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12 Apr, 2022 16:58

A nation under sanctions: What Iran's experience can tell us about Russia's fight against Western pressure

The current economic measures imposed on Russia remind experts of Iran's confrontation with the West
A nation under sanctions: What Iran's experience can tell us about Russia's fight against Western pressure

The whirlwind of sanctions directed against Russia has intensified to such an extent that the fallout is being felt far beyond the government agencies involved in Russia’s military offensive in Ukraine. Oil prices have soared in anticipation of shortages, businesses have announced boycotts, athletes are being excluded from competitions, and some Russians are fleeing the country, losing the comforts to which they’ve become accustomed.

Moscow has lost access, at least for now, to $300 billion of its gold and foreign exchange reserves, and seven Russian banks have been disconnected from the SWIFT international payment system. The number of sanctions imposed on the country is unprecedented – 5,787 new restrictions have been imposed against Russian legal entities and individuals since February 22, and their number has reached more than 8,500 in total. No other country has ever had so many restrictions imposed on it. Even Iran, which has been under sanctions for more than 40 years, comes in a distant second, with only 3,600.

“This is financial nuclear war and the largest sanctions event in history. Russia went from being part of the global economy to the single largest target of global sanctions and a financial pariah in less than two weeks,” said Peter Piatetsky, a former official with the Ministry of Finance in the US administrations of Barack Obama and Donald Trump.

This invites comparison between Iran’s sanctions history and the most recent anti-Russia measures. Although the position of these two countries in the global economy and politics is very different, there is apparent similarity in their present-day situation. For quite a long time, the Islamic Republic of Iran was the world’s most-sanctioned pariah country, cut off from a critically important income source – its energy supplies to Europe. There are rumors that some of the restrictions imposed on Iran could now be rolled back in order to curb Russian oil and gas supplies and avoid an energy crisis in the EU. These signals are integral to understanding what the West’s priorities are right now. Are we dealing with the principle here, according to which those responsible must be punished, or is this objective justice? These and other questions have been addressed by experts interviewed by RT.

Although there seems to be no panic so far, and demand for individual goods is growing, experts still fear the imminent onset of a severe economic crisis – not only in Russia but throughout the world. As part of the fifth package of sanctions, EU countries are contemplating a ban on importing Russian oil and gas, even though Russia provides EU countries with about 40 percent of their gas and 25 percent of their oil. Truckers in Spain are already coming out at rallies to protest rising fuel prices, and similar demonstrations may soon sweep across all of Europe. 

In recent history, there's been a case of a relatively important economic actor incurring a heavy sanctions regime that led to difficulties for the initiators of the restrictions themselves. Many now recall the experience of Iran, a veteran in the field of international isolation.

A Historic Moment 

Iran’s sanctions history began in 1979 with the Islamic revolution that swept away the country’s secular monarchy and brought Shi'ite theologians to power. Contrary to Washington’s official position, the ‘non-democratic’ nature of the new regime was not enough for US measures. The sanctions were imposed not because of the change in power, but because of the seizure of the American embassy in Tehran, which lasted more than a year – 444 days. The US then severed diplomatic relations with Iran, imposed an embargo on oil and other goods from the Islamic Republic, and froze $12 billion worth of Iranian gold and foreign exchange assets in US banks. 

“Iran was supposed to become America’s main ally in the region, that was clear already in the ‘70s: The Americans were selling weapons to the Iranians, Shah Mohammad Reza Pahlavi came to Eisenhower’s funeral, Nixon came to Iran ... So, the revolution was a terrible blow for America. Moreover, they were not even able to predict the development of events and, for some time, continued to support the deposed Shah Mohammad Reza Pahlavi. This was a strategic miscalculation that greatly hurt the Americans,” says political analyst Polina Vasilenko.

Then these sanctions provoked a large-scale oil crisis. Nevertheless, the United States has repeatedly imposed oil embargos. However, American sanctions met with only limited success for a long time. The efforts of one country were not enough to bring down the Iranian economy, so Washington tried to convince its European partners to follow its example, Vasilenko recalls. No wonder: According to Eurostat estimates, oil exports to Europe accounted for up to 80% of Iranian exports and provided 50% of the country’s foreign trade revenue. 

Even after the European Union finally succumbed to American assurances and eventually imposed a ban on supplying equipment for the oil and gas industry and oil refining, as well as a ban on investing in Iran and other financial measures, the Islamic Republic’s economy managed to stay afloat. The formal justification for the measures was the allegation that Iran’s authorities were working on enriching uranium, which could allow them to create nuclear weapons.

