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Managing companies under the economic sanctions – A Case study of Iranian practice

Managing companies under the economic sanctions – A Case study of Iranian practice

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  • 1. Content Chapter one Abstract……………………………………………………………………………… Introduction………………………………………………………………………...... Research objectives…………………………………………………………………… Problem statement…………………………………………………………………… Research approach…………………………………………………………………… Significant of study………………………………………………………………… Summary………………………………………………………………………… Chapter two Literature review…………………………………………………………………… Chapter three Methodology………………………………………………………………………… Research approach………………………………………………………………… Research questions………………………………………………………………… Research reliability and validity………………………………………………… Research design……………………………………………………………………… Summary………………………………………………………………………… 1
  • 2. Chapter four Finding and discussion……………………………………………………………… Hypothesis…………………………………………………………………………… Research design and process……………………………………………………… Story from Iran……………………………………………………………………… Questionnaire……………………………………………………………………… Analysis…………………………………………………………………………… Chapter five Conclusion………………………………………………………………………… Recommendation…………………………………………………………………… References ………………………………………………………………………… 2
  • 3. Managing companies under the economic sanctions – A Case study of irainian practice Abstract Economic sanctions are often considered to be a legitimate, more peaceful alternative to war. Using examples, particularly that of Iran, it is evident that this is not so;some nations still circumvent sanctions as their trade and business find other ways to prosper. This is made possible by the effective business management practices or so-called managerial practices which are supported by the people of the country under trade sanctions. The success in beating economic sanctions mostly lies with shrewd and sterategic management practices, which will be made evident in this study. Economic sanctions fail whether they take the form of an economic and financial boycott of the aggressor or that of a regular blockade. (1) They come too late; they can only be applied as a corrective; they do not protect against aggression. (2) Economic sanctions are notoriously slow in their application. (3) They are a double-edged sword, striking at international trade and punishing the innocent with the guilty. (4) Economic sanctions are ineffective against nations which can, if need be, form self-sufficient economic units. Dr. van der Leeuw contends that an international police force alone would make complete disarmament possible, since it would provide security against aggression, not merely coercion afterwards. Each nation would contribute its quota to the world police and, having done so, would not be further involved. This paper explores the use of sanctions in one country case study and their varying results on trade and commerce. Since1993, America has imposed no less than 40 trade and economic sanctions, against nearly 40 countries.from Myanmar to cuba to iran and elswhere, these sanctions have produced few results and could not achieve the goals hoped for by the US.conversely, it has made an increasing number of countries feel uncomfortable doing business with US:it has punished US consumers and hurt the poor in countries hit by sanctions. As the poor comprise the majority population in these countries, sanctions have fostered disproportionate levels of anti-American sentiment-something that cannot simply be fixed with good PR. Whatever sanction controls are written into law are being outdated by Moore’s law of technological advancement:today’s smartphones is tomorrow’s standard model. 3
  • 4. Introduction “Laws are spider webs through which the big flies pass and the little ones get caught.” ― Honoré de Balzac The interpretation of each sanctions and embargo is dependent on the foreign policy context in which the embargo is to be enforced along with the strategies of US regulators in administering embargo programs.it is entirely dependent on the country or nations with which these sanctions permit the embargoed country to trade. The reason for this study is to show how sanctions have mostly been unsuccessful or produced limited results, as will be evident in the case studies of two nations and, their trade and business acumen. It calls for highly strategic and exceptional managerial roles to surpass such embargoes and sanctions. Sometimes consultants and advisors are hired to steer a company hit by sanctions to safely conduct business. Wise managers know it can be done. For example, foreign subsidiaries of US companies may be able to do business with a country subject to US embargo,but it cannot stop foreign subsidiaries of US or cannot involve US nationals, lawful residents. They are allowed to do business with the country which is under sanction. A US company may be able to supply goods to a third-country company, fully knowing that the company may use those goods for commercial activities in the country which is under economic sanctions. Each sanction by the United States has a different interpretation depending on the context of foreign policy. Sometimes some business and trade activities are permitted in a country, but only to those companies which are American subsidiaries and only the US nationals, residents are allowed to carry on trade and business activities. Any US organization can supply its services and goods to a company which happens to be in a country hit by US sanctions. The possession of economic power confers upon individuals, organizations, states and supranational bodies the capacity to exert social influence in various ways. At the most mundane level, parents may be expected to define the consumption patterns of their offspring; while on a totally different scale a group of nations acting together are sometimes able to subject a targeted country to a comprehensive and devastating economic siege. The political use of economic power can be as positive as the purchase of labor and other market 4
  • 5. resources in the effective control of law-making and judicial procedures, in the financing of socially beneficial institutions, and in the funding of commercial and political propaganda; or it can be negative as in the blocking of access to finance and raw materials, and in restricting the flow of food and medical supplies to the civilian populations of so-called ‘rogue’ or ‘pariah’ states. It is the negative use of economic power, in all its forms, that indicates the political scope of economic sanctions. In July 1998 one estimate suggested that two-thirds of the world’s population were subject to some sort of US sanctions. Another type of financial sanction reduces or eliminates income flows from target assets currently held in the sender economy, essentially “freezing” the assets. If the target has used the sender’s financial markets as a proxy for its own, these sanctions can be quite detrimental. To restrict asset income flows to foreigners, the sender must have a certain precondition. A sender cannot credibly curtail the target asset income if it is a net creditor of the target. It is likely that targets, once cut off from their own asset income flows, would retaliate in kind. The threat to curtail these flows is only credible if the sender holds more target assets than the target holds of the sender’s. To use credit sanctions, where the sender neither provides nor demands financing, the only precondition is that a financial market exists between the two countries. The more dependent the target economy is on sender trade, the more powerful the sanction should be ex ante. This seems obvious: if targets are sufficiently dependent on senders for key goods and financing, leakages should be few and costly. Sanction effects depend on trade routes, trade partners, and international availability of credit. Trade dependence is a function of a target’s ability to reallocate resources not only from sources outside its borders, but within its domestic production as well. Financial dependence may be more likely, especially in countries where financial markets are not domestically or internationally integrated or available. Resolution 757 of the UN Security Council in May 1992 demanded that all parties cease military hostilities and prohibited all cultural, trade and military and financial contracts with Serbia. These were strengthened within a year by another resolution preventing shipment of goods through Serbia and freezing Serbia's financial assets to increase leverage against the regime. Humanitarian goods such as food and medicine were exempted from such measures. The year after sanctions were imposed, the Yugoslav economy collapsed, unemployment skyrocketed, food became scarcer and more expensive. Even medicines, basic supplies for the pharma industries and spare parts for hospital equipment could not be purchased. Infant 5
