Sanctions on Iran: A range of options

Much has been written about whether the West can effectively sanction the Islamic Republic of Iran. For policymakers, sanctions remain an attractive option for either deterring or slowing the progress of Iran’s nuclear program. While there is disagreement over the effectiveness of sanctions, there are many creative ways the West can put the pinch on the Ahmadinejad regime without causing undue harm to the Iranian people. These approaches are discussed below.

Petroleum sanctions: It’s ironic that while Iran has the world’s third largest proven oil reserves, it has to import 40% of its gasoline. The mere threat of extended petroleum sanctions was enough to cause BP, Reliance Industries, and Glencore to terminate gasoline sales. Reuel Marc Gerecht and Mark Dubowitz explain how the European energy companies are the key:

The Swiss-Dutch energy giants Vitol and Trafigura, the British-Dutch Shell, and the French energy powerhouse Total are big players in the gasoline trade. Most tankers wouldn’t enter Iranian waters if British, German and Norwegian insurance companies stopped writing policies. Chinese companies may also think twice in the face of serious sanctions. Despite much ballyhooed press releases, few Chinese energy companies are actually delivering on the investment deals they sign with Iran.

However, a resistant OPEC or world surge in the price of oil may counteract the viability of these sanctions.

Restricting access to capital markets and international credit: Restricting Tehran’s access to international credit and loans would not only cripple the country’s economy, but would also slow the development of new nuclear infrastructure, which is notoriously capital- intensive. Already the German insurers Munich Re and Allianz have pulled out of Iran, and Lloyd’s of London–a leading specialist insurance market–is following suit. From a historical perspective, the 2007 crackdown on Banco Delta Asia’s North Korean account has proved successful in curbing Kim Jong Il.

Enforcing export controls on dual-use technology: Preventing key pieces of technology from reaching Iranian scientists is a sure-fire way to slow progress on Iran’s nuclear program. In the past decade, Dubai has demonstrated that it is the Middle East’s central trading hub for electronics. In order to block certain technologies from reaching Iran’s shores, the UAE will need to strictly monitor Iranian businesses and prevent exports of various products. More likely than not, Sheikh Mohammad will drag his feet on both counts.

Travel bans: A complete travel ban for all regime officials (like the one we imposed for Saddam’s Iraq) would make life difficult for Foreign Minister Mottaki and his colleagues and could serve to frustrate Iran’s foreign diplomacy. An additional caveat for travel bans would be a restriction on landing rights for all Iran Air flights internationally. This move, however, might backfire by disenfranchising the average Iranian who may be opposed to the regime.

Sanctioning foreign direct investment (FDI): Sanctioning FDI from Western controls to Iran is perhaps the most effective way to target the regime’s commercial and industrial assets, because many state-controlled industries are owned by the IRGC. FDI hit a peak of $10 billion in 2007, but has dropped precipitously with the increase in tensions between Iran and the United States. Preventing foreign direct investment in the telecommunications, energy, real estate, and engineering sectors would hamper the cash flow of the IRGC and loosen their stranglehold on the country.

Sanctioning foreign companies that do business with Iran: Urging Western multinational corporations to divest from Iran is another option. Thus far, several German companies, including Siemens and Ferrostaal, have agreed to end business with the Islamic Republic. This is a hopeful development, because Germany is one of Iran’s largest trading partners.

Critics of sanctions-based foreign policy argue that historically it has been unsuccessful. Leslie Gelb writes, “Economic sanctions generally don’t succeed. That’s a historical fact. With regard to Iran in particular, it’s certain they won’t work without China’s participation, which we won’t get. Beijing won’t do anything to seriously jeopardize its oil purchases.” Perhaps the best way to get the Chinese on board for new sanctions is to ensure them access to new energy markets. If Beijing is not fully dependent on Tehran to fuel its economy, it may soften to the idea of playing hardball with the regime.

The time for the West to move is now, while the price of oil is low, and public opinion is against the current regime.

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1 Comment

  • MarcH says:

    ” …the 2007 crackdown on Banco Delta Asia’s North Korean account has proved successful in curbing Kim Jong Il”.
    Really?? I hadn’t noticed. I’m surprised to see such delusions in LWJ. If we dramatically throw our support to the Green movement we might achieve regime change. Otherwise the only answer is a 30 day bombing campaign.


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