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Sanctions relief, not more sanctions, may be the best way to promote reform in Iran

Posted By on January 31, 2018 @ 14:30

US President Donald Trump’s decision to grant sanctions relief to Iran on 12 January may have reflected a US need to buy time to build support for its position on the Joint Comprehensive Plan of Action (JCPOA). But the decision may also point to an alternative way to promote genuine reform in Iran.

The late-2017 demonstrations across Iran—the most significant in the country since the 2009 protests against then-President Mahmoud Ahmadinejad—arose primarily from widespread disillusionment with Iran’s dire economic situation and President Hassan Rouhani’s inability to deliver meaningful economic reform.

The Iranian government has used the ongoing US sanctions—which it claims breach the JCPOA—to deflect blame for its continued economic mismanagement and inability to eliminate chronic corruption. In certain respects, Iran is justified in using that excuse. Trump’s position on the JCPOA has discouraged US companies from investing in Iran and has also made European companies nervous about doing business there.

In Rouhani, Iran has a president who appears broadly receptive to change and reform. He was returned to government in 2017 by a significant margin after having overseen the negotiation and implementation of the JCPOA. While some observers argue that he’s not actually the moderate political voice that he’s often portrayed as, his relatively restrained response to last year’s protests suggests that he’s understands the need for economic reform and an anti-corruption strategy in Iran.

After the JCPOA came into effect, Iran’s national economic performance improved: growth increased from –1.8% to over 4% in a year. But significant structural issues will prevent further gains and limit the extent to which improvements in national economic performance translate into better living standards across Iran.

Within Iran, the issue of renewed US sanctions distracts from the economic problems that Rouhani’s government needs to solve. More importantly, the US position on Iran and the JCPOA risks empowering hardline elements in Iran who oppose the agreement and who are quick to blame Rouhani for failing to deliver on promised economic improvements. It’s not surprising that some in Iran see the hand of Mahmoud Ahmadinejad behind the protests. Iran’s ongoing economic malaise feeds the hardliners’ narrative that engagement with the West isn’t in Iran’s interests and that Rouhani can’t improve the economy.

Similarly, the US response to the December 2017 protests, which included a push for new sanctions, led to more claims from Islamabad that Washington was meddling in Iran’s internal affairs by inciting the protests. In this context, any new sanctions will be perceived as part of a US strategy to effect regime change in Iran rather than as a legitimate response to widespread violations of human rights.

Also worrying is the recent reporting that Germany is looking at imposing new European sanctions on Iran. That appears to be as much a concession to US pressure as a genuine response to Iran’s continued work on its ballistic missile program and its role in conflicts in Syria and Yemen.

But Trump’s decision to waive sanctions—particularly those related to Iranian banks—represents a more constructive approach that could encourage reformist processes in Iran. Trump’s decision on banks provides Rouhani with some critical breathing room, especially given that Iran’s banking sector is overleveraged and is one of the most vulnerable parts of its economy. A relaxation by the US of other comparable sanctions could result in other economic improvements in Iran. It would also be a rare demonstration of good faith on the part of the Trump administration, vindicating Rouhani’s support for the JCPOA and potentially empowering reformists within Iran.

Admittedly, any positive reaction to the US sanctions waiver was undermined by the introduction of new sanctions targeting the Iranian military and regime figures involved in human rights abuses—but that’s more a problem of optics than of economics. More concerning are continued indications that the US under Trump not only remains hell-bent on picking a fight with Iran over the JCPOA, Iran’s nuclear and ballistic missile programs, and its role in Iraq, Syria and Yemen, but is also looking for ways to exploit the recent protests to promote regime change in Iran.

If regime change is gaining serious consideration in Washington, then Trump’s Iran policy could backfire spectacularly. Ignoring the risk a return to its pre-JCPOA nuclear activities, Iran is currently close to realising a number of its strategic goals in the Middle East. Iran has taken advantage of ISIL’s retreat in both Iraq and Syria. It’s also benefiting from a thaw in relations with both Qatar and Turkey.

Iran’s more secure strategic position may mean that it can test the Trump administration’s resolve on the JCPOA and capacity to protect US strategic interests in the Middle East. But Rouhani’s government is likely to remain under pressure because of Iran’s weak economy. Rather than seek to exploit this fissure to promote more protests, the US should see it as an opportunity to use sanctions relief as a tool to encourage positive economic and political change in Iran.

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[1] grant sanctions relief: http://www.abc.net.au/news/2018-01-13/donald-trump-grants-sanctions-relief-to-iran/9326542

[2] widespread disillusionment: https://www.aspistrategist.org.au/iranian-demonstrations-domestic-international-implications/

[3] Iran is justified: https://www.theatlantic.com/international/archive/2018/01/iran-protests/549647/

[4] broadly receptive: https://www.washingtonpost.com/news/democracy-post/wp/2018/01/18/iran-after-the-protests-what-comes-next/?utm_term=.85a8c8f939bd

[5] some observers argue: https://www.forbes.com/sites/heshmatalavi/2017/05/26/how-is-irans-hassan-rouhani-a-moderate/#27c33c5c4f08

[6] restrained response: https://www.reuters.com/article/us-iran-rallies-rouhani-cabinet/rouhani-iranians-have-right-to-protest-but-must-avoid-violence-idUSKBN1EP0J7oid-violence-idUSKBN1EP0J7

[7] –1.8% to over 4%: http://www.worldbank.org/en/country/iran/publication/economic-outlook-april-2017

[8] significant structural issues: https://www.reuters.com/article/us-iran-rallies-economy/crisis-of-expectations-iran-protests-mean-economic-dilemma-for-government-idUSKBN1EQ15S

[9] Mahmoud Ahmadinejad behind the protests: https://www.nytimes.com/2018/01/04/world/middleeast/iran-protest-blame.html?action=click&contentCollection=Middle%20East&module=RelatedCoverage&region=Marginalia&pgtype=article

[10] US response to the December 2017 protests: https://www.rferl.org/a/iran-protests-pro-government-rallies/28952651.html

[11] reporting: https://www.reuters.com/article/us-germany-iran/germany-weighs-new-sanctions-against-iran-report-idUSKBN1F90O3?il=0

[12] Iran’s banking sector is overleveraged: https://www.nytimes.com/2018/01/20/world/middleeast/iran-protests-corruption-banks.html

[13] new sanctions: http://edition.cnn.com/2018/01/13/politics/iran-us-sanctions-intl/index.html

[14] Trump’s Iran policy could backfire spectacularly: https://www.theguardian.com/world/2018/jan/01/iran-enemies-wise-not-wish-regime-change

[15] thaw in relations with both Qatar and Turkey: https://www.voanews.com/a/iran-turkey-relations-deepen-shared-regional-goals/4119043.html