Introduction

A Growing Crisis: The Impact of Sanctions and Regime Policies on Iranians’ Economic and Social Rights

Introduction

This study will examine the impact of increasingly stringent and comprehensive sanctions on the ability of Iranians from various walks of life, especially those from the lower and middle echelons of society, to pursue their economic and social rights to employment, food, shelter, healthcare, and education.

It will show that until the imposition of American and European Union sanctions in 2012, the economic and administrative policies of the Islamic Republic itself were more instrumental than sanctions in detracting from the capacity of Iranians to fulfill their rights to adequate standards of living, particularly the attainment and sustenance of gainful employment. Moreover, during the decade preceding the imposition of the 2012 sanctions, the expanding stream of revenue accruing to the Iranian state due to rising oil prices enabled the Islamic Republic to mitigate the consequences of its own policies and tolerate the limited, though gradually increasing, costs that sanctions were imposing on its economy.

However, as this study will argue, this fundamentally changed with the imposition of the 2012 sanctions, which targeted all sectors of the Iranian economy and cut the Iranian government’s revenue stream by more than half. The Iranian government’s continued economic mismanagement, which reflects either willful exacerbation of the sanctions’ effects for political gain or managerial incompetence, has only intensified the economic harm brought by the sanctions to the population. Taken together, sanctions have now combined with regime policies to produce a rapid deterioration in the socio-economic conditions of the Iranian people.

From 1979 to the mid-2000s, sanctions against Iran were essentially unilateral, imposed solely by the US. Although these sanctions inflicted costs on Iran, which were subsequently passed on to the Iranian people, these costs were not overbearing, as non-American companies were unwilling to sever their links to the Iranian economy.

After 1996, with the passage of the Iran-Libya Sanctions Act (ILSA), the US sought to initiate the process of choking off Iran’s most important source of hard currency and governmental revenue by imposing sanctions on any entity that invested more than $20 million per annum in Iran’s hydrocarbons sector. In practice, however, due to severe objections from America’s European allies, full implementation of ILSA remained elusive. The imposition of the first round of UN Security Council resolutions against Iran in 2006 enabled the US to receive more cooperation from its European partners and other allies in its endeavor to increase the transaction costs on the Iranian economy. But it was not until 2012 and the imposition of comprehensive, multilateral sanctions that this cooperation reached its apogee, resulting not only in a geometric rise in the costs being imposed on Iran, but also, for the first time since Iran’s oil nationalization movement in the early 1950s, an effective embargo on Tehran’s primary revenue stream—its oil exports.

The imposition of the 2012 sanctions have now caused Iran’s oil revenues to be cut by more than half,[1] and substantially increased its transaction and operating costs by, among other things, making it virtually impossible to transfer funds into and out of the country. The resulting hard-currency crunch and revenue shortfalls have, in turn, significantly decreased the value of the Iranian currency, greatly increased the costs and diminished the amount of both essential and non-essential imports (including medicine and medical equipment), expedited the contraction of the already moribund economy, reduced the tax base, further depleted the government’s revenues, and sharply expanded the inflation and unemployment rates—both of which were already in double digits. The costs associated with the newly imposed round of sanctions, therefore, are no longer limited, but increasingly debilitating.

As a result of the 2012 sanctions, Iran is now largely unable to mitigate the worsening structural flaws of its economy. Instead, internal economic, managerial, and bureaucratic flaws have combined with sanctions to impose unprecedented levels of hardship on the lives of ordinary Iranians. The standard of living of all wage earners has plummeted substantially and an increasing number of unemployed individuals and blue-collar workers (and their dependents) living in the country’s urban centers, where 71 percent of the population resides, are being pushed into penury and malnutrition.

The internal and external drags on the Iranian economy are now so intertwined that assigning a specific weight to their respective impact on the living standards of Iranians is difficult. However, it is clear that there has been a significant shift: Prior to the 2012 sanctions, it was simple to demonstrate, both conceptually and empirically, that domestic Iranian policies bore greater responsibility for the economic sufferings of the Iranian people than sanctions. This is no longer the case.