  • 6. mortality increased. The German physician Ulrich Gottstein argues that sanctions heightened tensions, punished innocent civilians and helped spark the Kosov tragedy. (Gottstein U, 1999). Iran also suffered a lot. Iran's oil exports went down from 2.5 mbpd in 2011 to about 1 mbpd in 2013, hence the revenues also dwindled from 95 billion US$ to $67 billion. (International Energy Administration, 2013). Iranian Rial, Iran‘s currency, gained roughly 10% of its value as more dollars were provided to the Iranian financial and economic market by the government (Yeganeh Torbati, 2013). the Rial hit its lowest value in history against the dollar in Spetember, 2012, touching nearly 37,000 Riyal to 1US$ (Thomas Erdbrink,2012) Research Objectives Economic sanctions are a universe. They have always been used by contending domestic factions and exploited as a multifaceted tool in the service of foreign policy. They run through all of history and are indelibly stamped on international affairs in the modern world. In one form or another they have always been a concomitant to military action in war, and a ubiquitous and weighty element in the peacetime relations between states at times of commercial expansion and rising tensions. Do they ‘work’? Economic sanctions are so diverse in their type, ambition and manner of application – that no general answer is possible. They invariably have some impact, and they may achieve covert objectives quite different to those that are publicly proclaimed: the deliverers of sanctions often have hidden agendas. The most often asked question in the literature on economic sanctions is, “Do economic sanctions work?” or, “Are economic sanctions effective?” The consensus reached by most scholars is that economic sanctions generally are ineffective, as the following statements indicate: Johan Galtung: “The probable effectiveness of economic sanctions is, generally, negative” (Galtung J, 1996). Klaus Knorr: “Coercively wielding economic power by means of trade reprisals or special trade advantages is rarely successful” (Knorr K, 1995). 6
  • 7. Margaret Doxey: “The cases examined offer little evidence that economic sanctions provide reliable means of inducing states to adhere to internationally acceptable codes of conduct” ( Margaret P. D, 1980). Problem Statement The economic effects of sanctions do not necessarily translate potential power into actual power, and often much is lost in the translation, conversion of potential power into effects. As a result, the effectiveness of economic sanctions in generating coercive pressure is tied to the sender’s power resources vis-à-vis the target’s value hierarchy. Keohane and Nye underline, “Measurable power resources are not automatically translated into effective power over outcome. Translation occurs by way of a political bargaining process in which skill, commitment, and coherence can belie predictions based on the distribution of power resources to predict and understand outcomes, we must give equal attention to the bargaining process in which power resources are translated into effective influence over outcomes (Robert O. Keohane and Joseph S. Nye, 2001). The translation process from potential power to actual power can be analyzed from three perspectives. First, if a state is treated as a unitary and rational actor, it will concede only when the cost of concessions is smaller than the cost of economic sanctions. The cost of sanctions to the sender is also taken into account by the target as an element in the equation. The higher the perceived cost to the sender, the less likely the target will concede. Although it is possible to measure the cost of economic sanctions by GNP loss over time in terms of sensitivity and vulnerability, it is hardly possible to quantify the cost of political concessions. Many factors will influence the value hierarchy of the target. For example, the superior “will,” “determination,” “willingness to suffer,” “commitment,” and “core societal values” of the target may raise the cost of political concessions and discount the cost of economic sanctions. In such a case, compliance may mean more disutility to the target than resistance. (Robert O. Keohane and Joseph S. Nye, 2001). Research Approach In this study quantitive research will be utilized with a descriptive approach. This is due to the fact that through this method of quantitative research, there is the flexibility of iterative 7
  • 8. approach. This study also surveys as to how economists describe various aspects of the sanctions episode. Since sanctions are trade barriers at their core, models from international economics provide much needed insight to policy makers (Simons G, 1999). Sanctions or no sanctions, even the staunchest of American allies were continously doing business and trade with Iran during sanctions. A bank in Japan, a subsidiary of Mitsubishi UFJ Financial Group routed more than 28,000 payments amounting to an enormous 100 billion dollars worth, but this was shockingly overlooked by the US. Japan was not alone in this murky deal,however: it was joined by the great Standard Chartered and HSBC of the UK. (Eamonn Fingleton, 2013). Curtailing financing is different than an embargo on capital goods as these are sanctions on financial entitlements to income. International trade and finance are intrinsically linked through the balance of payments. Trade sanctions indirectly affect target financial markets; financial sanctions also indirectly affect the target’s goods markets. Mechanically, financial sanctions are similar to trade sanctions. When senders sanction their “imports” of target lending (capital inflows), the sender reduces expected interest payments and income for target investors. When curtailing its domestic sources of financing for the target economy, the sender reduces funds supply, causing the target’s financing costs to increase. The target is assumed to not determine its own interest rates, the outside world does instead. (Fayazmanesh S, 2008). At the end of 2011 and beginning of 2012 the US and its European allies put a strong and comprehensive sanctions on Iran‘s energy exports, ability to trade, and financial system. These sanctions did not go into full effect until the summer of 2012 and still have significant exemptions. It was only then that the US applied a full mix of sanctions on,and that the EU sharply increased its role in sanctioning Iran by imposing an embargo on Iranian petrochemical imports and a ban on European investment in Iran‘s petrochemical industry. Various items in the shipbuilding, oil and gas,and pertrochemical industries were targetted including the insurance sector. Iran's financial institutions were cut off from the international banking system. Assets of the Central Bank of Iran in Europe were frozen and sale of gold and metals was banned. (US Energy Information Agency, 2013). Japan bank violated all 8
  • 9. sanction rules. In Japan the ministry is the most formidable agency of Japanes power; no bank in Japan could have violated the sanctions without its knowledge. While Iran’s annual inflation rate is still high. The most glaring example of this can be seen in the influx of gold into Iran from the U.A.E.(Ali M and Alavi S, 2004). The following statistics will help explain the difficulty in imposing economic sanctions on Iran: In the beginning of 2006 the total trade between Iran and China was reached some $8 billion, and by the end of 2006 it was rised to $10 billion; the gas pipeline between Iran and India had cost some $10 billion, and is meant to provide a significant portion of India's gas needs; and Russia is set to sign an agreement to sell Iran $1 billion in weapons. Iran, which is becoming transformed by world oil prices into an ever wealthier state and one that can pay for its deals primarily in cash, is economically prosperous. The economy as a whole is still producing a positive balance of trade. It can resort to major foreign exchange reserves (mainly kept in gold), which in turn can sustain the economy’s imports for approximately 17 months in case all export revenues collapse in the future which is unlikely because there is no global consensus on the implementation of a total trade embargo on Iran. Iranian imports are highly regulated and controlled. While the government tightly controls the importation of basic goods such as food and medicine, all other imports are controlled via customs or banking regulations. Iran is planning to invest in a major refinery in Pakistan, which would facilitate an export of Iranian crude to neighbouring Pakistan for refining purposes. The sheer size of today’s corporations ,means that they are more vulnerable than ever to crises, either from natural origins or those manufactured. As noted earlier, crises are extremely difficult to predict. This problem is exacerbated by the trend in the 1970s and 80s to develop managers as specialists. The finance director knows about finance and little else; similarly the marketing director, the technology director and the operations director all have their specialist fields. This smokestack approach like tennis balls in a box leads to gaps in the management structure. This means that a finance director,driven rightly by profits and earnings per share, would often lose sight of the bigger picture. However, in the 1990s, this trend began to be reversed and the manager as a generalist as well as a specialist began to come into vogue. MBA programmes widen their focus and smaller programmes, such as the 9
