

U.S. International Corporate Taxation: Basic Concepts and Policy Issues, December 2, 2014

Taxation of Internet Sales and Access: Legal Issues, December 1, 2014

The Corporate Income Tax System: Overview and Options for Reform, December 1, 2014

How OFAC Calculates Penalties for Violations of Economic Sanctions, CRS Legal Sidebar, December 1, 2014

What Is the Current State of the Economic Recovery?, CRS Insights, December 1, 2014

Employment Growth and Progress Toward Full Employment, CRS Insights, November 28, 2014

Major Disaster Declarations for Snow Assistance and Severe Winter Storms: An Overview, December 1, 2014

Jordan: Background and U.S. Relations, December 2, 2014

Afghanistan: Post-Taliban Governance, Security, and U.S. Policy, December 2, 2014

Verification Requirements for a Nuclear Agreement with Iran

Negotiations are currently underway with Iran regarding their nuclear program; as a result, one of the main questions for U.S. government policymakers is what monitoring and verification measures and tools will be required by the United States, its allies, and the International Atomic Energy Agency (IAEA) to ensure Iran’s nuclear program remains peaceful.

To answer this question, the Federation of American Scientists (FAS) convened a non-partisan, independent task force to examine the technical and policy requirements to adequately verify a comprehensive or other sustained nuclear agreement with Iran. Through various methods, the task force interviewed or met with over 70 experts from various technical and policy disciplines and compiled the results in the new report, “Verification Requirements for a Nuclear Agreement with Iran.” Authored by task force leaders Christopher Bidwell, Orde Kittrie, John Lauder and Harvey Rishikof, the report outlines nine recommendations for U.S. policymakers relating to a successful monitoring and verification agreement with Iran.  They are as follows:


Six Elements of an Effective Agreement

1. The agreement should require Iran to provide, prior to the next phase of sanctions relief, a comprehensive declaration that is correct and complete concerning all aspects of its nuclear program both current and past.

2. The agreement should provide the IAEA, for the duration of the agreement, access without delay to all sites, equipment, persons and documents requested by the IAEA, as currently required by UN Security Council Resolution 1929.

3. The agreement should provide that any material acts of non-cooperation with inspectors are a violation of the agreement.

4. The agreement should provide for the establishment of a consultative commission, which should be designed and operate in ways to maximize its effectiveness in addressing disputes and, if possible, building a culture of compliance within Iran.

5. The agreement should provide that all Iranian acquisition of sensitive items for its post-agreement licit nuclear program, and all acquisition of sensitive items that could be used in a post-agreement illicit nuclear program, must take place through a designated transparent channel.

6. The agreement should include provisions designed to preclude Iran from outsourcing key parts of its nuclear weapons program to a foreign country such as North Korea.


Three Proposed U.S. Government Actions to Facilitate Effective Implementation of an Agreement

1. The U.S. Government should enhance its relevant monitoring capabilities, invest resources in monitoring the Iran agreement, and structure its assessment and reporting of any Iranian noncompliance so as to maximize the chances that significant anomalies will come to the fore and not be overlooked or considered de minimis.

2. The U.S. Government and its allies should maintain the current sanctions regime architecture so that it can be ratcheted up incrementally in order to deter and respond commensurately to any Iranian non-compliance with the agreement.

3. The U.S. Government should establish a joint congressional/executive branch commission to monitor compliance with the agreement, similar to Congress having created the Commission on Security and Cooperation in Europe to monitor the implementation of the 1975 Helsinki Accords.

Download Full Report Download Report Summary


Congress Should Delay Action on New Sanctions Against Iran

Economic sanctions have proven effective against Iran, but at this point they will only interfere with peaceful negotiations over their nuclear program. Chris Bidwell, Senior Fellow for Nonproliferation and Law writes that Congressional action toward new sanctions against Iran now would make the U.S. appear bellicose and uninterested in a policy change on Iran’s nuclear program.

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Implications of the Recent Deal With Iran on Getting Controls on Civilian Nuclear Fuel Cycles

FAS President Dr. Charles Ferguson takes a look at one of the largest challenges to nonproliferation: how states can walk up to the line of crossing into nuclear weapons capabilit by developing uranium enrichment plants or reprocessing plants. Could the new deal with Iran have implications for Japan and other non-nuclear weapon states like South Korea that aspire to acquire enrichment or reprocessing capabilities? The answer is yes.

