The U.S. administration’s upcoming decision on certification of the Iran nuclear deal will likely present a strategic choice in how to use sanctions to pressure Tehran. The aftermath may expose a deep-seated contradiction in how such sanctions are designed.
By October 15, the administration must certify to Congress whether Iran is fully complying with the deal, and whether the deal’s suspension of sanctions is appropriate and proportionate to the steps Iran has taken, as well as vital to the national security interests of the United States. Senior U.S. officials’ comments suggest that the administration may not certify, which would open the door to expedited consideration of legislation to reimpose the nuclear-related sanctions that have been suspended under the deal—effectively kicking the response into Congress’ court.
Congress would then face a choice. One possibility would be to use the expedited legislative procedure to reimpose some or all of the suspended sanctions. The strategic goal of these measures—most prominently secondary sanctions on those who do business in Iran’s financial, energy, and automotive sectors, and on purchases of Iranian oil—would be to force Iran to negotiate on its nuclear program by inflicting broad and escalating pain on its economy. These sanctions succeeded in the past because other countries and companies generally complied with them, often out of fear of losing their access to the U.S. financial system. However, they also went along because they were convinced that Iran’s nuclear program was a genuine threat and that Tehran had spurned good-faith efforts to negotiate.
But if such sanctions were re-imposed now, in the absence of credible evidence that Iran has significantly violated the deal, many other countries and non-U.S. companies would likely try to obstruct, evade, or undermine the measures. Indeed, the European Union is already threatening to block its companies from complying with U.S. secondary sanctions on Iran that they consider illegitimate, as they have done in the past. Needless to say, this would spell the end of the nuclear deal and the U.S.-European partnership in countering Iran’s nuclear program.
Another possibility would be for Congress to strengthen new secondary sanctions targeting Iranian ballistic missile tests, destabilizing activities by proxy forces, support for terrorism, and so on. The strategic goal of targeted sanctions like these would be to weaken those who conduct such activities. Sanctioning those involved in, or businesses that happen to deal with those involved in, such activities is a straightforward way of transforming them into international financial outcasts—restricting them from raising money, moving assets, and otherwise engaging in similar behavior.
This is the path Congress took earlier this year in the Countering Iran’s Destabilizing Activities Act. Iran complains that such sanctions violate the nuclear deal, but it is clear that they do not. Just as the nuclear deal did not commit Iran to curb its non-nuclear activities, it did not commit the U.S. to refrain from sanctioning them. Such new targeted sanctions would also face compliance challenges, but because the sanctions would be narrower and non-nuclear, Europeans and others could more easily be persuaded to go along with them—especially if the alternative is scrapping the nuclear deal.
The more difficult challenge is to erode the economic power of the toughest targets. Organizations such as Hezbollah and Iran’s Islamic Revolutionary Guard Corps (IRGC) do extensive business in otherwise legitimate sectors of the Iranian and Lebanese economies, alongside their nefarious activities. In such cases sanctions must incentivize international companies contemplating business in such sectors to conduct thorough due diligence to avoid any transactions with sanctioned actors—but that will not be enough.
In addition, the sanctions should also allow international companies to do business with responsible, unsanctioned Iranian enterprises, because additional opportunities for trade, investment, and productive foreign partnerships would strengthen these clean Iranian companies relative to their targeted competitors. Thus, pursuing this strategy in earnest would mean, for example, ending the ban on U-turn transactions that effectively blocks companies from doing deals with Iran in dollars, and liberalizing the primary embargo blocking U.S. companies and persons from transactions with Iran. And in addition to bolstering businesspeople in Iran who would rather work with international partners than with the IRGC, lifting the embargo would have the ancillary benefit of allowing U.S. companies to search for opportunities in Iran on the same terms as their European and Asian counterparts.
Pursuing this path would not be easy. Those who see sanctions as a club to bludgeon Iran’s economy, rather than as a scalpel to carve out and excise tumors, would oppose efforts to lift any type of sanctions. And to prevent sanctioned companies from benefiting from new business, secondary prohibitions on transactions with designated Iranian targets would need to be prominently publicized, constantly updated, and scrupulously enforced.
Such sanctions maintenance is particularly important because in many sectors it is difficult to untangle corporate ownership and control structures and financial relationships, and they can change quickly. Indeed, the sanctions risk may be so high that Western companies would hesitate to dive into tainted sectors of Iran’s economy even if the U-turn ban and primary embargo were lifted.
It is also possible that the potential for productive international partnerships would create incentives for Iranian entrepreneurs to establish responsible and transparent businesses. Over time, that would put real pressure on key revenue sources of hard targets in Iran—giving them not only fewer resources to fund their activities, but also less domestic political power.
The opinions and characterizations in this article are those of the author, who is on leave from the State Department, and do not necessarily represent the position of the United States government or the State Department.