  • 10. excellent Ideally, senior or general managers should have a working knowledge of politics, the media, reputation and social and corporate social responsibility Though such changes require initial investment, the medium to long term effect for Iran’s economy can be positive, as it may increasingly become an exporter of petroleum products rather than crude oil. Moreover, stakeholders in the system such as the business community have focused on seeking economic concessions from the regime rather than lobbying for a shift in Iran’s nuclear stance. Significance of Study This study will discuss a particular irainian scenario.it will focus on possible instruments of leverage for the following reasons. First, trade sanctions (embargo and boycott) are the most common form of economic sanctions and, as a result, these two terms are sometimes treated as synonymous. Second, embargo and boycott are more comprehensive and thus tend to be more effective in inflicting costs on the target than other forms of trade sanctions. . Sanction scholars have often been unable to determine the objectives of the sender nations. It seems true when often the goals of the senders are more of a demonstrative kind for both national and internatinal audience. It is of importance to understand the embeded agendas that come with sanctions and their respective goals which are often hidden. Earlier research suggest that the goals of economic sanctions fall into five categories: punishment (deterrence), compliance (coercion), destabilization (subversion), signaling, and symbolism. Prior to 2009,the Iranian Transactions Regulations or ITR, contained the restrictions on Iran dealings. Iranian Transactions Regulations was even applicable to American citizens, companies and its foreign subsdiaries and residents. In the case of Iran the ITR was formulated such that it barred US companies from any kind of exports or imports, including services and such techonolgies like IT and medical or scientific, these were even prohibited from being exported to those countries which were frinely with Iran so that these countries could not reexport these things to Iran. But foreign based organization and business houses or subsidairies were not barred by the ITR. But for one decade that is from 1990 to 2000 the ITR allowed American companies and their subsidairies to carry on business with Iran. 10
  • 11. Do economic sanctions work? Rarely. Take the cases of Myanmar, Iran, Cuba and North Korea. What it accomplishes is hatered by the masses against the country imposing sanctions. In case of Cuba, when sanctions were imposed and remained for what looked like infinity, this country suffered but the managarial roles of its business fraternity succeded in beating the sanctions so much so that it created one of the best health care facilities in the world, which it still has. Cuba gave priority to agricultural production, the product managers asking its resdents to go for reduced consumption. Its tourism department played one of the best managerial roles during sanctions by focussing on tourist growth. Venezuelan premeir, now deceased,Hugo Chavez not only bankrolled Cuba with huge tankers of oil at a throw away price but also gave money. (Daniel Griswold,2005 ) Summary Economic sanctions are more often a genocidal tool, subjecting helpless civilian populations in solitary city or entire country to comprehensive siege. The entire field of trade, commerce and finance multifaceted in modern society invites sanctions at many different levels when states are in conflict. Individual states can impose de facto or de jure economic sanctions against other countries as unambiguously hostile acts (for example, by attempting a blockade on the high seas), or as part of traditional trading practices (for example, in developing a protective tariff structure which today may violate the regulations of the World Trade Organization). A group of countries acting in concert may typically have regional objectives: The scope of the sanctions has necessarily varied according to circumstance. (Hawkins 1967). 11
  • 12. The Rhodesian government took a conscious step to realize that self sustenance in all sectors of the economy was crucial in the face of economic and trade sanctions. Thus they implemented policies that were meant to support industry and commerce which were the major drivers of the economy. The Government adopted a more targeted investment promotion strategy. It identified sectors where the country had comparative and competitive advantages and then promoted FDI in those sectors. The government identified the most important economical distortions in the economy, and how to address them. Thus a country that has developed food self-sufficiency may be relatively immune to an international maritime blockade; a state with little interest in international funding may not be seriously affected if it is suddenly denied access to sources of international finance. This study aims to determine the managerial role that helps strategically and safely steer business and trade during economic sanction. Literature Review Economic sanctions have been long used in international relations. According to Gary Hufbauer, Jeffery Schott, and Kimberly Elliot (hereafter HSE), there were at least 13 prominent cases of economic sanctions before World War I. The most celebrated early use of economic sanctions occurred in 432 B.C. when Pericles issued the “Megaran decree” limiting the entry of Megara’s products into Athenian markets. The subsequent refusal to lift the Athenian boycott of Magara helped to trigger the Peloponnesian War (Thucydides, 1992). 12
  • 13. The term ‘economic sanctions’ to refer to ‘non-military actions of the United States that adversely affect the flow of goods, services or financial assets to a specific foreign country in order to penalize or coerce a country for political purposes or to express US displeasure with that country’s actions’. In this context the term includes a range of trade and financial measures that may be imposed, in varying combinations. Social scientists in the area of sanction research have mainly inquired about the correct use of sanctions, their overall effectiveness, and the necessary preconditions for their success. Scholars also discuss the meaning of success but fail to provide viable alternatives. The large scale inquiry on the use of economic sanctions began due to the rampant increase of this foreign policy tool in the 21st century, both uni - and multilaterally. These scholars have mainly focused their attention on providing theoretical discussions upon the effects of sanctions, their outcomes and why these outcomes have been achieved. Some scholars maintain that only through strict measures and objectives (Pape, 1998; Rodman, 2001) outcomes can be achieved, while others consider partial achievements a success (Hufbauer, Schott, & Elliot, 1990). However, most scholars today agree that a comprehensive sanctions by in large fail to achieve their aim as a standalone tool due to the complexities of globalizations and the creation of self-reliant states as a consequence of the game. To why exactly sanctions fail and how sanctions can be fine tuned to achieve their aims remains the purpose of study. One such movement claiming increased effectiveness is for the use of ‘smart sanctions’ which was brought about the Copenhagen, Berlin, and Vienna accords. Scholars, as well as observers of sanction regimes, have begun questioning the effectiveness of sanctions as a coercive and proactive tool due to the lack of achievement, i.e. compliance with the ‘target’. This lack of positive outcomes has been linked to the lack of objective and clear outcomes being sought. Furthermore, increasing civilian costs to ‘target’ populations and financial costs 13
  • 14. are a deterrent force to nations to engage in this foreign policy game and consequently their commitment to prolonged engagement if they seek to retain a resolute image in the international arena (Pennycook, 2009). Scholars also strongly oppose this type of intervention, as it goes against the philosophy proposed by Adam Smith of market driven economies, and thus these individuals call for new and more effective measures to coerce governments without states interfering into business operations. Sanctions literature has undergone three main changes, losing ground for optimism in the third and current phase. Phase one literature was typically characterized by optimism due to the more or less effective use of this foreign policy tool to achieve its main aim, regime change and/or deterrence of national/ international policies by the 'target'. Some fiascos, however, did occur during this time, raising questions even in the early part of academic discourse on this issue. One main reason why in the past sanctions seemed to have been more effective than today can be regarded as the closer ties which existed between nations, i.e. strong bi-lateral relationships. Literature produced during this era was relativist and documented circumstances and outcomes of individual sanctioning episodes. This phase largely neglected to formulate theoretical frameworks on the overall use of this policy. Effects on target populations were acknowledged, however, played a less substantial role in discussions on how to meet national agendas. Phase two sanction literature commenced questioning the use of sanctions as an efficient and effective foreign policy tool. Scholars at this stage began incorporating theoretical and analytical models into their discussions to explain and predict the necessary conditions under which sanctions do and should succeed and/or fail. 14
