Does Economic Sanctions Tool Matter in Foreign Policy? The Iran-West Conflict

• In Event: New Lenses on Political Economy in the Middle East

Abstract

The Islamic Republic of Iran since the rule of the Faqih (Supreme leader) following the 1979 revolution have been subjected to sanctions from some major powers and the UN to discourage Iran from pursuing its nuclear ambitions or its desire to be a dominant player in the Middle East region. While Western countries, particularly the United States oppose Iran's nuclear plans, believing that the Islamic Republic is aiming to produce nuclear weapons, Iran insists on its right to use nuclear energy technology by claiming it is only for peaceful purposes. Because of this sharp divergence in Iran and Western views, the economic and financial embargo, for more than three decades, has been a constant pillar of Western foreign policy against Iran.
While the Iranian economy has for many years managed to cope with these sanctions, it has taken more complex, severe and aggressive form especially after the conservative Ahmadinejad took office in 2005. The sanctions were focused on weakening the structure of the Iranian economy; through forced isolation from both International trade and the financial system. This dire situation prompted a new and more prudent policy approach in addition to the negotiation of the Geneva Agreement between Iran and the P5+1 group. The deal opened the door to reducing the economic sanctions imposed on Iran and improve foreign relations with some European countries in terms of trade and investment.
Therefore, the main aim of the study is to examine the effectiveness of economic sanctions diplomacy as a foreign policy tool to settle international conflicts, using Iran as a case study. The importance of the research derives from the scarcity of studies on the impact of economic sanctions on the trajectories of these international conflicts. In particular with the withdrawal of new US administration from the agreement in May 2018, while the rest of the agreement members remains committed to Iran nuclear deal despite US withdrawal. They believe that the decision did not present any evidence that Iran was not complying with its obligations or violated the settlement.
The research uses a mixed method. The analysis starts with an inductive approach using the analytical descriptive and historical method to understand the stages of progress of the Iranian nuclear program and the western interaction with Iran in each of these Pre-Geneva stages. The second part of the study will be based on a deductive approach using time series data on the Iranian macroeconomic indicators. A vector autoregression (VAR) model will be applied to investigate the response of macroeconomic and political variables to sanction shocks.
The results could be classified based on the purposes of the sanctions itself. Firstly, the direct effects were shown obviously on Iran's economic performance such as GDP growth, unemployment, oil revenue, and inflation. In contrast, neither sanctions nor oil prices that have fallen nearly 50% since June 2014 seem to have reduced Iran’s ability to support militant movements in the Middle East especially after the mess in the region which followed Arab uprising in 2011 in particular in Syria and Yemen.
The conclusions indicated that the economic pressure and financial isolation had hurt the exhausted Iranian economy by successive sanctions for decades, into an irreversible shift in the foreign policy of the Iranian regime. However, as the Iranian economy remains to be challenged by the impacts of the sanctions, policy priorities should be concentrated on reducing structural bottlenecks and enhancing domestic production capacity to overcome the adverse influences of the exchange rate devaluation on the market and inflationary pressures. In contrast, the chaos that spread in the Middle East after the Arab uprisings in 2011 served to strengthen the Iranian role regardless of sanctions severity. The fragile political and military situations of Arab regimes became the main outlet for Iran's overt intervention.

Author

• Islam Ibrahim Abdelbary, Arab Academy for science and technology