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DC Event: Challenges in Verifying a Nuclear Deal with Iran

The American Society of International Law will host a briefing on Friday, February 28, 2014 in Washington, DC on challenges in verifying a nuclear deal with Iran. Speakers include David Albright from the Institute for Science and International Security (ISIS) and Orde Kittrie from Arizona State University.

The event will be held in Rayburn House Office Building Room B-354 from 12-1:30 pm; lunch will be provided.

RSVP to [email protected]

The event is organized by Christopher Bidwell, FAS Senior Fellow for Nonproliferation Law and Policy.

One Step at a Time With Iran


As hoped, the P5+1 and Iran settled on a “first step” agreement to resolve concerns about Iran’s potential to develop nuclear weapons and its interest in doing so. We cannot predict how far this process will go or what the next step to establish a comprehensive, enduring agreement that puts the nuclear issue squarely in the past will include. But we can predict that we will never know how good a final agreement can be unless all sides work in good faith to support the process and abstain from taking actions that could potentially undermine it.

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Air Force Intelligence Report Provides Snapshot of Nuclear Missiles

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By Hans M. Kristensen

The U.S. Air Force National Air and Space Intelligence Center (NASIC) has published its long-awaited update to the Ballistic and Cruise Missile Threat report, one of the few remaining public (yet sanitized) U.S. intelligence assessment of the world nuclear (and other) forces.

Previous years’ reports have been reviewed and made available by FAS (here, here, and here), and the new update contains several important developments – and some surprises.

Most important to the immediate debate about further U.S.-Russian reductions of nuclear forces, the new report provides an almost direct rebuttal of recent allegations that Russia is violating the INF Treaty by developing an Intermediate-range ballistic missile: “Neither Russia nor the United States produce or retain any MRBM or IRBM systems because they are banned by the Intermediate-Range Nuclear Force Treaty, which entered into force in 1988.”

Another new development is a significant number of new conventional short-range ballistic missiles being deployed or developed by China.

Finally, several of the nuclear weapons systems listed in a recent U.S. Air Force Global Strike Command briefing are not included in the NASIC report at all. This casts doubt on the credibility of the AFGSC briefing and creates confusion about what the U.S. Intelligence Community has actually concluded.  Continue reading

War with Iran? Revisiting the Potentially Staggering Costs to the Global Economy

The Senate passage of Resolution 65 on May 22, 2013, some argue, draws the United States closer to military action against Iran. In October 2012, amid concerns that surprisingly little research addressed the potential broad outcomes of possible U.S.-led actions against Iran, researchers at the Federation of American Scientists (FAS) assembled nine renowned subject matter experts (SMEs) to investigate one underexplored question that now, eight months later, looms larger than ever: What are the potential effects on the global economy of U.S. actions against Iran? Collectively representing expertise in national security, economics, energy markets, and finance, the SMEs gathered for a one-day elicitation workshop to consider the global economic impacts of six hypothetical scenarios involving U.S.-led actions.

The elicitation revealed the rough effects of U.S. action against Iran on the global economy – measured only in the first three months of actualization – to range from total losses of approximately $60 billion on one end of the scale to more than $2 trillion to the world economy on the other end.

The results of the elicitation were compiled into the FAS report written by Charles P. Blair and Mark Jansson, “Sanctions, Military Strikes, and Other Potential Actions Against Iran.”

Summarized below are three of the six scenarios along with the associated estimated range of costs to the world economy in the first three months of U.S. action alone.

Scenario: Comprehensive Bombing Campaign (upper bounds of estimated costs to global economy: $1.7 trillion)

The president, not wanting to leave the job half-done and fearing that a more limited strike may not achieve all of its objectives or at too high a price should Iran retaliate, opts for a more thorough mission. The United States leads an ambitious air campaign that targets not only the nuclear facilities of concern but also seeks to limit Iran’s ability to retaliate by targeting its other military assets, including its air defenses, radar and aerial command and control facilities, and much of Iran’s direct retaliatory capabilities. These would include its main military bases, the main facilities of the Iranian Revolutionary Guard Corps (IRGC), and the Iranian Navy, Army, and Air Force. The United States seeks to ensure that the Strait of Hormuz remains open by targeting Iranian capabilities that may threaten it.