According to Polina Vasilenko, the reason for imposing sanctions was rather far-fetched because, in reality, Tehran had no desire to create nuclear weapons. “The rhetoric about the nuclear threat was advantageous for both Iran itself and its opponents, who regularly talked about how dangerous the country was. But the fact remains: Yes, there is enriched uranium in small quantities,” the expert said.

Much more serious measures followed in 2010 – 2012. In addition to disconnecting Iran’s banks from SWIFT, Brussels joined the American oil embargo. The very next day, European experts noted a fall in the Iranian rial, as the country’s inflation rate approached 20%. 

A short respite came in 2015, when Western countries finally decided to address the issue that had prompted the sanctions in the first place. The Joint Comprehensive Plan of Action (JCPOA) was signed between Iran, the United States, Germany, Great Britain, France, China, and Russia, which called for all sanctions to be lifted in exchange for a reduction in Iran’s nuclear program. However, the break was short-lived. Just a few years later, in 2018, US President Donald Trump unilaterally tore up the nuclear deal and imposed a new series of sanctions. Even the willingness of the ayatollahs themselves to sit down at the negotiating table wasn’t enough to remedy the situation.

The Resistance Economy and the Black Market

The toll that decades of sanctions pressure has taken is more than obvious. Iran’s average annual inflation for 2018-2021 was 35% per year, revenues from oil exports decreased by more than 80% in 2020 alone, as compared to 2017, and Iranians barely have enough to eat. The minimum monthly salary for the 2022 fiscal year is equivalent to $200 at the current market rate, although the cost of a consumer basket of essentials for a family of three costs almost twice that. Despite steps from the administration of US President Joe Biden towards restoring the deal, it is too early to talk about even a partial lifting of sanctions – and the White House is not interested in pulling Iranians out of poverty.   

Iran has two allies left: the government-developed ‘resistance economy’ and the shadow economy. Ayatollah Ali Khamenei spoke about the ‘resistance economy’ for the first time back in 2007, albeit rather euphemistically. The supreme leader called for “leading the country as if there is a jihad” and “ensuring broad participation of the people in economic development.” The key components of such an economic model are import substitutions and a reduction of dependence on oil exports. “Yes, the economy of resistance bears certain fruit. For example, in some years, there was a positive balance between oil exports and imports. But growth is still not as high as it could be, the population in the country is quite poor, and the rial is unstable,” Vasilenko explained, commenting on the system's viability.

In addition, according to the Wall Street Journal, Iran is actually building a shadow economy. The newspaper analyzed “dozens of transactions of Iranian proxies” on 61 accounts in 28 foreign banks in China, Hong Kong, Singapore, Turkey, and the UAE, totaling hundreds of millions of dollars. According to WSJ sources, Iranian banks serving companies that are prohibited from exporting or importing to other countries instruct affiliated companies in Iran to manage sanctioned trade on their behalf. Then these firms establish a legal entity outside the country and trade under their own name with foreign buyers in dollars, euros, or other foreign currencies through accounts opened in foreign banks.

Western intelligence services assert that “there is evidence of such transactions worth tens of billions of dollars.” And, according to the IMF estimates, Iran’s “hidden import and export operations will grow to $150 billion in 2022, despite the fact that they already amount to $80 billion a year. The main export items sold in the shadow economy are gasoline, steel, and petrochemicals. 

Just the fact that the WSJ openly writes about Iran’s shadow economy makes it clear: For the United States, none of this has been a secret for a long time, Vasilenko emphasizes. If Tehran has managed to build a shadow economy with the full knowledge of the United States and, apparently, with its tacit permission, couldn’t Russia use the same methods – if not in a shadow economy, then in one of ‘resistance’?

The political analyst believes it’s not that simple. “The circumstances facing the countries are very different. It is difficult to assess whether Moscow could replicate Iran’s experience. Iran has been under sanctions pressure for more than 40 years, but the measures were introduced intermittently. They had about one and a half to two years to adapt to new realities, to come up with workarounds. Russia does not have this luxury. We have been hit with a full range of sanctions within about three weeks,” she pointed out. 

However, there is also good news. Though no one knows exactly what the real share of Iran’s shadow economy is, and the Ayatollahs’ ‘rescue plan’ is not working as well as they’d like, Iran’s experience proves it is impossible to exclude a country from the world economy and burn its economy to the ground. As Vasilenko notes, first of all, its neighbors are interested in ‘de-isolating’ the country. For some countries like China, it is simply beneficial to buy Iranian oil for a song. For others, like SCO member states, it is obvious that Iran is still an important regional factor, one of its strongest actors, and it’s essential to do business with it.

