Analysis |

Lifting U.S. Sanctions Won't Solve Iran's Problems

A new agreement could unfreeze $100 billion in assets around the world, and moderates are striving for a deal now in case conservatives take over after the June presidential election

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
Iranians at a bazaar in Tehran this month.
Iranians at a bazaar in Tehran this month.Credit: Majid Asgaripour / WANA / Reuters
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

“We are prepared to take the steps necessary to return to compliance with the JCPOA, including by lifting sanctions that are inconsistent with the JCPOA,” State Department spokesman Ned Price told reporters on April 7, referring to the Iranian nuclear agreement.

Price’s careful wording on the sanctions imposed by the administration of Donald Trump, who withdrew the United States from the agreement in May 2018, didn’t clarify the conditions under which the sanctions would be lifted, or provide a timeline. All this is being discussed in Vienna by Iran and the countries that signed the nuclear agreement.

It seems that all the parties, including opponents of the accord, realize there’s no turning back; the sanctions will be lifted if Iran walks back its violations that began a year after the United States withdrew from the deal. That, at least, is what Iranian Deputy Foreign Minister Abbas Araghchi, who heads the Iranian delegation, said.

The United States already began to loosen the reins of the sanctions when it let South Korea negotiate with Tehran on returning some of the Iranian money that Seoul had frozen due to the sanctions. The sum in question is $7 billion, of which a billion is to be released after South Korea gives Iran $30 million to buy coronavirus vaccines.

This figure is a drop in the bucket because Iran has $100 billion in frozen assets all over the world, and the United States, Germany, France, Britain, Russia and China seek to come to an agreement by June 18, the date of the Iranian presidential election. It’s feared the next president will be a tougher conservative who will try to stymie the talks.

Iranian Foreign Minister Mohammad Javad Zarif speaking in Tehran in February. Credit: Vahid Salemi / AP

The great promise that accompanied the signing of the nuclear agreement in 2015 led to huge voter turnout topping 73 percent in the Iranian presidential election of 2017. But recent unofficial opinion polls predict not just a dramatic drop in turnout but a hefty rise in support for the conservative leadership.

Iran, it seems, is also pressed to come to an agreement before the election so that it doesn’t get mired in domestic political disputes, especially because of its severe economic crisis, and to take advantage of the international momentum in its favor.

The internal power struggles got media exposure this week after an interview Iranian Foreign Minister Mohammad Javad Zarif gave to London-based television station Iran International. The interview was not meant for release. Zarif told how the Revolutionary Guards, including then-Quds Force chief Qassem Soleimani, were constantly looking to undermine the agreement and even got Russia to help.

“I sacrificed diplomacy for the battlefield,” Zarif said. “He [Soleimani] asked me to make this or that concession or point almost every time I went to negotiate.” Soleimani was killed in an American drone strike in January 2020. Zarif added that when he asked Soleimani not to use Iran Air flights to Syria to carry forces and military equipment, he responded that Iran Air was safer than another Iranian airline, Mahan Air.

Zarif’s comments were lambasted in Iran, with harsh critics saying he should be fired and prosecuted for treason and harming state security. It’s doubtful that Zarif will have a top position in the government that’s formed after the election. What’s certain is that Supreme Leader Ali Khamenei, who had given his blessing to the nuclear agreement and approved the holding of new talks, has no interest in confronting the opponents of the accord again.

A woman shopping for produce at the Tajrish Bazaar in Tehran this month. Credit: Atta Kenare / AFP

The vital oil industry

The expectation of lifted sanctions is generating a wave of forecasts on world oil prices. Iranian Oil Minister Bijan Zangeneh predicted in January that Iran would double oil production to 4 million barrels per day and nearly double exports to about 2 million barrels per day from 1.15 million.

In fact, in March it was already exporting around 1.8 million barrels a day. This indicates that after the lifting of sanctions these will be the quantities it can market in the short term, a limited amount because the global market hasn’t yet recovered from the coronavirus pandemic.

But the lifting of sanctions will revive drilling and exploration plans by oil companies. Thus, Iran’s output and export potential may rise dramatically, and with it, at least theoretically, its profits. It's theoretical because Iran will have to reclaim customers it lost during the sanctions period and compete with Saudi Arabia and Russia by selling oil at exorbitant discounts, as it does today.

Moreover, the long-term agreement Iran signed with China gives Beijing the right to buy Iranian oil at bargain prices, on top of the concessions that China already has in Iranian industries such as communications, arms and road building. Details of the agreement are still confidential, but leaks have sparked protests in parliament and on social media criticizing the regime for selling to the Chinese.

An Iranian oil tanker anchored in Venezuela last year.Credit: Ernesto Vargas / AP

The shrinking middle class

While oil exports after the lifting of sanctions may help fill the state coffers, the economic crisis could drag on for years without a significant change in the economy’s structure, banking laws and oversight that would control spending and eradicate corruption, a feature of the regime’s DNA. There is enormous poverty, an official unemployment rate at about 12 percent but three times higher among young people, inflation near 40 percent and the printing of billions of rials to cover the budget deficit. None of this will go anywhere even if a new nuclear agreement is signed.

Iran’s people, considered the most educated in the Middle East, will have to wait for new factories, high-tech efforts, refineries and large infrastructure projects to be completed for new jobs to be available.

The government will certainly increase welfare benefits, which currently amount to about $4 a month per capita for needy families, but to rehabilitate the middle class, Iran must improve its education system and vocational training, curb the fall of a rial that has plunged more than 70 percent in three years, and encourage small and midsized businesses. In 2011 the middle class made up around 60 percent of the population but is now only at around 20 percent of Iran’s population of 80 million people.

With Iran’s minimum wage at about $6,700 a year, earned by about 41 million people, and with around 10 million undocumented workers taking in about a quarter of that, we can only assume that the government will increase wages and welfare benefits, deepening people’s dependence on the government instead of encouraging a more-open economy.

A battle is also expected between the government and the Revolutionary Guards, who control more than half the economy and sets its priorities. Getting the lifting of sanctions to trickle down will thus depend on the team that takes over after the June election, but for the public there isn’t much reason for optimism.

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