Scenario 4 Comprehensive Bombing Campaign

Scenario: Isolation and Persian Gulf Blockade – no military action (upper bounds of estimated costs to global economy: $550 billion)

Iran’s economy is reeling yet diplomatic agreement remains elusive. The United States, concerned that the Iranian regime has gone into survival mode, enacts what can be referred to as a “total cutoff” policy. The United States moves to curtail any exports of refined oil products, natural gas, energy equipment, and services. Investments in Iran’s energy sector are banned worldwide. Official trade credit guarantees are banned, as is international lending to Iran and investment in Iranian bonds. Insurance and reinsurance for all shipping going to and from Iran is prohibited. Substantial U.S. military assets are deployed to the Persian Gulf to block unauthorized shipments to and from Iran as well as to protect shipments of oil and other products through the Strait of Hormuz.

Scenario 2 Isolation and Persian Gulf Blockade

Scenario: Full-Scale Invasion (upper bounds of estimated costs to global economy: $2.8 trillion)

The United States resolves to invade, occupy, and disarm Iran. It carries out all of the above missions and goes “all in” to impose a more permanent solution by disarming the regime. Although the purpose of the mission is not explicitly regime change, the United States determines that the threat posed by Iran to Israel, neighboring states, and to freedom of shipping in the Strait of Hormuz cannot be tolerated any longer. It imposes a naval blockade and a no-fly zone as it systematically takes down Iran’s military bases and destroys its installations one by one. Large numbers of ground troops will be committed to the mission to get the job done.

Scenario 5 Full-Scale Invasion

Note: All opinions expressed here and in the report, as well as its findings, are those of the authors alone and do not necessarily reflect the views of the Federation of American Scientists or any of the participants in the elicitation that served as the centerpiece of this study.

Iran and the Global Economy

iranreporteconomyThe escalating confrontation between the United States and Iran over the latter’s nuclear program has triggered much debate about what actions should be taken to ensure that Iran does not develop a nuclear weapon. How might certain actions against Iran affect the global economy? FAS released the results of a study, “Sanctions, Military Strokes, and Other Potential Actions Against Iran”  which assesses the global economic impact on a variety of conflict scenarios, sanctions and other alternative actions against Iran. FAS conducted an expert elicitation with nine subject matter experts involving six hypothetical scenarios in regards to U.S. led actions against Iran, and anticipated three month cost to the global economy. These scenarios ranged from increasing sanctions (estimated cost of U.S. $64 billion) to full-scale invasion of Iran (estimated cost of U.S. $1.7 trillion).

Read the report here (PDF).


Up for Debate: Iran Sanctions

Dr. Fariborz Ghadar of the Center for Strategic and International Studies; Ms. Malou Innocent of The CATO Institute; Dr. Michael Rubin of the American Enterprise Institute; and Dr. Djavid Salehi-Isfahani of Virginia Tech and the Brookings Institution debate about the United States and United Nations sanctions policy towards Iran.

Debate: Should the United States Rethink Sanctions Against Iran?

The United States has imposed new sanctions targeting Iranian oil sales to increase pressure on Tehran over its nuclear program. Iran continues to insist that its nuclear program is purely for peaceful purposes. The U.S. sanctions prohibit almost all trade with Iran.

The United Nations ratified four rounds of sanctions against Iran between 2006 and 2010 in reaction to its refusal to halt uranium enrichment and cooperate with the International Atomic Energy Association (IAEA). These sanctions include a ban on the supply of heavy weaponry and nuclear-related technology to Iran, a block on Iranian arms exports, and an asset freeze on key individuals and companies.

Dr. Fariborz Ghadar of the Center for Strategic and International Studies;  Ms. Malou Innocent of The CATO Institute; Dr. Michael Rubin of the American Enterprise Institute; and Prof. Djavad Salehi-Isfahani of Virginia Tech and the Brookings Institution debate below about the United States and United Nations sanctions policy .