  • 15. These discussions facilitated the illustration of independent and dependent variables affecting outcomes. Several main 'targets' began fuelling these deliberations, the mute response of Cuba to trade embargoes, and the fiasco of Iran. During this second stage, scholars also began arguing when sanctions could be regarded as having succeeded and when new alternative policies should be implemented. However, all scholars at this stage agreed that military engagement was a clear sign of failure, as sanctions are intended to avoid this financing costly alternative. The third and current phase can be categorized by scepticism and a push towards identifying new methods to achieve national agendas through a fine tuning of sanctions, i.e. 'smart sanctions', while incorporating the use of 'carrots' and 'sticks' to forge compliance with the 'target'. This phase has been driven primarily by international observers and civil rights groups, discussing and demonstrating sanctioning episodes which obviously have failed in their aims, Iran, North Korea and Myanmar. Not only have observers recognized that sanctions have failed to achieve their aim, but also that this foreign policy tool has been detrimental to 'target' populations, depriving them in some cases of even the most fundamental rights outlined in the United Nations Human Rights Conventions, due to their exclusion from international markets. Furthermore, scholars have also recognized that sanctions can have reverse effects, rather than weakening states, sanctions have the ability to strengthen national ties within the ‘target’ as well as creating self-sufficient economies; however, when territory and international ties permit. The United States grain embargo against the former Soviet Union is one such example. Furthermore, the absence of military force was also questioned due to its ability to provide a powerful and sometimes detrimental stick in the game and thus a significant coercive force. 15
  • 16. Economic sanctions, sometimes synonymous with “economic coercion,” are distinct from economic warfare (strategic embargo), economic inducements, and trade war, in terms of forms, purposes, and occasions. In essence, economic sanctions, according to David Baldwin, are only one category of economic statecraft, which refers to influence attempts relying primarily on resources which have a reasonable semblance of a market price in terms of money. Economic warfare (strategic embargo) seeks to weaken an adversary’s aggregate economic potential in order to weaken its military power, in war or in peace. Economic warfare represents a long-term approach to dealing with adversaries while economic sanctions usually have immediate political goals. Economic inducements involve trade concession, knowhow transfers etc. that are extended by a sender in exchange for political compliance by the target nation. Trade wars are disputes over economic policy and behavior instead of political/security goals (Baldwin D, 1985). Nearly all sanctions scholars recognize the difficulty in determining the sender’s objectives. This is particularly true when the sender’s goals are primarily demonstrative for domestic or international audiences. Also, the “sender” is usually a heterogeneous entity with different components intending to achieve different purposes. Therefore, there is a need to explore the hidden agendas embedded in sanctions as well as the stated goals. A review of economic sanctions cases and previous scholarly studies suggests that the goals of economic sanctions fall into five categories: punishment (deterrence), compliance (coercion), destabilization (subversion), signalling, and symbolism which is sort of a demonstrative effect (Nincic M and Wellensteen P, 1983). This study defines economic sanctions as the threat or act by a state, which is called a sender here, to another nation, to disrupt and damage trade and the normal business of another 16
  • 17. nation, called the target nation, so that it can be punished, force changes another nation's policy, or the targets policies. The sender is designated as the country or international organization that is the principal author of the sanctions. The target is designated as the country that is the immediate object of the sanctions. Economic sanctions do not include economic warfare, economic inducements, and trade wars. The following sections will elaborate further on the types, goals, logic, costs, and effectiveness of economic sanctions. The sender, as an act of punishing the target, may invoke sanctions to discourage future objectionable policies by demonstrating the sender’s willingness and ability to retaliate. If the undesirable behavior is punished with enough force, the target country might not repeat it again. For example, in announcing a grain embargo against the Soviet Union issued in response to the invasion of Afghanistan, President Jimmy Carter has said, “We will deter aggression.” (Carter J, 1980) Sanctions are also meant to force a country to comply with the sender’s preference on specific goals. For example, the United Kingdom and the League of Nations imposed sanctions on Italy (1935-1936) in an effort to compel Mussolini to withdraw troops from Abyssinia. The Soviet Union’s economic sanctions against Yugoslavia (1948-1955), China (1960-1970), and Albania (1961-1965) were imposed to win acceptance of the Soviet leadership in other socialist countries. The U.S. grain embargo against the Soviet Union (1980-1981) sought Soviet withdrawal from Afghanistan. The United Nations economic sanctions against Rhodesia (1965-1979) were designed to force acceptance of international standards governing human rights. The United Nations economic sanctions against Iraq (1990-1991) were crafted to force Saddam Hussein to withdraw from Kuwait and subsequently to allow UN arms inspectors to complete their work. The United States 17
  • 18. economic sanctions against India (1998) were designed to force India to sign the Comprehensive Test Ban Treaty immediately and without conditions (George A L and Simons E W, 1994) Sometime in order to destabilize a target country, economic sanctions are imposed where the goal is to subvert the entire target nation's power balance. The sender may impose economic sanctions to destabilize the target government or subvert the entire target political regime. For example, when Marshall Tito was seen as a hindrance in Stalin's plans, he sought to replace him with a pro-Soviet personality and hence imposed economic sanctions against Yugoslavia (1948-1955). When the U.S. embargoed Cuba (1960), it hoped to replace Castro’s regime with anyone other than a communist. Organization of American States and the United States imposed economic sanctions against Haiti (1991-1996) and the demand was the restoration of a democratically elected President Jean-Bertrand Aristide, overthrown in a military coup. Some just to demonstrate the outrage of the international community, sanctions are imposed. The imposition of economic sanctions conveys a signal of the sender’s resolve to both the target and the allies of the sender. Any sanction, either by some great and powerful country or an international organization often implies a threat of more drastic action (for example, military) against the target country. HSE contend that sanctions frequently serve as a junior weapon in a battery of diplomatic artillery aimed at the antagonistic state. Out of 115 cases, HSE calculated 34 cases of sanctions with add-ons of such policies like the quasi-military action etc. (Hafbauer G C, Schott, J and Elliot A K, 1990). The support of many governments for the economic boycott of Ian Smith’s Rhodesia (1965-1979) was apparently intended as a display of opposition to racist policies and meant for domestic consumption within the sender nations (Miyagawa M, 1992). 18
  • 19. More than a half century ago, Albert Hirschman showed in his book National Power and the Structure of Foreign Trade that the ability of one government to threaten to interrupt its trade with another can be “an effective weapon in the struggle for power.” In it, he said that if a business relationship is more important to one government than to another, then the second may be able to demand from the first not only better terms of trade, but also significant political concessions (Hirschman O A, 1980). Following Hirschman’s argument, the conventional theory about how economic sanctions are supposed to work is that sufficient economic pressure upon the target nation(s) caused by the disruption of economic relations can induce or compel that country to engage in more acceptable behavior in the eyes of the sender states. This proposition is based on the fundamental economic theory that international trade has positive income effects on nations, and that forced withdrawal from such trade reduces national income. If the target benefits more in the bilateral economic relations than the sender do, the sender would call for compensation on political issues by the target in exchange for maintaining bilateral economic relations. In addition, the conventional theory assumes that political change is directly proportional to economic hardship. The greater the economic pain caused by economic sanctions, the higher the probability of political compliance. As a result, the conventional theory generally argues that the principal determinant of the success of economic sanctions is the extent of disutility experienced by the target (Losman L D, 1979) In this literature review the difference of opinions of renowned academics about economic sanctions against Iran is also debated. Iran sanctions can be successful if more diplomacy than force is applied for achieving goals. Economic sanctions are intended to inflict economic distress upon the 'receiver'. Sanctioning worked well in a time when nations by enlarging 19