Barrel of Discord

After US President Joe Biden signed an executive order banning the import of Russian crude oil, gasoline, petroleum products, oils, liquefied gas, coal, and products, it became clear that it was only a matter of time before the European Union followed suit. Washington will continue to insist that Russian energy carriers are ousted from the market, but first it will ensure that Europe is no longer as dependent on Russia’s oil and gas, at least relatively speaking. This is what happened with Iran. In order to avoid supply disruptions, the EU countries first replaced 70% of the oil imports they had previously received from Iran, and only then imposed sanctions. 

However, now it seems that the era of Iranian oil bans has come to an end. Since the West has a new chief enemy, it has no choice but to seek alternative energy providers. In addition to the Persian Gulf countries, Iran has turned out to be a most fortuitous ‘petrol piggy bank.’ Washington has a whole set of tools in its hands with which it can allow Iranian oil to enter the market and save its European allies from shortages.

Perhaps the crisis over Ukraine will give Iran a brief respite, like the one in 2015, but the program director of the Russian International Affairs Council (RIAC), Ivan Timofeev, believes that America will not change its sanctions policy towards Tehran in the long run. “Concrete relief in the short term may be possible to overcome the immediate crisis, but this doesn’t change anything: The Americans will continue to put pressure on the Iranians,” he stressed. 

According to some estimates, if the US allows oil to enter the market from Iran and Venezuela, another sanctioned country, it will be able to increase the world oil supply by almost 1.5 million barrels per day by December. But in the second country, Nicolas Maduro, who is objectionable to the Americans, would remain in power, and Iran would continue developing its nuclear program. Consequently, the US would lose face by removing its restrictions. 

No Allies, No Sympathizers

It’s obvious that the Americans themselves, as well as their European allies, are beginning to suffer from the American model that calls for the ‘democratization’ of everyone and everything, not to mention its propensity to interfere in the affairs of other states at any cost. Timofeev emphasizes that, in the eyes of Western countries, Russia has crossed a red line, and sanctions are a punishment aimed at forcing Moscow to negotiate with Kiev. 

Once upon a time, the Americans managed to get their way and force the Iranians to agree to a nuclear deal by pursuing such a clearly defined goal. The task was more than achievable, especially since Washington had allies not only in Brussels but also in Moscow and Beijing. It seems there is a similar goal now: Keep imposing sanctions until the Russian authorities end the operation. However, who better than Washington to know that ending a war is much more difficult than starting one. After all, the Americans have already had to face this difficulty in both Iraq and in Afghanistan.

In addition, Americans now have no friends other than their traditional colleagues in the ‘collective West.’ But restrictions against Iran were also adopted by the UN Security Council. The sanctions were not only supported by the Americans and Europeans, but also by China and Russia. “Western countries will not stop imposing sanctions until they consider their political demands met. Or they will stop when a situation arises in which such measures clearly yield no results, but they will not lift the old sanctions. This confrontation will remain for a long time,” Timofeev stressed. Recalling the experience of Tehran, he added that, even after the Iranians agreed to the West’s demands and sat down at the negotiating table, sanctions continued to tighten, but already under a new presidential administration.

At the time, the main political forces in the world not only ganged up to put pressure on Iran but also coordinated to seek a way out of the problem. It was not by chance that the 5+1 group (USA, Russia, China, France, Great Britain + Germany) was created to pool efforts to deal with the issue of Iran’s nuclear program. But who is ready to bring Moscow and Kiev to the negotiating table now? Although almost every politician calls for diplomacy, few express willingness to take part in solving the problem. 

Describing the US’ policy for sanctioning political opponents, Polina Vasilenko notes: “It is very important to the Americans that the other side has no allies or sympathizers. Trump’s sanctions did not find support, for example, because at that moment the nuclear deal was fine. Moreover, during the coronavirus pandemic, when Iran was unable to access humanitarian supplies or buy vaccines due to sanctions, even America’s allies wondered whether it was humane to treat a population like that.”

As it turns out, not only the emergence of shadow economies and the development of ties with Eastern partners can spoil the picture for the West, but also the actual consequences of their own sanctions. In order for them to have the desired effect, and not just lead to an economic downturn, more is required than imposing hysterical restrictions here and there – namely, the ability to coordinate actions to solve the problem that led to the sanctions in the first place, and unity with other major actors like China. Perhaps this plan will appear soon, and the West will achieve its goal. However, it’s already worth asking what exactly that goal is.