Who Benefits From Sanctions?

Sanctions against Iran amount to some of the harshest and longest-running restrictions in the world. Dating back to the 1979 revolution that overthrew one of America’s closest allies in the region, early sanctions imposed primarily by the US froze Iranian government assets, blocked the sale of dual-use goods that might be used for military purposes, and banned the import of Iranian oil into the US. New measures introduced in the aftermath of the Iran-Iraq war went further by deterring foreign companies from entering Iran’s energy sector, effectively killing the liquid natural gas industry. The US also ordered sanctions on foreign entities assisting Iran in developing “weapons of mass destruction.”

The late 2000s and early 2010s saw sanctions deepen further as the US imposed restrictions on financial transactions and third-party investment in Iran. Under Obama, energy sanctions were expanded into a full embargo on Iranian oil and petrochemical exports. US allies—the UK, France, Germany, Japan, Australia, South Korea, the Gulf monarchies, plus the UN—were enlisted to broaden and deepen the regime. United Nations (UN) sanctions mainly targeted nuclear proliferation and military development, while the European Union (EU) adopted its own sanctions regime similar to that of the US. This massive expansion required a new transnational legal infrastructure that, some scholars have argued, helped to undermine the regulatory framework underpinning global liberal capitalism. Though the Iran nuclear deal of 2015 saw some sanctions relief, these were reimposed when the Trump administration withdrew from the deal in 2018. Trump’s “maximum pressure” campaign has been largely inherited and continued under Biden.

The stated purpose of the US sanctions regime is to block Iran’s nuclear proliferation as well as, more ambitiously, to “promote democracy” and stop “support for terrorism”—shorthand for Iran’s backing of regional proxies and groups not aligned with American interests. The evidence that such an agenda has been achieved, authors Narghes Bajoghli, Vali Nasr, Djavad Salehi-Isfahani, and Ali Vaez argue, is thin on the ground. American sanctions may be pummeling the Iranian economy, but broader political impact is beyond their remit.

Thwarted ambitions

The efficacy of sanctions as a tool of coercion has often been criticized within the US establishment. In 1997, Robert Pape’s hallmark article, “Why Sanctions Do Not Work,” argued that even the most severe sanctions often fail to achieve their own objectives, running up against a nation’s capacity to adapt and protect elite ambitions. His findings, though influential among the political establishment in the US, have had little bearing on actual policy, and the use of sanctions as a coercive foreign policy tool has only increased. Responding to such developments, more recent research has focused on particular case studies, looking at sanctions’ impact on targeted countries. 

How Sanctions Work fits squarely within this emerging research agenda, presenting one of the first in-depth studies of an especially important country case. The four authors, who are first- and second-generation Iranians based at top US academic and policy institutions, are interested in understanding how sanctions, especially those imposed since the Obama and Trump presidencies, have impacted Iran’s “society, politics, and economy.” Each of the book’s six empirical chapters cover different themes, including the history of sanctions against Iran, their economic or social impact in Iran, and the impact of sanctions in the rest of the world.

Taken as a whole, the book’s main argument is that sanctions have had a profoundly negative impact on Iran’s economy, society, and politics without accomplishing Western sanction objectives. Indeed, in critical ways, sanctions only further distanced Western policymakers from their goal of weakening the Iranian state, especially the Revolutionary Guards and businesses connected to the regime. The authors find that, in response to sanctions, the Iranian state “has become more militaristic.” Going further, they argue that “prolonged, comprehensive sanctions on Iran” have amounted to “a hardening of the political sphere. These trends have only accelerated since the imposition of maximum-pressure sanctions in 2018.”

According to the authors, all sections of society have been impoverished under sanctions, with the exception of the Revolutionary Guard and those businesses and individuals aligned with it—i.e. the very institutions and groups that the sanctions sought to target. Sectors like health and education are under massive pressure, while business owners with ties to the regime are profiting. Far from bringing down the state or weakening the regime, the authors argue, sanctions have worked to make civil society more dependent on the state. By securitizing and hardening Iran’s political culture, sanctions have also had the effect of individualizing and atomizing society, to some extent promoting what the authors call an “everyday life of resignation.”

Economic resilience

Although pundits often compare Iran with North Korea, Iran’s economy is far from isolated. Iran—a major oil producer—has an open economy, and international trade is a central pillar. Iran’s trade dependence ratio, calculated as the share of exports and imports in total GDP, is similar to Russia’s and Turkey’s. Though this openness should make Iran particularly vulnerable, sanctions have failed to decimate the economy. One study estimates the impact of Obama-led sanctions at around 17 percent of GDP over a three-year period (2011–14). Living standards, measured in PPP, fell by about 15 percent following the imposition of sanctions under Obama. While significant, this has not been crippling. In Argentina, for example, living standards recently fell by about as much for reasons wholly unrelated to sanctions.

