United States Lacks Economic Clout To Enforce Sanctions on Iran

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P5 leaders + Germany and Iran
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By United States Department of State - https://www.flickr.com/photos/statephotos/16389773974, Public Domain, https://commons.wikimedia.org/w/index.php?curid=39364779

The United States House will vote on renewing the Iran Sanctions Act (ISA) in November, a ploy that seems to be another effort to undo, or at least jeopardize, the nuclear deal with Iran. Republicans have repeatedly lambasted the agreement, and GOP Presidential nominee Donald Trump even went as far as to call the deal the “the worst ever signed.” Problem is, renewed sanctions against Iran won't make much difference with the global community already moving to reintegrate Iran into the global economy.

To be clear, the Iran Sanctions Act is separate although closely related to the nuclear deal signed between Iran and world leaders. The act does allow the United States to impose sanctions over not just nuclear activities, but also ballistic and conventional weapons. The United States nuclear deal with Iran more or less supersedes the ISA, and has rolled back many of the sanctions regarding nuclear research. Some sanctions regarding other issues remain in place, however.

Congressional aides have been leaking information suggesting that the United States Congress will try to renew the Iran Sanctions Act for another 10 years. The deal expires on December 31st. If renewed, it's likely to incense the Iranian government, which has complained that remaining sanctions are still detrimentally affecting Iran's economy. Iranian officials have cited foreign investments as a particular sore spot.

The Obama administration has recognized the threat the ISA poses to the standing nuclear agreement and on-going efforts to soothe tensions between the United States and Iran. The administration has asked Congress not to renew the Act, and has said that the Administration has enough power to reenact sanctions, if necessary. The Obama administration has said, however, that it would consider legislation to renew the act.

World Is Moving On, USA Should Too

Efforts to renew the ISA have stirred up the Iran nuclear sanctions deal. Many Republicans maintain that the nuclear deal was foolhardy, at best, and grants too much to Iran for too little. Yet the United States found itself in a difficult situation, and arguably the nuclear deal was among the better possible outcomes.

Perhaps the Nuclear Accords weren't the best possible deal. Indeed, U.S. officials were initially pushing for more concessions. Problem is, the United States was facing ever waning leverage. In particular, both Russia and China were making it clear that they were growing tired of supporting sanctions. Without their support, sanctions against Iran would be limited. As long as Iran can pump oil, it can generate the revenues it desperately needs.

Arguably, engagement is a better path forward than sanctions. By increasing engagement, the United States and other countries could build up leverage. If Iran is more integrated into the global economy, it will stand to lose more if sanctions are reinstalled.

American Economic Clout No Longer The Negotiating Tool It Once Was

Whatever American Congressional leaders might want to believe, the United States no longer possess the economic clout it once did. Once upon a time, America could wield access to its markets as its most powerful bargaining chip in global politics. This was especially true when the Soviet Union and China were still largely closed off from the world.

In 1960, the United States accounted for about 40% of the global economy. Now? It accounts for only about 20%. While this is still a large amount, American demand can be substituted for demand from Russia, China, and others. Further, with China's economy growing rapidly, it will overtake the American economy in absolute nominal GDP terms in the not so distant future.

China, among others, is especially hungry for raw resources, like the oil and natural gas Iran has to offer. If the United States won't do business with Iran, China will. Russia probably doesn't need Iranian natural gas or oil, but it won't shirk away from doing business with Iran. Meanwhile, the European Union is in its own tough spot, relying too much on Russia for oil and natural gas. Iran could help the EU diversify.

Across the rest of the world, America's economic clout has waned. Yes, the United States remains -arguably- the most attractive single market, but there are many alternatives, including Iran itself. The country is home to 80 million people, and its moderately wealthy population is hungry for imports, and especially modern goods. With so many countries and companies looking to tap into this market, re-instituting global sanctions would be difficult. Meanwhile, unilateral sanctions like the ISA could hurt American companies more than Iran.

That isn't to say that conditions were and are ideal for Iran either. Foreign investments remain muted, likely in part due to the ISA. Companies, and especially American companies, don't want to risk any backlash from doing business with Iran. Still, billions of dollars in FDI has started to flow in, more international flights have been scheduled, and business activity is picking up. Of course, American companies might well be left on the sideline, especially if the ISA is reenacted.

Worse yet, Iran could used continued sanctions as an excuse to back out of the nuclear deal. If Iran were to do this, it'd be a lot harder for the United States to rally the global community once again to re-erect multilateral sanctions. This is especially true given the deterioration in relations with Russia.

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