Dr. Fariborz GhadarCenter for Strategic and International Studies (CSIS)

Longer term implications of Iran Sanctions

Few nations have ever experienced the depth and breadth of economic sanctions such as those that are imposed on Iran. Whether these sanctions can bring about the changes in Iran’s nuclear ambitions desired by the West and Israel is a matter of much debate, but what is certain is the sanctions have had a substantial negative impact on Iran’s economy. The European Union, whose import represented nearly 20 percent of Iran’s oil export, has instituted a total embargo on Iranian oil. South Korea has stopped all oil imports. Even nations that had close ties to Iran have felt the need to significantly reduce their oil imports from Iran in order to achieve exemptions from the sanctions.

India achieved the exemption by reductions of more than 10 percent; Japan cut its imports by 22 percent; and China has directed more of its oil imports towards Saudi Arabia and has reduced its imports by an amount estimated at 15-20 percent. The net result has been a reduction in Iran’s oil exports varyingly estimated at between 30-40 percent. The IAEA says 40 percent. According to Secretary Clinton this represents a reduction of 10 percent of Iran’s GDP.  Add to the oil embargo sanctions on Iranian banks and foreign companies that insure tankers that carry Iranian oil, as well as foreign firms that invest in Iran, and one can appreciate the extent of the economic hardship we are imposing on Iran and Iranians. The removal of Iranian institutions from SWIFT, the international bank messaging service, further isolates Iranian companies from International trade. The extent of the economic war that has been launched against Iran is unprecedented.

The result has been a dramatic drop of the value of the Rial by about 50 percent and a rapid rise of inflation to over 25 percent annually, with particularly rapid price increases on imported food. Bread prices have increased more than 10 fold.

These measures are intended to make the Iranian government accept restrictions on its nuclear program. To a limited extent the actions seem to have been successful. The Iranian negotiators are once again at the table and a technical level meeting seemed to explore a number of options. However the results have been very limited. The proposal to stop uranium enrichment at the 20 percent level, ship Iran’s current stock out of the country, and shut down its underground nuclear plant near Qom in exchange for the removal of certain commercial aircraft parts from the embargo is unlikely to go very far.

With U.S. elections in November and the unwillingness of the current administration to ease up on sanctions, it is unlikely that even a partial resolution will be achieved before the end of the year. The press constantly reminds us that Israel may consider military action and that joint military maneuvers by Israel and the U.S. are planned. Iran is flexing its muscle by carrying out military maneuvers of its own and demonstrating its newest missiles.

One cost that few mention is the impact of these actions on the Iranian people. Will they blame their own government and put pressure on them for a more moderate posture or will they blame the U.S. for the hardship they are made to endure? This should be of concern to U.S. policy makers.  The Iranian people are the most pro-American populace in the Middle East (with the possible exception of Israeli nationals). The Iranian regime is hard at work convincing its people that their hardships are due to sanctions imposed on them by the U.S. with pressure from Israel and not by their own government’s incompetence.

Iranians are reminded of the 24th anniversary of the downing of Iran Air Flight 655 by the U.S. battleship Vincennes. It resulted in the killing of 290 passengers and crew, including 66 children. The U.S. government has refused to even apologize for the incident. The Iranian Foreign ministry issued a statement carried by all the local press that indicated this “inhumane crime is proof of the Iranian Nation’s innocence and evidence that the U.S. is not committed to any international legal and ethical principles.”

The sanctions along with Iranian government propaganda against the U.S. are eroding the soft power of the pro-American attitude of the Iranian public. We are giving away our chance to regain Iran as our ally in the region. Is there not a more reasonable way to bring about a productive negotiation? A negotiation that involves more give-and-take and less one-sided demands? In any case, we will not know until the next U.S. election. Unfortunately the Iranian public must suffer this economic warfare until then.

Ms. Malou Innocent, (Twitter: @malouinnocentThe CATO Institute

The Limits of Coercive Diplomacy with Iran

History shows that inflexible sanctions rarely yield the desired result. If current sanctions on Iran fail to leverage its behavior or catalyze its people to revolt, then the West should resist the urge to impose more sanctions and lift the ones in place.

