Excerpt
Table of Contents
Index of Figures
Index of Abbreviations
1 Introduction
2 Theoretical basis
2.1 Definition of a Sanction and Legal Agreements
2.2 Goals of sanctions
2.3 Forms of sanctions
3 US Sanctions against Iran
3.1 Historical context
3.2 Goals and implementation
3.3 Consequences
3.3.1 On Iran
3.3.2 On international trade
4 Conclusion and Outlook
Bibliography
Index of Figures
Figure 1: The Fall in the Value of the Iranian Rial
Figure 2: Iran's Annual Inflation Rate
Index of Abbreviations
Bpd Barrels per day
EU European Union
GATT General Agreement on Tariffs and Trade
IEEPA International Emergency Economic Powers Act
ILSA Iran and Libya Sanctions Act of 1996
JCPOA Joint Comprehensive Plan of Action
OPEC The Organization of the Petroleum Exporting Countries
UN United Nations
USA Unites States of America
WTO World Trade Organization
1 Introduction
Living in a globalized world, international trade relations and political interactions become of more importance constantly. Intercontinental trade influences the domestic economy of countries, and with that it also has an influence on society.
Political tensions between Iran and the United States of America (hereinafter USA) have been present since the middle of the 20th century, undergoing several progressions between the different administration changes on both ends. Sanctions and embargos have been instruments since the beginning of these conflicts between the two countries.
Currently, the Trump administration has imposed an almost total economic embargo on Iran. This has many effects on the USA and Iran, but also influences worldwide trade relations.
This essay aims to specify the theoretical basis of sanctions, afterwards focusing on the US Sanctions specifically. The history of the US-Iranian relationship is going to be described. Another goal is to outline the consequences that these sanctions have on the USA and Iran, but also on international trade up to now.
This paper is divided into three sections. The first part explains the theoretical basis of sanctions including its definition, the different forms and reasons for sanctions as well as the legal requirements. In the main part, the US sanctions, its historical context as well as the goals and consequences of the US sanctions against Iran are presented. In the last part, a conclusion is drawn.
2 Theoretical basis
2.1 Definition of a Sanction and Legal Agreements
In general, a sanction is a measure that can be taken against a country which has violated the human rights, as a penalty or to apply pressure. A sanction can be of economic or of military origin.1 In international economic law, economic sanctions are described as sovereign restrictions on foreign trade for political reasons with the aim of inducing the states concerned to behave in a certain way.2
Additionally, sanctions must not be equated with the concept of a private boycott, which is limited to a decision to minimize the trade with a country or company on a private level.3 Oftentimes the term sanction also relates to the phrase of an embargo. An embargo describes a governmental ban to trade with a certain country.4
Sanctions are an element of several international law agreements. The following serves as an overview about those legal sources.
The first point to consider is the international treaty obligations that arise from the World Trade Organization (hereinafter WTO) treaty. Particularly noteworthy is the freedom of import and export that arise from Article XI:1 General Agreement on Tariffs and Trade (hereinafter GATT).
There is an element in the GATT treaty that offers the members the possibility to mandate unfair behavior, in this case the sanctions, against other countries as temporary safeguard measures.5 Article XXI para 1 lit. b GATT includes the security exceptions, which say that “nothing in this Agreement shall be construed […] to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests“. Also, it is the country’s sole decision on whether the national security is threatened or not.6
Besides the content of the GATT treaty regarding sanctions, the United Nations (hereinafter UN) Charta also offers unilateral actions. Art. 25 UN Charta includes that the UN security council can impose economic sanctions to secure or restore international peace with binding force to all UN members.7
Furthermore, the European Union (hereinafter EU) has agreements on the topic of sanctions. The Maastricht Treaty gave the EU a shared and exclusive competence to adopt economic sanctions, including measures restricting the movement of payments and capital, against third countries as well as natural and legal persons.8
All economic sanctions initiated by countries that are EU members, the UN or the WTO are affected by those treaties and must consider those when making decisions on implicating those restrictive measures.
2.2 Goals of sanctions
Sanctions always serve a certain purpose that administrations seek by imposing them. Some of the goals are described in the following.