Indeed, over the past fifteen years, Iran’s economy has even rebounded. Total GDP grew by 10.2 percent between 2011 and 2021. Non-oil GDP grew even more, by 26 percent in real terms. Iran’s economy is thus bigger now than it was immediately preceding Obama. Between 2011 and 2021, moreover, total employment numbers went up, including in large-scale industry; unemployment rates have trended slightly downward in the same period. In the early 2020s, Iran surprised the world when it became Russia’s primary supplier of advanced drones, busting a main goal of the sanctions’ regime: containing Iran’s military capabilities.

How Sanctions Work, which is based on dozens of interviews with officials, business figures, and ordinary citizens, describes Iran’s economic resilience in ethnographic detail. One homemaker from Isfahan tells the authors that “the situation is tough” but manageable, and that it doesn’t compare to the miseries experienced during eight years of war in the 1980s:

There was food rationing then. There were bombs flying over our heads. This summer, I didn’t buy cherries because they were so expensive. We’re eating less red meat. But in comparison, we’re making do. There aren’t long lines for food like during the war. The shelves in all the markets are full. It’s frustrating that we can’t buy what we used to, and it’s maddening that we’re at this stage after all of these years, but at least for me and those I’m surrounded by, we’re getting by.

The Iranian case stands in contrast to the experience of some other countries that have suffered heavy blows from sanctions. Cuba has been subject to a US embargo since the 1960s, and the country continues to suffer from shortages of primary goods and medicine. When the US sanctioned Iraq over its invasion of Kuwait in 1991, the Iraqi economy lost almost 50 percent of its GDP—dwarfing Iran’s 15–20 percent hit—causing widespread food shortages and even famine. Ultimately, the US had to agree to a UN-organized Oil-For-Food Program, which allowed Iraq to sell limited amounts of oil in exchange for food. Similarly, Western sanctions against Venezuela have wreaked havoc, exacerbating shortages of basic items, and further impoverishing the nation.

What accounts for the resilience of Iran’s economy? The authors’ answer lies in the fact of Iran’s open economy and its “reliance on markets.” In Schumpeterian fashion, they argue that sanctions, rather than undermining the dynamism of Iranian capitalism, have “forced Iran to innovate.” Tehran’s vibrant café culture or its world-class movie industry were perhaps always going to be more resilient, but there are other examples too. One interviewee, a woman in her thirties who runs an online pastry shop, told the authors that:

Things have gotten very expensive, but there’s also this odd opening for those of us who are running small businesses here. People still want a good time, they want good food and experiences, and we can now offer that to them and reach them through social media as our business platform. And we’re not competing with foreign products as much anymore. Of course, the government slows down the internet during protests and it’s unsure if we’ll have access to Instagram in the future—it has all of us who work through that platform worried. But we’ll find our ways…Every day is a hustle to find ways around government restrictions and sanctions and somehow make things work.

Grassroots entrepreneurism has been one response, but government policy, too, has been essential for Iran’s economic resilience. Monetary intervention has been key. As sanctions were tightened in 2011–12, and again in 2018–19, the rial lost more than half its value over the course of a few months. Currency depreciation was partially a necessary market adjustment to reduced oil revenues. But the government also accepted and even sponsored high inflation caused by the weaker rial, injecting more money into the system to prevent bankruptcies. These policies and price shifts in turn reduced wages and supported business activity.

These inflationary policies did not mean generalized poverty or mass destitution—though it might have if not properly managed. This is what happened in Maduro’s Venezuela, where the government resorted to price-fixing to protect its social base. Such measures prompted backlash and led to widespread hoarding, which only exacerbated shortages and further contributed to a humanitarian crisis. In Iran, the government uses official exchange rates to subsidize international trade in commodities, meaning that currency devaluation in the free-floating market isn’t fully carried over into higher costs of basic goods. Various redistributive measures, notably universal direct cash transfers, also sustain household incomes, as do other forms of state support and subsidization, including minimum wages, education, transport, and healthcare. These welfare arrangements mostly help Iranians stay out of poverty by providing lower-income families with access to basic goods, transport, healthcare, and education.

If those at the bottom received some protection from Iran’s robust welfare state, those in the middle, by contrast, have borne the brunt of the sanctions; as salaries were slashed and inflation skyrocketed, they, rather than the poor, have been sanctions’ primary victims. Between 2011 and 2019, some 9 million people lost their middle-income status, joining the ranks of the lower middle class, or even the poor. Between 2019 and 2021, as Iran’s economy somewhat recovered, only half of those individuals regained their earlier status.

