Hossein Askari

WASHINGTON—Absent a miraculous turnaround on the part of the regime in Tehran, President Obama is poised to tighten the screws on Iran. Not only has Tehran reneged on a deal it tentatively accepted in Geneva, it has said that it intends to construct ten more secret enrichment sites and that it would abandon its nuclear drive only when the United States and its allies do the same.

Obama should stop reaching out to Tehran for a nuclear agreement. The regime will not, and cannot, deliver what it promises, because there is no general agreement in Tehran on how to proceed with the relations with the United States. The regime has lost its religious legitimacy and is on its way out, although that could still take some time.

Obama should support the aspirations of the Iranian people and negotiate with a legitimate government once it emerges. The only viable option for Obama is economic sanctions and related initiatives—weakening the Tehran regime without interfering in Iran’s internal struggle.

The route of sanctions requires the administration to consider three broad questions. First, what sanctions could weaken the Iranian economy, when sanctions largely have failed over the past thirty years? Second, would sanctions merely hurt the Iranian people and turn them against the United States? Third, even if the Iranian economy is impaired, or, even better, if the financial wellbeing of regime insiders is threatened, will the regime be toppled? The first two questions are largely economic, and the third requires familiarity with the social and political fabric of today’s Iran.

Yes, sanctions so far have failed to impair the Iranian economy. Iran can still sell its oil, and buy most of what it needs, albeit at a slightly higher price. The only sanctions that have been somewhat effective are those spearheaded by the U.S. Treasury; these essentially aim to cut off Iran from the global financial system. But there is much more that can be done along these lines if the U.S. Treasury is given a free hand and gets presidential backing in lobbying U.S. allies.

The central bank of Iran could be sanctioned. European allies, the UAE, Bahrain, Oman, and Malaysia could be compelled to terminate all financial transactions with Iran; and, as a specific strategy of cutting off business with Iran, all significant (say over $1,000,000) bank and investment accounts of Iranian officials and Iranian citizens living in Iran could be frozen around the world—to be unfrozen only once the protestors demands are met or the regime is overthrown.

Commercial banks around the world already are increasingly reluctant to do business with Iran, because they have seen the record fines recently imposed on Credit Suisse by the United States for defying U.S. sanctions. Europe and the countries in the Persian Gulf increasingly are afraid of an emerging regime controlled by the Islamic Revolutionary Guards. Cutting off the central bank and all Iranian banks basically would increase the cost of Iranian imports, because Iran could not use letters of credit, but rather would have to rely either on cash to buy what it needs or on barter deals. The cost of trade would soar. This would, in time, cripple the Iranian economy and demonize the regime.

Many are recommending the adoption of financial sanctions—the freezing of accounts—on only the Revolutionary Guards. This would do little. This initiative would only affect senior members of the Guards. More importantly, the Guards could have bank accounts under assumed names or may have access to the accounts of regime supporters. Freezing bank accounts, not only those belonging to Guards and key regime figures but also those of all rich Iranian merchants and businessmen living in Iran, would threaten the financial interests of all who benefit from and support the regime. The bazaar strike was the key catalyst to toppling the regime during the 1979 revolution. Some would once again turn against the regime to regain access to their financial accounts.

While it would be best to have these financial initiatives adopted on a multilateral basis by the United Nations Security Council, the U.S. administration could immediately and unilaterally adopt them, with follow-up at the UN.

Simultaneously, and in addition to sanctions, there are targeted U.S. initiatives that could further threaten regime insiders and supporters and that would, in time, damage Iran’s economy. The U.S. Treasury could spark a panic by motivating Iranians, as well as expatriates residing in the United States and worldwide, to liquidate their assets in Iran and to withdraw their money from Iran by enforcing existing U.S. laws that call for the payment of taxes on all foreign sources of income and the prohibition of investments in Iran (requiring a license from the U.S. Treasury’s Office of Foreign Asset Control).

The U.S. Treasury could give individuals an amnesty from prosecution and from loss of permanent resident status, say for six months, if holdings are declared, taxes paid, and funds repatriated (ironically this also requires a license from the Treasury). Such an announcement would spark a panic, not only within the expatriate Iranian community, but also in Iran. The wealthy would rush to liquidate their assets in Iran and take their money out, fearing a collapse in asset prices and in the value of the rial. The regime would have no choice but to block the outflow of funds from Iran; the black market exchange rate would jump; import prices and eventually inflation would soar.

All these measures—the various financial sanctions and initiatives—should be simultaneously adopted in order to have the maximum effect; adopting them one by one would not inflict the needed level of pain on the regime and its supporters.

Some, especially Iranian Americans, have counseled against any tightening of the sanctions, or indeed any added pressures on Iran, because Iran’s economy and internal conditions are so fragile that further economic pressures, they predict, would impose unbearable pain on average Iranians. There are a number of answers to this. First, the primary impact of the above initiatives would be on regime insiders and their backers in the bazaar (frozen bank accounts, decline in asset prices and in the value of the rial) and not on average Iranians; many will abandon the regime as their wealth is threatened; and they may join the opposition to get their financial accounts returned and business interests restored.

Second, the impact on the average Iranian would be through higher food prices and the elimination of food subsidies; although this will cause short-term hardship, it would also erode support for the regime among the poor—something the regime would try to avoid. Thus, the poor may not be affected, and if they are affected, it would speed up the regime’s downfall.

While I have advocated focused enhanced sanctions and policies to bring economic pain on the regime and its backers since the June 12 elections, some legitimately ask: Would economic collapse necessarily lead to regime collapse? This question cannot be answered either way with certainty. But in my opinion, these measures would speed up the overthrow of the Tehran regime. Regime members will fight each other to save their ill-gotten financial gains; wealthy businessmen will turn against the regime and potentially go on strike, as they did in 1979; average Iranians would turn against a regime that cannot even deliver on the bare necessities of life. The goals and reasons for new sanctions, if adopted, should be explained in detail by President Obama to the Iranian people. This would go along way in assuring Iranians that the United States is acting in support of their long-term interests.

Hossein Askari is the Iran Professor of International Business and International Affairs at the George Washington University.