So far as the economic well-being of the Iranian population is concerned, comprehensive multilateral sanctions could not have come at a more vulnerable moment. Imposed at a time when the ramifications of President Mahmoud Ahmadinejad’s economic mismanagement were increasingly manifesting themselves, these sanctions have greatly amplified the defects of the Iranian economy, crippling the ability of ordinary Iranians to maintain adequate standards of living and unhindered access to such basic rights as a balanced diet, medicine, employment, education, and healthcare.

Since its inception in 1979, the Islamic Republic has managed to register a respectable record in the promotion of the country’s social development, substantially increasing the rates of education, literacy (especially in the ranks of women), and life expectancy. It has also succeeded in bringing about reductions in infant mortality and has introduced modern amenities (such as educational institutions, paved roads, electricity, piped water, and television) to rural areas. Through its social development programs, particularly in rural areas, the Islamic Republic had also, at least until recently, succeeded in diminishing the overall rate of poverty in the nation, though not that of income inequality and unemployment.[2]

On the economic front, however, the Islamic Republic has perpetuated and exacerbated the structural economic flaws it inherited from the Shah’s regime. The resulting institutionalization of a state-dominated, oil dependent, inefficient, and uncompetitive economy (beset by mismanagement, venality, inflation,[3] un- and under-employment, anemic growth, sub-par productivity levels, insignificant rates of foreign direct investment, and the production of low-value-added goods[4]) had, even before the imposition of the most recent round of sanctions, proved inimical to the ability of Iranians, especially the youth who constitute the majority of the population, to fulfill their social and economic rights to employment, housing, marriage, and family formation.[5] Indeed, the persistent inability of the Islamic Republic to create the requisite conditions for its youthful population to achieve gainful employment has stood in sharp contrast to its ability to increase the nation’s literacy rates and educational levels. In fact, according to statistics put out by the regime itself, unemployment among youth with college and university degrees tends to be higher than among those with lower levels of education.

Since 2005, when Mahmoud Ahmadinejad replaced Seyyed Mohammad Khatami as the president of the Islamic Republic of Iran, however, there has been a persistent and worsening decline in all of Iran’s macro-economic indicators. Correspondingly, the ability of Iranians, particularly the young, to make ends meet has gone from bad to worse. The policies that Iran enacted during the presidency of Ahmadinejad paved the way for the transformation of an already inauspicious economic milieu into a dire one, which, with the addition of the sanctions, has now grown into an economic crisis.

This study will examine the impact of sanctions on Iran’s economic performance from 1979 to 2012. It will explain how and why, until the imposition of 2012 sanctions, the structural flaws and policy choices of the Islamic Republic overshadowed the sanctions in terms of their consequences for the economic well-being of the Iranian people. It will also provide an in-depth examination of Ahmadinejad’s policies in the course of the last seven-and-a-half years, detailing how they exacerbated the structural flaws of the Iranian economy, expedited the decline in Iran’s macro-economic indicators, and ultimately made the livelihoods of average Iranians far more vulnerable to increasingly comprehensive sanctions. Thereafter, it will provide anecdotal evidence on the impact of sanctions and government mismanagement on the rapidly deteriorating socio-economic conditions of average Iranians.

The study will show that while Iranian government policies produced a deeply dysfunctional economy that left the country’s significant economic potential unrealized, it was only with the imposition of the 2012 sanctions (and the Iranian government’s policy response to them) that the Iranian people began to be unable to pursue their basic economic and social rights. The aim is not simply to analyze, but to put into context and humanize the manner in which Western sanctions and regime policies are combining to bring about a severe decline in the living standard (including access to adequate nutrition, employment, healthcare and medication, shelter, and education) of lower and middle class Iranians, particularly those who reside in the nation’s urban areas. The study also offers policy recommendations to the Iranian government aimed at instituting a more effective domestic policy environment, and to the international community, aimed at achieving a sanctions regime that more effectively targets the Iranian government and does not force the Iranian people to bear the consequences of regime policies for which they bear no responsibility.