Proposing diplomacy with Iran does not make one an apologist for the ayatollahs. That Iran commits objectionable deeds is not in dispute. What is disputed are the benefits of flexibility. Effective sanctions must be carefully calibrated and responsive to cooperation. The U.S. in particular must be willing to dial back sanctions in exchange for Iranian concessions short of renouncing enrichment. This is easier said than done given election-year pressures on Capitol Hill and from the Romney campaign. Indeed, Washington has been reluctant to budge, so whether Iran suffers from sanctions or not has become largely irrelevant.

After years of enduring sticks—sanctions, Stuxnet, threats of military strikes, and attacks on its nuclear scientists—and carrots—peace overtures, goodwill gestures, and four New Year’s messages from President Obama to the Iranian people—Tehran has sought partial relief from sanctions in exchange for compliance with the Nuclear Non-Proliferation Treaty (NPT). Iran has also offered to export its 20 percent uranium and suspend enriching to that level in exchange for the West providing medical isotopes and scrapping sanctions. Those deals collapsed.

Today, the West demands that Iran stop, shut, and ship”: stop enrichment, shutter Fordow, and ship the 20 percent stockpile—this despite the NPT, to which Iran is a signatory, allowing for peaceful enrichment. Moreover, as the National Iranian American Council’s David Elliot and the Brookings Institution’s Suzanne Maloney observe, Congress passed sanctions that are not conditional on Iranian behavior.

Demanding Iran’s complete capitulation for no relief from sanctions is a maximalist position with zero chance of success. Extrapolating from the case of Libya’s dismantlement of its nuclear program, Duke University Professor Bruce W. Jentleson and doctoral candidate Christopher A. Whytock find that one of the most crucial aspects of coercive diplomacy is that there are clear benefits to cooperation and that those benefits are realized when the coerced state cooperates.[i] Similarly, Jonathan B. Schwartz, deputy legal adviser to the Department of State, argued from his personal capacity that reciprocity is critical to any sanctions regime.[ii]

Chaim Braun and Christopher F. Chyba, of Stanford University’s Center for International Security and Cooperation,  argue that the manipulation of economic sanctions and the amelioration of regional security threats are key, as there must be incentives to go along with disincentives.[iii] International security experts Kurt M. Campbell, Robert J. Einhorn, and Mitchell B. Reiss explain about Iran and North Korea, “Getting them genuinely to forswear nuclear weapons at this stage will require not just the threat of very harmful consequences if they persist but also the prospect of a much brighter future if they reverse course.”[iv]

Evidence suggests that effective sanctions on Iran will prove difficult not because of Iran, but because of the intransigent approach of the sanctioning states. Talks are ongoing. Nevertheless, the diminishing returns of economic warfare and international ostracism could lead us down a dangerous path to conflict.

To take a twist on an old saying, if goods do not cross oceans, bombs will. If restricting trade accomplishes little, then failure will galvanize hawks who seek to reckon with Iran militarily. Although Iran has not yet decided to build, test, and deploy nuclear weapons, what it has done is learn the technical and industrial capabilities needed to develop them. Tehran’s knowledge of the nuclear fuel cycle is a major reason why a military strike would prove fruitless; not only would an attack spur Iran to reconstitute its nuclear program but also show to the world that it had a compelling reason for doing so.

The limits of coercive diplomacy are fast approaching. Abandoning rigid sanctions and rethinking the incentives needed for compliance would be the first step and the last chance for a peaceful resolution.

[i] Bruce W. Jentleson and Christopher A. Whytock. “Who “Won” Libya?: The Force-Diplomacy Debate and its Implications for Theory and Policy,” International Security 30, No. 3 (Winter, 2005): 47-86.

[ii] Jonathan B. Schwartz, “Dealing with a ‘Rogue State’: The Libya Precedent,” The American Journal of International Law, Vol. 101, No. 3 (July 2007): 553-580.

[iii] Chaim Braun and Christopher F. Chyba, “Proliferation Rings,” International Security 29, No. 2 (Fall 2004): 43-45.

[iv] Kurt M. Campbell, Robert J. Einhorn, and Mitchell B. Reiss, The Nuclear Tipping Point, pp. 332.


Dr. Michael Rubin, (Twitter: @mrubin1971American Enterprise Institute (AEI)

The debate about how to counter Iran’s apparent pursuit of a nuclear weapons capability is not new. Two decades ago, European officials took the lead on the Iran portfolio, hoping to prove that diplomacy coupled with trade could bring the Islamic Republic in from the cold. They failed. Between 2000 and 2005, European Union trade with Iran almost tripled. During the same period, Iranian authorities invested perhaps 70 percent of the hard currency windfall in military programs and, according to IAEA reports, actively worked on nuclear bomb components.

