Smart, maybe, but ineffective

If until recently the U.S. administration claimed that the failure of Iran to respond to Western proposals for resolving the nuclear issue would lead to "crushing sanctions" against it, in recent weeks the use of the term "smart sanctions" has become more frequent. In an attempt to explain this change in rhetoric, those same U.S. officials point out that now is not the time to conduct a campaign that will cause cumulative damage to the Iranian economy, since such a step will curb the spirit of the forces that are expressing opposition to the regime. It is for the sake of preventing damage to the material and spiritual resources of these forces that American officials are proposing the institution of "smart sanctions": steps that will cause direct and focused damage to the interests of Tehran's policy makers without causing damage to the population.

An examination of the involvement of the Iranian Revolutionary Guards in the country's economy, however, suggests that it is unrealistic to hope to harm the welfare of the ruling elite in a manner that will yield the desire changes in behavior, while at the same time avoiding harm to the general welfare of Iran's citizens. It is hard to find many projects in Iran in which the Revolutionary Guards or companies connected to them are not involved. In the course of the past two years alone, they have received government contracts worth about $6 billion to develop infrastructure in the fields of energy, transportation and communications. Therefore, any measure intended to hurt the Revolutionary Guards will affect the aggregate macroeconomic activity of the country in a manner that in the short term will harm the interests of all its citizens.

We see emphatic evidence of this when examining the cumulative effect of the steps taken against Iran to date. Parallel to the three rounds of sanctions decided on in the United Nations Security Council, the United States led a unilateral campaign designed to block the access of Iranian banks to the international financial system, and to impede Iran's trade and investment activity. Over the past three years, Washington has made it clear to financial institutions and multinational corporations that business ties with Iran are liable to interfere with their activity in the United States. As part of this campaign, the bank Credit Suisse was forced in December to pay a fine of $536 million, after it provided services that enabled Iranian banks to bypass the prohibition against access to the U.S. financial system.

Although the U.S. Treasury campaign succeeded in harming localized commercial interests of the Revolutionary Guards, its broader macroeconomic influence is reflected in the runaway inflation the Tehran government is having difficulty controlling. The difficulty of conducting international transactions and the attempt to camouflage trade activity with Western companies by means of indirect imports via third countries have led to an increase in the prices of imported goods, and the entire population suffers from this.

If behind the American use of the term "smart sanctions" lies the intention of expanding the financial campaign already being waged against Iran - and of taking action against companies that have any business ties whatsoever with the Revolutionary Guards - the difference between those sanctions and crushing sanctions becomes marginal and a matter of terminology.

The present weakness of the Tehran regime is liable to constitute a window of opportunity, in which the imposition of economic sanctions is of increasing impact. However, if the United States really believes that the internal unrest in Iran obligates it to avoid harming the Iranian population (a problematic assumption in itself, since it can be argued that economic pressure is precisely what could increase protest activity), since it will cause people to rally around the regime - its ability to harm the interests of the Revolutionary Guards will be limited to freezing the assets of central figures and limiting their freedom of movement.

In order to increase the effectiveness of the sanctions it is possible to engage simultaneously in "additional activity" (i.e., covert operations) designed to delay and interfere with Iran's nuclear technological progress. Whether "smart" or "crushing," sanctions are already exacting a price from the regime, but it will adhere to its policy if it believes the road to completing the nuclear program is not long and the price it is likely to pay is not high enough to divert it from its path.

Nitzan Feldman and Yoel Guzansky are researchers at the Institute for National Security Studies (INSS) at Tel Aviv University.