History

Sanctions have been the core of U.S.-Iran foreign policy since the 1980s and 1990s. During this period, the U.S. government imposed sanctions as part of its strategy to prevent the Iranian government from supporting terrorist groups and destabilizing the Middle East. In the mid-2000s, U.S.-imposed sanctions expanded to curb Iran’s nuclear weapon production and reduce the country’s missile arsenal. Financial sanctions weighed heavily on Iran’s economy for decades, and led to the Iranian government agreeing to the 2015 J.C.P.O.A. 

The Iran Nuclear Deal, also known as the Joint Comprehensive Plan of Action (J.C.P.O.A.), was supported by permanent members of the U.N. Security Council, Germany, the European Union, and Iran. It committed to alleviating U.S., E.U., and U.N. sanctions if Iran complied with a list of demands, including restrictions on nuclear production. Though many economic sanctions were lifted under the J.C.P.O.A., some U.S. sanctions, including on direct trade with Iran and on Iran’s support of regional armed groups, remained in place.

In 2018, the Trump Administration claimed Iran was not obeying the Iran Nuclear Deal rules, which sought to place limits on the country’s nuclear arms program, among other guidelines. In response, the Trump Administration removed the United States from the J.C.P.O.A. and introduced a “maximum pressure” campaign. At this time, sanctions that were eased under the 2015 nuclear agreement were reimposed with greater intensity.

Benefits for the U.S.

According to the Trump Administration, Iran’s nuclear program threatened  U.S. interests, and the J.C.P.O.A. didn’t curb inappropriate actions committed by the Iranian government. In a 2019 report by the U.S. Department of the Treasury, the reintroduction of sanctions sought to prevent the Iranian government from proceeding further with the following actions:

1. Repressing the Iranian people
2. Diverting humanitarian aid from low income Iranians to government interests
3. Growing the country’s weapons arsenal
4. Contributing to destabilization in the Middle East and promoting terrorism around the world

In order to stop Iran’s “unacceptable actions” in the Middle East, sanctions were designed to cripple Iran’s main industries (oil, shipping, and banking) and weaken the country’s currency and purchasing power. These “unacceptable actions” referred to Iran’s support of terrorist organizations in Syria, Yemen, and other countries.

Impacts on Iran

Political Impact

Sanctions can make counties more authoritarian and give more power to corrupt governments that hoard resources and use their power to control their people. While the entire country loses wealth, the government and financial elites lose less wealth than average citizens. In this way, U.S. sanctions on Iran have slowed the movement for democracy and civil rights in the country. Since the reimposition of sanctions, the Iranian government has continued to arrest activists for demonstrations and for promoting equal rights. However, it is not clear that these actions are directly related to the reimposition of sanctions.

Economic Impact

Financial sanctions have contributed to the following consequences for the Iranian economy:

1. Currency Decline and Inflation: Iran’s currency value declined from 35,000 rials to the U.S. dollar under the J.C.P.O.A. to 265,000 rials to the U.S. dollar in late 2020. This contributed to major inflation – 45% in 2021 –  after the U.S.’s 2018 reimposition of sanctions.
2. Lack of International Financial System Involvement: Additional sanctions in 2018 were placed on Iranian banks that were owned privately or by the government. Any financial institution who enters transactions with these sanctioned banks could face prosecution in the U.S. In 2019, international firms feared retaliation from the U.S. if they were caught in any form of transaction with Iran, including humanitarian imports into Iran. This threat prevented many firms from any interaction with Iran-based banks or organizations. Years of similar sanctions have inhibited Iran’s role in international trade, which ultimately affects the country’s wealth, imports of necessary items, and the number of reliable trading partners abroad.
3. Oil Sales Reduction and Recession: Oil exports and petroleum production are the main industries in Iran. Reimposed and additional sanctions on banks involved in Iranian exports caused a decrease in oil sales and the inability of Iran to fully participate in the international financial system. In turn, this made Iran’s economy fall into a recession.

Social Impact

In recent years, Iran has experienced an increase in food insecurity due to inflation and a decrease in value of the rial. In addition, reports suggest a rise in domestic violence and suicide due to stressful economic conditions. Further, street fights have broken out in lines at food markets and currency exchanges over tense financial conditions exacerbated by economic sanctions on Iran.

According to the Iranian National Bank in 2020, the poverty rate in Iran was close to 20%. However, other reports claim the rate to be as high as 35-40%. There are reports that generational poverty is more growing under the financial sanctions, which make it harder for employed Iranians born into poverty to climb the ladder to higher socio-economic classes.

Though the U.S. government claimed sanctions would not impact the entry of humanitarian aid into the country, Human Rights Watch claims that sanctions have limited the purchasing power of Iranian healthcare facilities to acquire medicines for Iranians. Depreciation of Iranian currency, limits on banks who can finance sales with Iran, and threats to companies importing goods into the country prevent many Iranians from obtaining goods. 

Future of U.S.-Iran Relations

Election of Iranian President Ebrahim Raisi

The reimposition of U.S. sanctions on Iran in 2018 suggested to Iranians that working with the U.S. through diplomatic channels would not equate to a healthy relationship between the countries. Since sanctions were imposed, Iran saw “hardliners” win a majority of parliamentary elections in February of 2020. Additionally, many strong candidates running for president of Iran in 2021 considered themselves on the conservative and uncompromising side of politics. This categorization included the newly elected president, Ebrahim Raisi. 

Raisi was elected president of Iran in June, 2021 with less than 50% voter turnout. Raisi is supported by Iran’s supreme leader, Ayatollah Ali Khamenei, and has a record of human rights abuses. With Khamenei and Raisi on the same page, reports suggest Iran will become more conservative. This will likely include the Iranian government acting without the voice of the urban middle class, who support social reforms.

J.C.P.O.A. (Iran Nuclear Deal)In early 2021, the Biden Administration said it welcomed a return to the J.C.P.O.A., with modifications, and a removal of harsh sanctions if Iran is willing to comply. On the other hand, the Iranian government wants the U.S. to remove the economic sanctions before an agreement is made and promise longevity for the future agreement. Further, Raisi suggested he would agree to a similar deal to the 2015 agreement but promised to push harder in talks related to Iran’s weapons capabilities. However, Raisi brings more conservative and unwavering views to the table, suggesting an unclear path to a deal between the countries. Additionally, Saudi Arabia, U.A.E., Bahrain, and Israel believe they have a right to enter talks regarding an updated nuclear deal with Iran, but Iranian leadership has qualms about the involvement of these countries.