Iranian officials have acknowledged their diplomacy is geared less toward conflict resolution and more toward delay. In June 2008, against the backdrop of reformers seeking to claim credit for Iran’s nuclear progress, Abdollah Ramezanzadeh, former President Mohammad Khatami’s spokesman, suggested the “Dialogue of Civilizations” was a tactic to distract the West from Iran’s nuclear progress. Then, in October 2011, former nuclear negotiator Hassan Rowhani credited his willingness to suspend Iran’s nuclear enrichment with successfully delaying Security Council action at a time when Iran needed to install new centrifuges anyway.

Effective sanctions are necessary if the West seeks to avoid either an Iranian nuclear breakout or preventive military action. Twice before, Iranian authorities have abruptly reversed course on demands and policies they swore were unalterable. In January 1981, Ayatollah Khomeini released American hostages because Iraq’s invasion the previous September had made the cost of isolation too great to bear. Then, in July 1988, after more than six years of stalemate, Khomeini accepted a ceasefire ending that war, abandoning his goal to oust Saddam and “liberate Jerusalem.” He described that decision as “drinking a chalice of poison” but regime survival took precedent.

The question for policymakers then becomes what sanctions or combination of sanctions might raise the cost of Iran’s nuclear pursuits too high for the regime to bear.  Narrowly targeting sanctions to specific individuals and companies does not work: Khatam al-Anbia, the Islamic Revolutionary Guard Corps (IRGC)’s economic wing, can shift operations from one front company to another quicker than international agencies can designate them. The only way to plug such loopholes is to sanction entire industries.

Banking sanctions have proven themselves effective. Russia and China may condemn them, but as the North Korea experience shows, the international financial system gives Moscow and Beijing little choice but to comply. Sanctioning oil exports is wise, although two can play the insurance game. A single Iranian mine dropped into the Strait of Hormuz would send insurance rates surging for all ships traversing that waterway. Blocking Iran’s gasoline imports is trickier: While the impact would be crippling, any challenge to the blockade could accelerate military conflict.

Other sanctions are also important. Banning international air travel to and from Iran would not only isolate the regime, but would also undercut Khatam al-Anbia’s bottom line, as the IRGC controls not only 25 gates at Imam Khomeini International Airport but also the entire Payam International Airport near Karaj. Forcing ordinary Iranians to fly from Turkey or Pakistan would not be too high a price to avoid military conflict. Preemptive contract sanctions-declaring contracts signed after a specific date with Tehran to be null and void-would also undercut the willingness of Chinese, Russian, and Indian firms from profiteering off the sanctions regime.

As important as the sanctions are is how they are applied. Leverage comes not from gradually ratcheting up sanctions, but rather from imposing them all at once as the international community did with Libya after the Lockerbie bombing. Rather than offer Iranians economic and diplomatic inducements—-a strategy that, as with Pyongyang, incentivizes bad behavior-Western powers can lift sanctions in response to changes in Iranian behavior.

Iranians are nationalistic and would rally around the flag in event of military strikes, but they have never accepted regime propaganda blaming their economic woes on the outside world. Indeed, every time gasoline has run short and food prices have increased, Iranians direct their anger at the regime. It is that anger that the outside world should encourage.

There is no magic formula and sanctions alone will not stop Iran’s nuclear program. The West should support Iran’s nascent independent trade union movement, and help Iranians break the government’s attempts to impose internet controls. Any coherent strategy should have diplomatic, economic, informational, and military components. Sanctions, however, are a keystone to a broader strategy.


Dr. Djavad Salehi-Isfahani, Virginia Tech and the Brookings Institution

I have been less than a week in the medium-sized city of Neishabour, Iran, visiting relatives, and I can see no sign of a country hunkering for intensifying sanctions and looming difficult times.  Sidewalks are full of shoppers and people seem to go about their business as usual.  People are complaining about rising prices but they keep buying.  There are extravagant wedding parties every evening as hopeful couples tie the knot before the holy month of Ramazan starts, on Friday July 20.  Looking at the pace of normal life, one can understand why Iranian leaders seem in no hurry to throw in the towel in the nuclear standoff with the West, and why Western claims of imminent economic doom are exaggerated.