  • 20. engaged trade and commerce, or when one country, the United States, was the center of global trade; i.e. the global hegemonic power. This position gave leverage for coercion and provided a deterrent for the receiver to discontinue its actions. As the world has undergone large changes in national and regional identities, this international relations game is no longer suitable, at least not as a stand-alone tool. Globalization has linked nations tighter together, not just those who previously had been interconnected, but today has diversified relations to such an extent that if sanctions are expected to achieve their aims, a large scale multilateral effort is required for this to occur. Due to the critical literature, and it seems the enlightenment of scholars, the use of smart sanctions. (Solomon J and Fassihi F, 2011). Following the sanctions against Iran by the U.S. the US administration stepped up its efforts to pressure its allies to limit trade with Iran. Only Israel, Uzbekistan, Ivory Coast and El Salvador expressed outright support for a trade ban against Iran. The G7 countries at their summit in Halifax in 1995, also failed to endorse US policy on Iran. Europe imports almost 20 percent of its oil from Iran and Libya. Iran is also the major supplier of oil to Japan. In 1995, the European Union exported US $11.5 billion worth of goods to Iran, while Iran, in turn, sold over US $17 billion worth of products in the European Union. In the aftermath of the 13 July 1995 summit of the G& countries Total, an oil company from France signed a US $600 million contract for the development of the Sirri-A and Sirri-E fields. This contract had originally been awarded to the CONOCO, an American company, which was subjected to so much of pressure from the American administration in March 1995 that had to withdraw from this lucrative deal. Today it is proved through various studies that any sort of unilateral economic sanctions can do almost nothing in making changes to the 'junta' of the nations thus targeted by sanctions, 20
  • 21. the case of Iran, Iraq, Libya is an example. Economic sanctions can do little harm to the targeted countries but more harm to the innocent citizens, hence it only creates more hatred amongst the masses. Efforts to date to quantify the effect of economic sanctions have little to offer policy makers. Little is understood by researchers and policy makers about the financial effects of economic sanctions and the effect they have on the policy decisions of a target country. Our lack of knowledge about the effectiveness of economic sanctions is fostered by judging sanction events against a standard of success that is appropriate only for purposeful sanctions. The methodology includes (Introduction, Research Methods, Research Approach, Data Collection, the Secondary Data collection and Analysis, Primary Data collection and Analysis, Research Design, Interview Questions Design, Data Analysis plan, Research Limitations, Research Reliability and Validity, Ethical Consideration, Chapter Summary Methodology The role of sanctions has shifted, traditionally having been imposed by one state against another (comprehensive) but now targeted against specific organizations or individuals. Thus, 21
  • 22. frequent sanctions users, such as the United Nations (UN), European Union (EU) and the United States (US) have shifted their sanction policy from being comprehensive to now targeting individuals, entities and groups that threaten peace and security by, for example, being involved in armed conflicts, terrorism, international crimes and human rights abuses (Katzman, 2012). This change was partly brought by the UN Security Council, which faced global protests and objections against the human suffering in Iraq caused by comprehensive UN sanctions in the early- and mid- 1990s. In contrast to inflicting collective punishment and suffering, which was embedded in the rationale of comprehensive sanctions, targeted sanctions are designed, at least in theory, to exert extreme pressure on carefully selected commodities and/or individuals. Targeted sanctions are thus aimed at avoiding negative consequences for entire populations of a country. (Amuzegar, Jahangir, 2011) Based on this rationale, the shift in sanction practice reflects the determination of the sender to make the sanction policy more ethical, and justifiable than previous comprehensive sanctions (Cortright and Lopez, 2002). Despite the efforts to push the use of sanctions in a direction where it targets groups and individuals, rather than a country and the population as a whole, various news agencies and human rights organizations have recently published an increasingly growing number of articles indicating that targeted sanctions are having a negative impact on civilians in Iran. Research Approach The analytical approach that will be taken in the research and production of this thesis will include references of the study of past sanctions cases. Iranian sanctions will be reviewed, and the current effects on their fictionalized political economy will be examined. Research 22
  • 23. will draw conclusions as to the efficacy of these current and historical economic sanctions regimes on altering Iranian policy and recommending alternative or additional sanctions regimes to achieve intended political results. Finally, the efficacy of Iranian sanctions will be assessed and new recommendations will be presented to achieve a visible change in the Iranian political economy (Eriksson, Mikael, 2011). For this study, primary research and secondary research will be utilized. Thus, this study will use the descriptive approach. As stated above, this research will partially base its findings through both quantitative research methods because this permits a flexible and iterative approach as well as through qualitative research methods, so that variables are fully explained. First, this study attempts to survey not only where the sanctions literature is to date but also how economists describe various aspects of a sanction episode. Basic economics is essential to understanding these policy choices and their rationale. Cartel theory helps understand why institutional, multilateral, and universal sanctions may succeed or fail. Public choice theory tells us that policies aimed at specific interest groups within the deviant economy, those focused on decision makers, may sway another country’s politics. Since sanctions are trade barriers at their core, models from international economics provide much needed insight to policy makers. This will include an analysis of the new sanctions’ potential chances of success given the political and economic constraints they will face. Important works that specifically address the Iranian sanctions case include: Shrewd Sanctions by Meghan O’Sullivan and numerous academic and governmental publications supplement primary sources (Frank Grundig (2012). Research Questions 23
  • 24. When reading recent news reports regarding targeted sanctions’ humanitarian impact on Iran, targeted sanctions seem to contradict the stated aims of sparing civilians. Henceforth, in order (Sadeghi, Esfahlani and Abdi, 2012). Within the EU, sanctions are referred to as ‘restrictive measures’. Which are intended to protect the Iran’s Islamic system (Mohammed and Louise Othberg, 2010). To understand the impact of targeted sanctions on Iranian civilians, the aim of this thesis is to investigate the nature of the impact of targeted sanctions on Iran, as a case study. This brings the thesis to the following research questions: • Have targeted sanctions on Iran impacted Iran’s economy or its civilians? • If so, how have targeted sanctions impacted Iran’s economy? • Have some targeted sanctions had more impact than others? Research reliability and validity The case, Iran, has been chosen since it is unique; it is currently the most frequently and thoroughly sanctioned countries in the world. Despite the fact that targeted sanctions are designed to spare civilian pain, however, it has been reported that the targeted sanctions are having a negative impact on Iranian civilians. When understanding the impact of sanctions on civilians in Iran, the crucial case can represent a significant contribution to sanction theory. (Passell, Peter, 2012). The aim of this thesis is to contribute to the understanding of the impact of targeted sanctions on Iran. The thesis aims at contributing with explanatory richness why a single case study of Iran is carried out. A comparative study could have been carried out but it would be difficult to find a suitable country to compare with, which is why a single case study is preferred. By focusing on Iran, it is possible to get deep knowledge on the case and attain rich explanations to the relation between sanctions and humanitarian impact. 24
  • 25. Usually when conducting a single case study, theoretical parsimony is given up; studies involving a single observation risk indeterminacy, that more than one possible explanation is at hand which can lead to incorrect inferences (George and Bennett, 2005: 19). Sanctions are never imposed in a vacuum. Since Iran is a crucial case it will provide definitive evidence on the sanctions theory. Iran will either fit the theory or will not, in this thesis it is assumed that Iran will dismiss targeted sanctions theory, if it does so the stated aim of the targeted sanctions policy tool can be doubted. Case studies allow research to identify the indicators that best represent the theoretical concepts of this thesis and thus give high levels of conceptual validity. While statistical studies run a risk of conceptual stretching by lumping together dissimilar cases to get a large sample, this case study allows conceptual refinement with a higher level of validity. Research Design Research relies heavily on qualitative methods; thoughtfully designed case studies can make several types of contributions to the collective research enterprise. They offer advantages as well as disadvantages when compared with statistical methods. Between single case methods on one end of the spectrum and large statistical methods on the other, stand comparative case methods. They add the analytical leverage that comes from comparison of the strengths of the case study. J. S. Mill’s method of difference proceeds “by comparing instances in which the phenomenon does occur with instances in other respects similar in which it does not.” By beginning with a hypothesis linking a cause C with an effect E, two or more cases are 25
