Iran Sanctions: Putting the ‘E’ back in DIME
Sanctions targeting Iran’s ability to sell its oil and access the international banking system are beginning to bite, but a change of course by that country requires coordinated and sustained diplomatic and financial pressure as well as the credible threat of military deterrence. The international financial sanctions that came into force earlier this year nudged an already teetering economic system over the edge and precipitated a steep decline in the value of the rial (the Iranian currency) in September and early October 2012. The rial sunk to an all-time low against the dollar by early October, losing over three-fifths of its value since the start of the year, and Iranian citizens took to the streets to protest the country’s most significant economic crisis in decades.
Some commentators have hailed the success of financial sanctions against Iran, while others predict an eventual currency collapse that could set in motion a series of events that could force a rethink of Iran’s nuclear ambitions. These sentiments beg an important question: precisely how could the sanctions regime work to engender the desired outcome? One approach would be to put the ‘e’ back in ‘dime.’ As an acronym, ‘dime’ stands for diplomatic, information, military and economic --- referring to the various instruments of national power. To be effective, these instruments must be collectively reinforcing. Putting the ‘e’ back in ‘dime’ does not only refer to the more purposeful use of economic levers to effect change, it also highlights the crucial role non-economic factors can play in bolstering the impact of economic and financial sanctions.
The underlying factors for the recent turmoil in Iran’s financial sector pre-date the sanctions regime. The combined effect of artificially-maintained exchange rates, a system of multiple rates and economic mismanagement had progressively weakened the fabric of Iran’s economy. Sanctions merely helped push it over the precipice. The consequent destabilization provides a unique (but transient) window of opportunity. Robust diplomacy could make the most of this opportunity in three main ways. First, diplomatic efforts could help deepen financial sanctions, particularly those related to oil sales, by encouraging purchasing countries to extend and increase their participation in the sanctions regime. Second, diplomacy could be used to close existing and potential loopholes by preventing Iran’s state-owned or state-controlled companies from concealing or laundering funds in various jurisdictions. Third, diplomats should explore innovative ways to use the current situation as a useful lever in negotiations with Iran and potential mediators like China and Japan.
However, sanctions will only be an effective lever if their goals, nature and impact are communicated effectively, and in a timely manner. Domestically (and to some extent, regionally) economic sanctions against Iran are losing the battle in the court of public opinion. The Iranian regime is using populist rhetoric to re-write the script. This is where the ‘i’ could bolster the ‘e’ in ‘dime’. A more focused communication strategy could more clearly and effectively connect the outcome (i.e. financial distress) with specific missteps by the Iranian regime. The sanctions are in place to deter the regime from pursuing nuclear ambitions for military purposes, after many other means were exhausted. Also, the so-called speculators are not part of an internationally-inspired anti-Iran conspiracy. They are citizens and companies acting to protect the value of their financial assets from the adverse consequences of the Iranian regime’s policy choices.
During his September 2012 address to the UN general assembly President Obama made clear that the international community is steadfast in its resolve to prevent a nuclear armed Iran and that all options (including military intervention) are on the table. A ‘dime’ approach would combine diplomatic skills, effective communication, a credible military threat and robust economic action. This is especially pertinent given the unintended consequences of sanctions regimes which could eventually fuel populist rhetoric domestically and weaken commitment internationally. History teaches us that governments in such situations are adept at veering towards regime survival mode and blaming associated hardship on the sanctions. Iran is reeling from the impacts of the financial sanctions, but it is also settling into a “new normal,” where the costs of sanctions will be passed on to the citizens and the regime will continue along its chosen path undeterred. There is a brief window of opportunity. Adopting the ‘dime’ approach could help ensure that Iran does the right thing domestically (in terms of human security and economic development) and internationally (as regards nuclear security).