But all is not well, not by a long shot. The dollar has gone through the roof, food prices have skyrocketed, industrial production is down, and unemployment is rising. The oil embargo has cut into Iran¹s oil revenues and financial sanctions have limited the country¹s access to the global economy.  Spot shortages and sharp price increases for key food items are already being felt across Iran. This provincial city was rocked on July 23 when hundreds marched down its main street protesting the shortage of chicken at the official price. There is no doubt that ordinary Iranians will pay a heavy price as sanctions intensify; the big question is how sanctions will influence Iran¹s behavior in the international stage.

When sanctions were “smart” and aimed to make life difficult for Iran’s leaders, ordinary Iranians acted as disinterested bystanders. But now that sanctions aim to make life difficult for them, they will have to take sides. Or so goes the theory: put pressure on the people  — “economic warfare,” as one conservative commentator told the New York Times — so they get their government to compromise.

Since this theory is about to be put to an extremely costly test, it is important to consider a few things before we commit to this path.

First, international sanctions only work when the population they are imposed on identifies with the objective of the sanctions. This is the big difference between the sanctions to end apartheid in South Africa and those to force Iran to abandon nuclear enrichment. Most Iranians are not all that invested in nuclear enrichment, one way or the other, but few would see stopping Iran’s enrichment as their cause.

Furthermore, history shows that, when threatened by sanctions, Iranians are unlikely to rise up against their own government.  In 1952, a Western-imposed embargo on Iranian oil devastated Iran’s economy, but people tolerated the pain and stood with their government. It took a US-sponsored coup a year and a half later to topple the nationalist government and help Western powers achieve their objectives.

True, Iranians are more polarized today, especially after the rise of the Green movement following the controversial election of 2009. But it is a misreading of Iran’s political scene to believe that sanctions will revise or strengthen the protest movement. The opposite may be true.  The Green movement was built on economic growth and an expanding middle class. Thanks to economic growth fueled by rising oil revenues, 40percent of Iranians have joined the middle class and the lower 40 percent aspire to the same.  The economy has not been doing well lately, the average Iranian still enjoys a decent standard of living, has access to basic services, health, and education.   Significantly, last year’s Human Development Report that ranks countries based on income, health, and education placed Iran above Turkey, which is the best performing country in the region.

Sanctions are slowly transforming Iran from a country with an expanding middle class and a rising private sector into a country with a shrinking middle class and private sector.  Financial sanctions have placed private firms at a disadvantage relative to government-owned firms in making global transactions.  Where the private sector withdraws, the state is often ready to move in.

More severe sanctions will go beyond hurting the private sector and threaten the living standards of the middle class.  As basic services deteriorate, and the shortages and long lines that were common sights during the Iran-Iraq war reappear, the government will once again become not the source but the remedy to their problems.

The sanctions will do much to undermine the belief among Iranians about the benefits of the global economy.  Such beliefs are what distinguish India from Pakistan.  If there is hope for Egypt and Tunisia after the Arab Spring to become stable societies it is the belief in the benefits to their citizens of remaining connected to the global economy.  The short-term gains from nuclear gamesmanship must balance the long-term cost of alienating the Iranian middle class.

Spreading faith in global cooperation used to be the White Man’s Burden, but no longer.  Leaders in Brazil, China, India and Turkey have done a lot to persuade their people that working within the global economy is not a threat but an opportunity.  Many leaders of the Islamic Republic have pushed a similar view.  The year President Ahmadinejad took office, in 2005, the Fourth Development Plan he inherited was subtitled “In Conformity with the Global Economy.”  These leaders believed in the Islamic Republic as a development state. They built infrastructure and schools and promoted family planning.  Naturally, they do not want to gamble all they have achieved in a high stakes nuclear game.  If by chance they are contemplating to revive the Islamic Republic as a development state, the world should help them succeed, not undermine their effort.