Contentious politics

How Sanctions Work is a comprehensive study of Iran’s economic resilience against the onslaught of sanctions, but more might be said of the social and political consequences of America’s economic weapon. The book offers no coverage of important sanction-related topics such as the booming smuggling economy and the wholesale transformation of Iran’s borderlands; the impact of sanctions on migration patterns, notably from Afghanistan; or policies of industrial resilience, the management of employment relations, and productivity in large-scale manufacturing. While the book describes how Iran’s welfare state protected Iranians from the impact of sanctions, it pays rather little attention to the ways in which sanctions also contributed to cutbacks and austerity policies that in turn undermined welfare provision and the quality of social services.

One area that requires a closer look is the question of mass social unrest in Iran over the past decade. The authors acknowledge that US-led sanctions became associated with unprecedented social unrest in Iran, but dismiss any direct link. Their argument is partially methodological; it is hard to “prove” that sanctions “caused” protests and, as they underscore, these protests were in large part responding to domestic rather than external factors. The 2022 Woman, Life, Freedom movement, for example, was about civil rights and women’s emancipation, not sanctions relief. This may be the case, but the causes of the last decade’s popular protests, unprecedented in the Islamic Republic in terms of scale and intensity, will likely have more than one linear cause, and the separation of domestic issues from external pressures is likely not so neat in the context of a decades-long sanctions regime that has enormously diffuse effects on social life.

The book argues that sanctions weakened civil society by impoverishing the middle class and empowering businesses connected to the Supreme Leader and the Revolutionary Guards. But, as the authors show, sanctions also established a political economy that shifted power resources toward some social groups not directly connected to or controlled by the Revolutionary Guards. Prior to the Obama-era sanctions imposed in the early 2010s, Iranians had limited economic power, as the private sector of the 1990s and 2000s remained small. Much of the country’s GDP was produced by a tiny, tightly controlled group of workers employed in the hydrocarbon industry. Broad middle class movements led by the reformist coalitions used electoral participation to exert political power. 

By contrast, after the imposition of severe sanctions in the early 2010s (and again in 2018–19), the state became more economically dependent on a wider and more diverse range of social groups. Apart from oil workers, the cash-strapped government has increasingly relied on taxpayers who mostly comprise public-sector employees and private businesses; holders of government bonds, who mostly comprise the upper decile of the income distribution; and the several hundred thousand white- and blue-collar workers employed in large-scale manufacturing, who produce a significant share of non-oil GDP.

A recent Financial Times report describes how sanctions and the war economy have rejuvenated Russia’s rust belt. Not dissimilarly, sanctions against Iran have become associated with broad industrial transformation, with manufacturing expanding workforces in a number of localities. The mining industry in Kerman province, for example, has profited from higher domestic demand for coal and iron. This has been largely driven by Iran’s expanding steel industry, which has also been boosted by lower labor costs and domestic demand due to sanctions.

As Iran’s political field has narrowed and electoral institutions have become ossified, some of these social groups have mobilized their newfound power resources to make their voices heard. Public and industrial workers, in particular, have staged widespread protests over the past decade against austerity, rights violations, and bankruptcies. It is indicative of these groups’ relative power that these protest actions have routinely led to regime concessions, including budgetary support, legislative reforms, and state disciplining of employers. In recent years, Iran’s authorities have increasingly embraced tripartism and institutionalized bargaining as a way to channel and moderate these popular protests.

One could argue that, in this sense, the impact of sanctions on contentious politics appears more uneven than the book suggests. Sanctions have made civil society more dependent on the state, as the authors contend, but it seems to have also made the state more dependent on particular sectors of society. This has helped to draw certain parts of society into a kind of interest-group politics, in which certain working- and middle-class groups combine street mobilizations and more formal bargaining to put pressure on authorities. Indeed, labor protests directly contributed to the 2022 Woman, Life, Freedom (WLF) uprising, emboldening movement activists. “General strikes” became a central slogan of the WLF movement. It should be stressed that despite calls by the opposition for general strikes, labor solidarity actions with the WLF movement have remained rather muted. There have been a few small-scale actions here and there, but no sustained strikes.

As the authors of How Sanctions Work carefully show, the intensification of protest has prompted a fierce, draconian, and introverted state response. Paranoid militarization from the top has gone hand in hand with militant mobilizations from below, yet without leading to the revolutionary outcomes that many in the West and the Iranian opposition had hoped for. How Sanctions Work is an important study in mapping this dynamic, with findings likely applicable to other countries marked by coercive sanctions, securitized state responses, and interstate rivalries.