The first possible goal is using the sanctions to achieve moderate changes in the target country’s policy. Those goals do not include covert force or military measures. Instead, the sender country just uses economic sanctions to resolute the dispute. Since the threat is usually small for the target countries, there is also no support from other parties to help the target country oppose these actions.9
A second approach that could be taken from sender countries is to destabilize the target government. This goal could be followed for instance because the target government has a militant demeanor or a contrary one to the sender’s attitude. In many cases, the sender country wants to “overthrow the regimes of former friends”.10 Following this approach, it is necessary to accompany the sanctions with other measures like military operations since sanctions alone are not sufficient to achieve destabilization.11
The third goal that can be achieved while using sanctions is to disrupt a minor military adventure. This goal has often been obtained after world war one. Connected to this, one can name the goal of the impairment of military potential. In general, one can say that the overall goal of every sanction is to reduce the power that the target country may have.12 Countries hope that by impairing the target country’s economic power, they could “marginally limit the adversary’s military capabilities”.13
To accomplish major policy changes on the target countries’ end is another goal that can be pursued by sanctions. An example for this is the ending of Apartheid in South Africa which was pursued by the UN.14 Also, those major policy changes can be the spreading of democracy and human rights.15
All in all, the sender country needs to take all variables into consideration and chose the right form of sanctions to achieve the goals that are aspired.
2.3 Forms of sanctions
To accomplish the goals that were delineated in the previous chapter, the sender country must decide on a certain form of a sanction that needs to be applied to the target country.
The first two forms of sanctions are to limit the export into, or the imports from the target country. This leads to the fact that the target country loses export markets and thus revenue possibilities, since some countries are highly depending on exports and imports. Moreover, the imported goods increase in prices and exported goods decrease in prices. This leads to a strong suffering of the economy and a decreasing of the economic power.
Another type of sanction can be to reduce the financial aid towards the target country. The countries must pay a higher interest rate to investors because they have fewer financial securities. Also, there is the possibility of freezing the country’s foreign assets on their bank account, so the target country does not have any access to their invested money.16
In conclusion one can say that no matter what form of sanctions are chosen by the sender country, they all aim to threaten the economic power of the target country.
3 US Sanctions against Iran
3.1 Historical context
In general, sanctions have increased rapidly since the end of the cold war. They have risen “from 1.8 new sanctions a year in the time period of 1945-1969 to 3.8 new sanctions a year in 1970-1989 and then to 6.3 new sanctions a year in the period of 1990-2000."17
Political tensions between the USA and Iran reach back to the middle of the 20th century, when the Islamic revolution took place.18 Ahead of that historical development, the USA was one of Iran’s most powerful trade partners – in fact, they had a 16% share of Iran’s imports.19
Ever since the Islamic Republic was founded in 1979, the country interrogated the strategic power the USA had in the Persian Gulf countries at that time. From that year on, the Carter administration started to impose economic sanctions on Iran. Since then, they have been in continuous effect.20
The so-called hostage crisis led to a disruption of the political interaction between the two countries on 7 April 1980. The reason was a group of students holding 66 Americans hostage for 444 days on the US Embassy’s terrain. The crisis led to US embargos on oil imports from Iran. Also financial aid and military cooperation with Iran were restricted.21 Iranian deposits in the US banks and foreign subsidiaries were frozen under the International Emergency Economic Powers Act (hereinafter IEEPA) and an embargo on exports to Iran was passed. The freezing of the deposits ultimately led to the release of the US hostages, as parts of the Iranian assets were transferred to an escrow account in exchange for the freeing of the captives.22
Another point that fueled the use of sanctions and embargos against Iran was the fact that Iran was added to the list of countries “accused of supporting international terrorism” on 13 January 1984.23 Catalyst for this action was the fact that Iran was accused of participating in the bombing of the US Marine Barracks in Lebanon in October 1983. Connected to that, the US Department of Commerce imposed anti-terrorism controls on Iran.24