About the Debaters:  
Fariborz Ghadar is a distinguished scholar and senior adviser at CSIS. He is also the William A. Schreyer Professor of Global Management, Policies, and Planning, and founding director of the Center for Global Business Studies at Penn State University. Earlier in his career, he served as an investment banker at the International Finance Corporation (World Bank); as president of the Export Promotion Center, a vice ministerial position in the Shah of Iran’s government; as well as research coordinator of the Harvard Multinational Enterprise Project. Dr. Ghadar is a recipient of the Weyerhaeuser Educator of the Year Award and CIO Magazine’s Global Leaders Award. Business Week named him one of the top 10 Star’s of Finance, and he was named one of the top 10 thought leaders and practitioners of strategy coaching in The Art and Practice of Leadership Coaching: 50 Top Executive Coaches Reveal Their Secrets (Wiley, 2004). Dr. Ghadar is the author or editor of 12 books on global economic topics, including Global Tectonics: What Every Business Needs to Know; Financing Growth in Developing Economies; and New Information Technology and Its Impact on Global Business Management, all published by the Center for Global Business Studies at Penn State. He received his B.A. and M.S. in mechanical engineering from MIT and his M.B.A. and doctorate from the Harvard Business School.
Malou Innocent is a Foreign Policy Analyst at the Cato Institute. She is a member of the International Institute for Strategic Studies, and her primary research interests include Middle East and Persian Gulf security issues and U.S. foreign policy toward Pakistan, Afghanistan, and China. Innocent has published reviews and articles on national security and international affairs in journals such as Survival, Congressional Quarterly, and Harvard International Review. She has also written for Foreign Policy, Wall Street Journal Asia, Christian Science Monitor, Armed Forces Journal, the GuardianHuffington Post, the Washington Times, and other outlets both in the United States and overseas. She earned dual Bachelor of Arts degrees in Mass Communications and Political Science from the University of California at Berkeley, and a Master of Arts degree in International Relations from the University of Chicago.
Michael Rubin a resident scholar at the American Enterprise Institute; senior lecturer at the Naval Postgraduate School’s Center for Civil-Military Relations; and a senior editor of the Middle East Quarterly. Between 2002 and 2004, Rubin worked as a staff advisor for Iran and Iraq in OSD/ISA/NESA at the Pentagon. He regularly instructs senior military officers deploying to the Middle East on regional politics, and teaches Iranian history, culture, and politics onboard U.S. aircraft carriers. Rubin has lived in the Islamic Republic of Iran, and spent time with the Taliban before 9/11. He is currently completing a history of U.S. diplomacy with rogue regimes. He is author of Into the Shadows: Radical Vigilantes in Khatami’s Iran (Washington Institute, 2001), co-author of Eternal Iran: Continuity and Chaos (Palgrave, 2005), and co-editor of Dissent and Reform in the Arab World: Empowering Democrats (American Enterprise Institute Press, 2008). Rubin was primary drafter of the Bipartisan Policy Center’s 2008 taskforce report, Meeting the Challenge: U.S. Policy toward Iranian Nuclear Development. Rubin received a B.S. degree in biology from Yale University, and a Ph.D. in history from the same institution.
Djavad Salehi-Isfahani is a Nonresident Senior Fellow at the Brookings Institution.  He is also a professor of economics at the Virginia Polytechnic Institute and State University (Virginia Tech) in Blacksburg, VA, where he has taught since 1984 and was department head from 1995-2000. In 2009, Salehi-Isfahani became Dubai Initiative fellow at the Belfer Center for Science and International Affairs at Harvard University’s John F. Kennedy School of Government. During 1979-80, he served as an economist in the Research Department of the Central Bank of Iran. He is active in the Economic Research Forum, a network of Middle East economists based in Cairo, where he is a Research Fellow since its inception in 1993. His research covers a wide area in energy, population, development economics, and Middle East economics. His articles have appeared in Economic JournalJournal of Development Economics, Economic Development and Cultural Change, and the Journal of Economic Inequality, among others. He is the co-author with Jacques Cremer of “Models of the Oil Market” (1991), editor of “Labor and Human Capital in the Middle East” (2001), which was selected as a Noteworthy Book for 2001 by the Princeton University Industrial Relations Program, and co-editor of “The Production and Diffusion of Public Choice” (2004). He received a  B.Sc. of economics at the University of London, Queen Mary College and a masters and PhD from Harvard University.

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