Don't count on sanctions to topple Iran's regime, despite current problems. However, economic pressure may make Tehran more willing to compromise on its nuclear programme.
History of sanctions advises that Iran is far from collapse
On Sunday the Israeli finance minister, Yuval Steinitz, declared that the Iranian economy was "on the verge of collapse". Sanctions were finally working and causing the Iranians "great economic difficulties", as a result of an estimated annual loss of $45 billion to $50 billion (Dh165 billion to Dh184 billion) in oil revenues.
The previous day, the Israeli foreign minister, Avigdor Lieberman, said that he believed the mullahs would soon be overthrown by an "Iranian-style Tahrir revolution", such as the one that toppled Hosni Mubarak in Egypt.
These statements should not be taken at face value. They are part of the climb-down executed by the Israeli prime minister, Benjamin Netanyahu, who has tacitly admitted that Israel does not have the power to knock out Iran's nuclear facilities on its own and has therefore extended his "deadline" for military action until the middle of next year, in the hope that the Americans will join him then.
The world should be grateful that another war in the Middle East is not about to start. But the narrative "sanctions are working" has taken on a life of its own.
The story was given a push by scuffles in Tehran caused by the plummeting value of the Iranian rial, and the clumsy attempts of the president, Mahmoud Ahmadinejad, to impose state regulation on the hectic foreign exchange markets.
With confidence in the rial collapsing, crowds scuffled with police as they closed down currency traders, and bazaar traders, unable to price their goods, gathered to shout angry slogans against the government, including: "Leave Syria alone and think of us."
Does that mean that sanctions are really "working" and the mullahs are on their way out?
The record of economic sanctions is patchy, with the evidence showing they are poor at removing governments and their outcomes dependent on factors beyond the control of those imposing the sanctions. While economies are endlessly said to be "on the verge of collapse", they never actually collapse: there is always something to trade, even if it is only some roots from the forest.
Zimbabwe is a good example. Even with the economy hollowed out by hyperinflation and a loaf of bread costing a million Zimbabwe dollars (until the local currency was abandoned in favour of the US dollar and the South African rand), President Robert Mugabe holds on to power.
In Iraq a UN-supervised sanctions regime, described by its one-time administrator Denis Halliday as tantamount to "genocide", failed to unseat Saddam Hussein. The Iraq experience shows that the poor become destitute and the middle classes are wiped out: first they sell their books, then their jewellery and furniture, and finally their property to pay for food or medicine. In a command economy dependent on oil, only those linked to the regime thrive, while the well-connected smugglers and traffickers drive around in Ferraris.
South Africa is usually touted as an example. UN sanctions - involving foreign disinvestment from the economy and the banning of sporting and cultural ties - eventually led to the end of the apartheid regime.
But there are crucial differences. South African sanctions were supported by the then-opposition movement, the African National Congress, which enjoyed majority support. There are not many voices in Iran supporting the sanctions.
Meanwhile the United States has shown its hand. For years the exiled opposition Mujahideen-e Khalq Organisation (MEK) has been on the US list of banned terrorist groups. The Obama administration lifted this ban on September 28. This has two effects. Any internal opposition in Iran can now be cast as aiding the MEK, a force widely viewed in Iran as treacherous since it fought alongside the Iraqi army after it invaded Iran in 1980. People who protest against Iran knows they face an increased chance of being hanged as MEK members.
The MEK is popular in Washington for the intelligence it has supplied on the Iranian nuclear programme and for rejecting clerical rule. The second effect is that Iranians will now see the MEK as playing the role of Ahmad Chalabi, the exiled politician who was favoured by the US to lead post-Saddam Iraq. Mr Chalabi filled newspaper columns around the world, but struggled to gain any popular support in Iraq.
Supporters of sanctions see the blame game being conducted in Tehran over who is responsible for the currency crisis - Mr Ahmadinejad's opponents point to his incompetence- as a sign of fracture at the top. This may be true. But it is not as serious as it appears: it may just be politics as usual.
Mr Ahmadinejad, whose term runs out next year, has outlived his usefulness and the battle is on to succeed him. Perhaps Iranian politics is not so different from Israeli politics: Israeli politicians are at each other's throats calling each other "Nazi" and "quisling" but the real business of the state - such as settling the West Bank - continues apace no matter which party is in power. Iran's drive to master the nuclear fuel cycle is a national enterprise supported even by the leaders of the Green movement that took to the streets after the rigged 2009 elections.
Those who expect sanctions to bring the mullahs to their knees should watch what the Russians and Chinese are doing. China has reduced its imports of Iranian crude, proving that it no longer seeks to put a spoke in the wheels of every US policy. But it surely stands firm against allowing Washington to engineer regime change in Tehran. And the same goes for Russia. Be prepared for a less helpful stance if the US tries to tighten sanctions.
The Iranian leadership has been given a shock. The lesson to draw from it is not that the regime of the ayatollahs is about to fall. Rather, it is that during a period of weakness, Iran will be more receptive to a compromise on the nuclear issue. It is far better for the UN Security Council to focus on this opportunity for a new start to the nuclear talks than to settle in for a decade of starving Iranian babies.
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