July 6, 2015 | Business Insider

Iran’s Regime Knows ‘Snapback Sanctions’ Aren’t Going to Be Able to Stop it From Going Nuclear

As world powers prepare to finalize a nuclear deal with Iran, European businesses are gearing up for a swift re-entry into the Islamic Republic. The potentially impending deal will open Iran — one of the world’s last large untapped emerging markets — to foreign investment and trade.

How will Tehran use its windfall? The White House hopes that the bonanza from the deal will moderate, not exacerbate Iran’s harmful regional behavior. The administration’s underlying logic is that a deal will reverse the decades-old animosity between Washington and Tehran, setting them on a new, positive course. In the administration’s view, the economic benefits from the deal are critical to ensuring that Iran renounces its negative ways.

There are two problems with this view. The first is that the more economically advantageous the deal is for Iran, the less vulnerable its economy becomes to renewed economic pressure. As our colleagues at the Foundation for Defense of Democracies showed in a recent report, a nuclear deal would improve Iran’s economy enough to insulate against the effect of “snapback” sanctions.

The second problem is that Tehran believes its economy — having enjoyed almost two years of diminishing pressure thanks to the November 2013 interim nuclear agreement — can withstand the consequences of a no-deal scenario.

For its threats to have teeth, Washington needs Iran to believe that the pain from the renewed onslaught of a US-led economic embargo could imperil the regime’s very survival. Otherwise, a deal will further empower a government bent on dominating the region at the expense of America’s principal Middle East allies, and sponsoring terrorism regionally and worldwide.

The administration would do well to listen to what the Iranians themselves are saying. A report published last month by Iran’s Ministry of Roads and Urban Development estimated the country’s growth over the next decade through three scenarios: pessimistic, realistic and optimistic. In the pessimistic outcome, Iran does not sign a nuclear deal, international sanctions are not lifted, and access to the country's oil income remains limited.

Under the realistic scenario, Tehran signs the nuclear deal, controls inflation, and limits its monetary base. It then has full access to its oil income as sanctions and their various consequences vanish within three years. Under these circumstances, Iran experiences 5.2-percent annual growth. 

The optimistic scenario includes all the above conditions plus successfully implementing Supreme Leader Ali Khamenei’s plan for a self-reliant “resistance economy” and implementing economic reforms that significantly increase workforce efficiency. Under this scenario, Iran’s economy grows 6 percent a year over the next decade.

The administration assumes that Tehran would prefer the realistic or optimistic options over a scenario where negotiations collapse. As it turns out, Iran believes that even if talks were to collapse, it stands to gain. In the regime's own predictions, a no-deal scenario would still yield 3 percent GDP growth.

There are many reasons why the regime reached this conclusion. This figure is consistent with the growth the country experienced over the past year under limited sanctions relief. Iran also appears to believe that international sanctions are falling apart even before a deal is reached.

Iran’s government, whose fate, according to Washington, is dependent on the success of negotiations, must be feeling reassured. So are various regime factions, including the Supreme Leader's, who are less enthusiastic about a deal. Khamenei, with his resistance economy model, believes that Iran’s economy could have grown under the crippling sanctions, had the government followed his guidelines. His own government economists now appear to agree that the country can comfortably weather the storm of future sanctions.

This confidence explains Tehran’s inflexibility at the negotiating table. It also highlights the fundamental, now-irreparable flaw of the Obama administration’s transformational strategy.

The relaxation of economic pressure — implemented well before Iran met its international obligations under the Nuclear Non-Proliferation Treaty and six Chapter VII UN Security Council resolutions — has not encouraged moderation. To the contrary: easing sanctions has reinforced Iran’s belief that it can outwit its adversaries and should only sign off on a deal that satisfies its unreasonable red lines.

Khamenei now has the upper hand, largely thanks to Iran’s improved economic indicators and the premature erosion of the sanctions regime. Washington’s diplomacy, far from yielding a moderate Iran, will convince its hardliners that nothing stands in their path toward regional domination — and, ultimately, nuclear weapons.

Saeed Ghasseminejad is an Associate Fellow at the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, where Emanuele Ottolenghi is a Senior Fellow. 


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