  • 26. selected to illustrate a difference in C. If the observed cases differ in C and differ as expected in the supposed effect E, but are similar in other respects, then by elimination it can be inferred that the reason for the E difference must have been the difference in C (Mill, 1970). In this study the focus will be on the qualitative data, using a systematic quantitative data base as a frame within which the qualitative analysis is carried out. Summary Sanctions have shifted from being comprehensive to being targeted. This shift is important since it was implemented in order to avoid hardship for civilians caused by sanctions. Namely, the thesis hypothesizes that targeted sanctions on Iran are having negative humanitarian consequences. Despite the fact that targeted sanctions are believed to prevent hardship for civilians this thesis might conclude that targeted sanctions on Iran are having negative humanitarian consequences. Targeted sanctions on Iran are imposed independently by a number of different actors, targeting many important sectors which can impact civilians. (Mueller, Johan, and Mueller Karl, 1999). However, sanction scholars have not debated the possible negative consequences of targeted sanctions but assumes that targeted sanctions are sparing civilian pain. Only within the comprehensive scholarly debate, sanctions are believed to cause hardship for civilians. Since the thesis hypothesizes that targeted sanctions on Iran cause civilian hardship, consequences common within comprehensive sanctions can be present. Scenarios such as commodity shortages and the raising of prices, poorer health conditions, unemployment, and the decline of civil society and democratization are typically associated with comprehensive sanctions, while none of these consequences are considered to 26
  • 27. be present with targeted sanctions. The negative impacts are hypothesized to be present in Iran, and if they are, it is possible to conclude that targeted sanctions are having negative impacts on civilians. The evidence examined in this thesis has shown that the consequences of the targeted sanctions on Iran had a negative human impact yet could not harm the country's' economy as was desired. They cause increased food prices, unemployment and lack of medicine. Increased food prices and unemployment are caused by sanctions through currency drop and inflation, currency drop and rise of a black market. Lack of medicine is caused by sanctions more directly through the inability to make foreign transactions. The negative impact of sanctions on civilians in Iran is reported more frequently . Since the summer of 2012, most of the reports were published, which implies that stricter sanctions that were imposed by the EU and US were starting to take a toll. The most reported impact is the lack of medicine and food items while the disabled civil society is the least reported. To the astonishment of the sender countries, the people of Iran not only resisted the impact of sanctions to their best of endurance but also kept their economy afloat using a varied yet murky tactics. In order to get around this problem targeted sanctions need to be what they are intended to be: being sharply directed at the target. When looking at the Iranian example, targeted sanctions do not deliver what they are promising; to spare civilian pain. UN sanctions on Iran only sanction the nuclear program which is what sanctions are aimed to impact. There is no report arguing that the UN sanctions on Iran cause hardship on the civilians. The financial and oil sanctions imposed by the EU and US are the ones that are troubling the civilians and the ones that need to be revised before Iran enters a humanitarian crisis and before the sanctions policy tool enters a legitimacy crisis. (Mehrabi Ehsan, 2012). Regarding the future in Iran, sanctions 27
  • 28. will further impact the civilians in a negative way making the Iranians even more disadvantaged. (Wallensteen, Peter and Grusell, Helena, 2012). If the EU and the US continue with their tough sanction policy on Iran, it might be possible that the humanitarian crisis in Iraq will be experienced again with high levels of morbidity and mortality among innocent Iranian civilians. Sanctions on Iran have been frequently tightened by different global actors in response to Iran’s nuclear program, terrorist networks and human rights abuses. Policy makers aim the sanctions to avoid hardship on civilians. Although the sanctions on Iran are intended to spare civilians while hitting the target, civilians nonetheless are reported to be affected in a negative way. The impact of targeted sanctions against civilians is an understudied area in the scholarly literature on sanctions, and the humanitarian impact of targeted sanctions, specifically in Iran, is a completely unexplored field of study. Findings and Discussions: Iran has been targeted by EU and US sanctions for many years now. In this study the effectiveness of sanctions is ascertained. Sanctions have been imposed on Iran over the years for behaving in a way that is not considered acceptable. No trade with Iran is allowed under the sanctions by the West. The effect on the people of Iran is analyzed through inflation in Iran and the unemployment rate. This relation is also known as Phillips curve. 28
  • 29. It is estimated that there is a significant effect of the sanctions on the two aforementioned variables. The sanctions explain some of the highs and lows in the Iranian inflation. Even though there are possible ways in Iran to evade the sanctions, it still is a challenge to survive them. In Asia the underground financial transactions often still take place through underground banking, an old yet trusted way getting money transferred to Middle-East and then internationally. Even though there are many sanctions in place, now most of the populace, by this time accustomed to it, take it to be a process they have long experienced. They believe that they will eventually come out of it stronger. As sanctions have not produced the desired effect yet, they wonder why this should start now. To be very precise, sanctions challenge human endurance, and to what extent a human endurance can last, is known by no one. Man is always seeking new challenges and economic sanction is one such challenge. Hypothesis: A research question is essentially a hypothesis asked in the form of a question. A research question is essentially a hypothesis asked in the form of a question. It can be tested verifiable or falsifiable. It is considered valuable even if proven false. The research question that belongs to all this is: ‘Do international sanctions are successful? Do international sanctions have harmed Iran? 29
  • 30. The aim is to analyze some effects of the economic sanctions imposed on Iran. Through economic analysis as key indicator, an interview with some of Tehran’s big and small traders and consumers is also a part of this study. Figures and numbers may give clear indications, yet a story from inside Iran may just shed a different light on the whole situation. With the use of mathematical and economical analysis the goal is to reach an answer which covers to a considerable extent the effect of the economic sanctions. One way to look at the effects is the relationship between Inflation and the corresponding unemployment, is through what is known as the Phillips Curve. This relation states that when one of these is at a higher level, the other factor must be considerably lower. If this relation is perturbed, the reasons behind it can be identified. The hypothesis that belongs to all this is: ‘Do international sanctions are successful? Do international sanctions has harmed Iran? To answer this question the following aspects are analyzed: - What do the sanctions appear to be, with the passing of time how have the developed? - What does the economic analysis informs about? - How does underground banking (hawala) play a role in all this? - A story from Tehran, an interview with an Iranian trader. By research it is found that there actually is a significant effect when imposing the sanctions is studied. They contribute to the accuracy of predictions. It shows that when spikes are recorded in actual data, the dummy of causes of economic sanctions; the prediction 30
  • 31. power to increase. Although the normal Phillips curve does not hold with Iranian data, but with the help of a dummy one gets very close to the actual data. Research design and process Research design provides a framework for the collection and analysis of data (Saunders et al., 2009). Quantitative and Qualitative are the two categories of research method. While the former is used for the collection of analysis of data which creates or utilizes numerical data, like self compiled questionnaire, as it gives freedom to the respondents to answer the questions without the aid of an interviewer (Bryman and Bell, 2003). 31