After several prohibitions and bans had been taken by the US against Iran, e.g. the export of aircraft and related parts in 1984 or the ban on financial assistance to Iran in 1987, the next major point in the US-Iranian relationship was notable on 29 October 1987. Iran was accused of supporting terroristic acts and military action against US flag vessels that were against the law. Ronald Reagan, president of the US at that time, issued an executive order concerning the ban of Iranian goods and services. The focus laid mainly on crude oil. Another important step is that in 1996, the US decided to castigate any country that invested more that $20 million in Iran’s oil sector since Iran was again accused of supporting terrorism.25
The next striking episode in the US-Iranian history is the passage of the Iran and Libya Sanctions Act of 1996 (hereinafter ILSA). This sanction did not only affect Iran but also Libya, which was also classified as a country sponsoring acts of terrorism. The measure was taken after several terroristic incidents occurred in a short amount of time and increased the American concern in connection to terrorism. The goal of this sanction was to take the economic power from the countries to stop them from financially supporting acts of terrorism.26
The ILSA allowed the President to prosecute any country trading or investing in Iran or Libya. Also, the Unites States demanded their trading partners to choose whether to trade with Iran and Libya or with the US Their economic allies refused to support the ILSA.27
Ultimately, the ILSA “severely restricted foreign corporations from investing in the Iranian and Libyan petroleum industries”.28 Also trade with Libya in goods that were already banned by the UN Security Council Resolutions was restricted.29 The sanctions had to be imposed for at least two years, but they could have been revoked after one year if the party accused no longer practices the prohibited action. Also, the sanctions were supposed to be terminated when Iran is removed from the list of countries provoking international terrorism and eases their activity in producing weapons of mass destruction. To lift the sanctions with regards to Libya, the country would have to comply with several UN Security Council Resolutions concerning former terrorism acts.30
In 1997, the Clinton administration promised lowered economic sanctions due to the newly elected President of the Islamic Republic Mohammed Khatami, since he declared to realize political as well as economic reforms in Iran. This ease was limited to food and medicine. In 2000, more sanctions were lowered to goods such as carpets, dried fruits and pistachios.31
Contrary to what was agreed upon before the elections in 2001, George W. Bush decided to sign the extension of the ILSA for another 5 years. This decision was also influenced by the events of 11 September 2001. This ended the rapprochement phase previously initiated by the Clinton administration, which indicated a change in US policy towards Iran.32
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1 Cf. https://www.duden.de/rechtschreibung/Sanktion, accessed 03/01/2020.
2 Cf. Lüdemann, J., Götting, H.-P., Gruber, U. P., Internationales Wirtschaftsrecht, 2015, p. 849.
3 Cf. Lüdemann, J., Götting, H.-P., Gruber, U. P., Internationales Wirtschaftsrecht, 2015, p. 849.
4 Cf. https://www.duden.de/rechtschreibung/Embargo, accessed 03/09/2020.
5 Cf. Deutscher Bundestag, Artikel XXI GATT, p. 5.
6 Cf. Deutscher Bundestag, Artikel XXI GATT, p. 5.
7 Cf. Lüdemann, J., Götting, H.-P., Gruber, U. P., Internationales Wirtschaftsrecht, 2015, p. 850.
8 Cf. Lüdemann, J., Götting, H.-P., Gruber, U. P., Internationales Wirtschaftsrecht, 2015, p. 849.
9 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 50.
10 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 51.
11 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 52.
12 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 54.
13 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 54.
14 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 55.
15 Cf. Shirazi, H., Azarbaiejani, K., Sameti, M., The Effect of Ecnomic Sanctions on Iran, 2015, p. 2.
16 Cf. Hufbauer, G. C., Economic sanctions reconsidered, 1990, p. 37.
17 Cf. Shirazi, H., Azarbaiejani, K., Sameti, M., The Effect of Ecnomic Sanctions on Iran, 2015, p. 2.
18 Cf. Katzman, K., Iran Sanctions, 2015, p. 44.
19 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 409.
20 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 407.
21 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 409.
22 Cf. McCurdy, M., Unilateral Sanctions, 1997, p. 400f.
23 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 410.
24 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 410.
25 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 410.
26 Cf. McCurdy, M., Unilateral Sanctions, 1997, p. 408.
27 Cf. McCurdy, M., Unilateral Sanctions, 1997, p. 410.
28 Cf. McCurdy, M., Unilateral Sanctions, 1997, p. 410.
29 Cf. McCurdy, M., Unilateral Sanctions, 1997, p. 411.
30 Cf. McCurdy, M., Unilateral Sanctions, 1997, p. 412.
31 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 412.
32 Cf. Torbat, A. E., Impacts of the US Trade and Financial Sanctions on Iran, 2005, p. 413.