  • 32. Source: (Bryman & Bell, 2007) The questions used in this study are ‘categorical’ types. “Quantitative research have been well structured and tested for their validity and reliability and can be explicitly defined and recognized”, (Kumar, 2011, p.103). Quantitative method will be used in this study as certain questions and subsequent answers can fulfill the objective of this research, and by using deductive methods the analytical data and statistics can be obtained. For the sake of this study, personal resources were used and various respondents belonging to different segments of Iran's society were contacted by email, through a self completion internet-mediated questionnaire. Story from Iran This interview was conducted randomly and questionnaire presented to various segments of Iran’s society, to assess the effects of the Iran economic sanctions, and the after-effects on the business and trade and also ascertain how the government of Iran transfers the effects of sanctions onto its working class. Besides being easy to answer, self completion internet based questionnaires are economical and quick to administer and are convenient to respondents, and hence they are more responsive. (Bryman and Bell, 2003). Questionnaire Q: Kindly state your name and details of your profession? 32
  • 33. A: My name is Ali Azhari, I am a importer and entrepreneur based in Tehran and am one of those few business men who have import rights for French cosmetic items. I also used to import French designer dresses until Chinese textile due to its competitive price, became a vogue. I have a turnover of nearly $4 million per year. Q: Have you experienced problems after the sanctions or its after-effects a lot? A: Yes I have noticed it in the forex market. The Iranian Riyal seems to have much of its apprviative worth over the years. So while purchasing my merchandize abroad I have to pay more than it was earlier and as a businessman I have to charge more to my clients who have to pay more and it leads to inflation. An ordinary bottle of body deodorant costs now nearly 30000 Riyals or to say about 1.1/2% of a month's house rent. Added to it is the government import tariff of about 100%. Although humans have this power to live and adjust in all environs so we too have managed to live with it though. Q: Do the effects of the sanctions touch you? A: Making food and household goods cheaper has been the endeavor of Iran government since sanctions, like offering bread, dairy products at a cheap price. But the best improvement is in the healthcare system after the sanctions were slapped on Iran. Yes, petrol has turned costlier, but then fuel cost has risen all over Asia, it is like barter business. Q. How do you manage to export and import your merchandize? A: First we import our goods, then we sell the goods to the local market which pays us through their merchandize, which can be dairy products, clothes, or any other goods, and we give this to the staff and workers against their salaries. No money is circulating, it's like thousands of years ago. We are also doing business with buyers over bowls of quality 33
  • 34. pistachios. See a company in Tehran named AHT's has exported this which was worth $100 million, particularly to India and China. Q: In your opinion does the government of Iran redirects the sanctions' effects onto its people? A: We the people of Iran do suffer due to sanctions, but we donot blame Iran government. It is already doing trade with Russia, France, China, India to cushion the impact of sanctions by the West. Remember sanctions never hit any government; it is the nation as a whole which is subjected to the agonies of sanction, especially the working class and the entrepreneurs as well. Iranian airlines are not given fuel in Europe, so if it is due to sanctions then it also is a direct negation International Civil Aviation rules. Q: Can Iran cope with the effects of sanction for long, what do you think? A: God has given all Muslim countries enough natural resources, Iran included and all these countries can carry on for unlimited time. Although some game rules have to be changed, one has to do financial transactions via other countries, like in the Middle East and do it through the famous 'Hundi' system, which is sort of underground banking. Analysis In this chapter the methodology to be used in this research is explained. The mode of data collection, which is quantitative in this research, is also explained, as quantitative data supports the use of statistical software for further analysis. Note: numbers in brackets represent the levels of significance, till stated otherwise. 34
  • 35. Note2: a significance level of 10% will be maintained, unless stated otherwise. Note3: QQ-plots, Residual analysis and other relevant factors are to be found in the appendix, if used and mentioned. There is a (non-linear) inverse relation between the rate of unemployment and the rate of inflation. It is argued that it is only a short-run equilibrium while at the longrun, after inflation occurs, unemployment steadily returns to its old level, only with higher rates of inflation. A short SPSS regression with and without a dummy for the years sanctions were imposed indicatea that. In 1995, inflation rate is a real peak in the graph, with 49.66%. Correlation analysis suggests a negative relation of -0.379 (0.03) between inflation and unemployment, in line with the Phillips curve. First and foremost, is the answer to establish a basic regression: Where η = the inflation rate in Iran and U is the unemployment rate. 35
  • 36. Basic SPSS regression on inflation. The residuals show no real pattern or extreme values and even the QQ-plot of this regression shows a nice path along the desired 45-degree line. However, the R-squared has a value of 0.144. Through getting the log of the y-variable: inflation results in the following equation: Basic SPSS regression of the log. This results in an improvement of the R-squared to 0.163, and an even nice distribution of the residuals and the QQ-plot. Unemployment is now significant at (0.02.) Figure shows the prediction of this regression. It goes to prove that there is little or no explanation for several highs and lows in the actual data. There isn’t enough explanation for some of the peaks in the actual inflation figures. A dummy variable can be introduced now to see if sanctioning is the reason behind these peaks. The dummy is based on the following: after sanctions are imposed, they produce an effect, which is simultaneously a short term effect and a long term effect. Therefore the dummy is coded 36
  • 37. take value 1 in years that big (new) sanctions were imposed as well as the two years following the new sanctions. Some revisions have been made to certain sanctions. These are not taken into account since the original sanction is still in place. The dummy will be coded as follows: The whole period from 1979-1984 is coded 1 as it took long to get the sanctions lifted. Soon after that, new sanctions were already imposed again. To clarify, years with dummy code 1 are: 1979-1984, 1987-1989, 1995-1997, 2006-2008, and 2011. By introducing the dummy D we obtain: A basic SPSS regression including a dummy for sanctions: The R-squared improves to 0.274. As can be seen in figure 4, the highs and lows in the actual data are somewhat better covered than in the previous regressions. Whereas the log of inflation shows an even better R-squared of 0.301. SPSS regression on the log including a dummy for sanctions: 37
  • 38. The Figures clearly show that the prediction has improved. The 2 predictions without the dummy are also added to the figures to allow a comparison between the two. It is not perfect, but sanctions are not the only source of (extra) inflation. The analysis indicates government in Iran controls the economy and is reorganizing the economy to withstand severe economic sanctions. A sanctions regime that continues to keep foreign investment out also keeps entrenched institutions in virtual control of the economy via expansion and seizure of development projects, while ensuring no other domestic competition emerges from other vistas. 38
  • 39. Conclusions: The security landscape has evolved considerably since the Cold War, making it possible for practitioners to address human rights abuses and challenges to peace and security. The development from comprehensive to targeted sanctions follows this trend and has been an essential element in international relations. From blunt, comprehensive, state-oriented sanctions, targeted sanctions were developed to be more ethical in sparing civilian pain, especially following the humanitarian disaster caused by the comprehensive sanctions in Iraq. The transformation from comprehensive to targeted sanctions was an era of optimism regarding sanctions as a policy tool; sanctions transformed to being targeted sparing civilians while striking the actual targets. The UN, EU and US have ever since increasingly used the sanctions as a policy tool and the number of targeted sanctions is constantly increasing. Different sectors in Iran are currently targeted by sanctions and indicate that targeted sanctions have negative impact on Iranian civilians. It is reported that targeted sanctions cause increasing prices, unemployment, disabled civil society and lack of medicine. Such records can lead to mistrust regarding the use of sanctions as a policy tool and queries whether targeted sanctions are entering a legitimacy crisis, alongside the powers that have endorsed them. The evidence examined in this thesis has shown that the consequences of the targeted sanctions in Iran have had a negative humanitarian impact. They cause increased food prices, unemployment, a disabled civil society, and lack of medicine. Increased food prices and unemployment are caused by sanctions through currency drop and inflation, the 39
  • 40. disabled civil society is caused by inflation, currency drop and rise of a black market. Lack of medicine is caused by sanctions more directly through the inability to make foreign transactions. The negative impact of sanctions on civilians in Iran is reported more frequently. Since the summer of 2012, most of the reports were published, which implies that the stricter sanctions that were imposed by the EU and US were starting to take toll. The most reported impact is the lack of medicine and food items while the disabled civil society is the least reported. In Iraq in the 1990s, comprehensive sanctions led to absence of medicine and food items which caused the deaths of hundreds of thousands of civilians. The worst case scenario is that the humanitarian disaster in Iraq will be relived in Iran. Since it is now reported that targeted sanctions already cause hardship for Iranians it is likely that tougher and harder sanctions will lead to worse mortality and morbidity for Iranian civilians. In order to get around this problem targeted sanctions need to be what they are intended to be: being sharply directed at the target. When looking at the Iranian example, targeted sanctions do not deliver what they are promising; to spare civilian pain. UN sanctions on Iran only sanction the nuclear program which is what sanctions are aimed to impact. There is no report arguing that the UN sanctions on Iran cause hardship on the civilians. The financial and oil sanctions imposed by the EU and US are the ones that are troubling the civilians and the ones that need to be revised before Iran enters a humanitarian crisis and before the sanctions policy tool enters a legitimacy crisis. Regarding the future in Iran, sanctions will further impact the civilians in a negative way making the Iranians even more disadvantaged. If the EU and the US continue with their tough sanction policy on Iran, it might be possible that the humanitarian crisis in Iraq will be experienced again with high levels of morbidity and mortality among innocent Iranian civilians. 40
  • 41. Moreover, there is need for further academic research on the subject. It is recommended to delve deeper into one of the categorical impacts. Thus, to narrow the study to only focus on US financial sanctions, for instance, and the impact on the medicine shortage. It is highly recommended to continue to investigate the impact of sanctions rather than the success or effectiveness of these since they are methodologically easier to investigate. When investigating the impact rather than the success or effectiveness of sanctions it is not needed to create measurements over how success or effectiveness is defined and achieved. It is time to rethink and revise sanctions as a policy tool, not only in the Iranian case where sanctions are having a negative impact on civilians. Sanctions as a tool needs to be rethought and designed to live up to their stated aims; spare civilians. If targeted sanctions do not act on behalf of civilians, the policy tool might face a legitimacy crisis. Since sanctions on Iran have negative humanitarian consequences, it is necessary to question the nature of targeted sanctions. Recommendations: Critics of comprehensive sanctions argue that they tend to disproportionately damage innocent populations; as such populations often have little capacity to affect their government's policies. Political leaders often redirect the pain of sanctions onto the most vulnerable groups or against political opponents. The political elites can do this since they control the supply of public resources and can redirect the cost of sanctions to average citizens by unevenly using extant resources in their favor. Thus, when legitimate commercial and financial transactions are blocked by sanctions, the result is usually an expansion of criminal networks and black market activity; unintended 41
  • 42. adverse consequences accompany the imposition of sanctions. Comprehensive sanctions are suggested to worsen public health, economic conditions, the development of civil society and education in target countries. Peksen (2009) argues that comprehensive sanctions will likely cause the unintended consequences of more human right violations in target countries. In response, advocates of sanctions have offered the concept of smart sanctions. Advocates argue that the value of smart sanctions:“Lies in the fact that they would sharply focus (pressure) on the targeted leadership or group, with little or no negative impact on civilian populations and third states”. Theoretically, smart sanctions differ from comprehensive sanctions in two major ways. First, they target and penalize the political elites espousing policies and committing actions deemed reprehensible by the international community more effectively via arms embargoes, financial sanctions, and travel restrictions. Second, smart sanctions protect vulnerable social groups (for example, children, women, and the elderly) from hardship by exempting specified commodities (such as food and medical supplies) from sanctions. These two approaches were designed to strike the real perpetrators more forcefully and to spare potential innocent victims. Most analyses favor smart sanctions but few specify what the term really means. For many, the phrase signifies the use of targeted, as opposed to comprehensive or general trade sanctions (which by implication are considered “dumb”). But in what ways are targeted sanctions smart? If the primary consideration is political effectiveness; to persuade a targeted regime to alter desired policies, targeted sanctions measures are not necessarily more smart. If the goal is to minimize humanitarian consequences sanctions scholars believe that targeted 42
  • 43. sanctions are smart. Indeed the primary motivation for adopting targeted sanctions has been the desire to avoid adverse humanitarian impact. Despite the ethical shift from comprehensive to targeted sanctions, and the scholarly debate focusing on the humanitarian contributions of targeted sanctions, the civilian impact of these is understudied and can actually cause hardship on civilians in Iran. In summary, due to the initial widespread perception that sanctions can constitute a liberal alternative to war, states have during the last decades used sanctions to coerce different states behaviors. When reading recent press reporting over sanctions on Iran, it appears as if targeted sanctions do not spare civilian pain. However, it has been debated that sanctions undermine the notion that sanctions constitute a humanitarian alternative to military conflict. Galtung (1967) who created the ‘naïve theory of sanctions’ initially criticized the central logic of sanctions and argued that the economic pain inflicted on the target does not translate into political gain for the sender, it would rather create a rally-around-the-flag-effect. The scholarly debate of sanctions argues that comprehensive sanctions lead to negative humanitarian consequences for civilians which led them to be refined Sanctions, like any other economic decision, are subject to the law of diminishing marginal returns. As time wears on in perpetual sanctions, such as U.S. sanctions on Cuba, the measures’ power fades for two reasons. The price of continuing sanctions rises over time for all parties. The sender’s maintenance and oversight costs alone rise in cost due to higher wages, attempts to circumvent the measures, and pressure groups lobbying for sanctions to end. For countries such as the United States, slipping economic hegemony signals a need to reassess alliances and agreements such that a united approach to economic statecraft can take place. Drury (2005) eloquently described how the U.S. president has initiated sanctions on 43
  • 44. many occasions. These unilateral measures may have been more effective if a coalition of nations, especially those countries possessing large percentage shares of alternative trade and financing with a specific target, was in place regionally to act as sanction allies. There are also diplomatic costs: if sanctions continue, their goals have not been achieved. If social costs result, the longer the policy remains, the more the target populace suffers. The international community may call for sanction to end simply to mitigate the target populace’s suffering. The sender nation also suffers in both explicit and implicit ways by supplying sanctions for long periods of time, such that the demand for sanctions within the sender nation is likely to fade with time. The original political rationale is likely to erode through social change in the least, and the price the public is willing to pay is likely to fade. The key problem with ending sanctions is what price is paid to credibility in ending these measures prematurely, another diplomacy tradeoff for the ages, as targeted sanctions. Targeted sanctions are believed to spare civilian pain which indicates flaws in the perception of targeted sanctions, if targeted sanctions on Iran cause civilian pain. 44
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