Report: The Impact of Economic Sanctions (Excerpts)

May 9, 2007

Related Country: 

  • France
  • Germany
  • Iraq
  • North Korea
  • Russia
  • United States

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119. In 2003, the IAEA discovered that Iran had been secretly working on uranium enrichment and plutonium reprocessing. The IAEA reported in February 2006 that it was unable to conclude that there were no undeclared nuclear activities or materials in Iran, but also that it "has not seen any diversion of nuclear material to nuclear weapons or other nuclear explosive devices." The IAEA wants Iran to carry out its legal obligation to cooperate fully with monitoring, whereas the Security Council permanent members and Germany want Iran to voluntary renounce enrichment and reprocessing, even though it is under no legal obligation to do so, in order to establish international confidence in the exclusively non-military nature of Iran's nuclear programme. As far can be ascertained, Iran is ten years away from being able to produce a nuclear bomb. Iran has stated that it will never acquire nuclear weapons, but in 2005 President Ahmadinejad made a statement that is usually translated as: "Israel must be wiped off the map". The US, the UK and Israel have said that acquisition of nuclear weapons by Iran would be intolerable and the US is making military threats against Iran.

120. In August 2005, the EU-3 (the UK, France and Germany) proposed a Framework for a Long-Term Agreement (FLTA) involving LWRs, security guarantees and economic cooperation in return for a permanent renunciation of enrichment and reprocessing. The FLTA offers UK-French guarantees not to use nuclear weapons against Iran, EU support for Iran's civil nuclear programme, a trade and cooperation agreement and support for Iranian accession to the World Trade Organisation (currently blocked by the US). Dr Howells stated that: "We … offered very generous proposals and, to use the cliché, we have gone the extra mile with Iran" but said: "it is very difficult to get messages from Iran that are comprehensive in any way" (Q 288). However, in August 2005 Iran stated that it would accept the deal if it had a clearer timetable and if the US dropped its long-standing unilateral economic sanctions, established diplomatic relations and provided security guarantees. In an offer which has become known as the 'Grand Bargain' and which was immediately rejected by the Bush administration, Iran had proposed a similar comprehensive political settlement with the US in 2003 after the invasion of Iraq. It has noted President Bush's answer in April 2006 to a question about whether US options regarding Iran "include the possibility of a nuclear strike": "all options are on the table". It also draws attention to US support for the Israeli nuclear industry despite Israel's possession of nuclear weapons. The key strength of the EU's proposed Framework Agreement on Iranian nuclear technology is its emphasis on incentives rather than sanctions and its key weakness is the lack of US support for it.

121. UN SCR 1696 of July 2006 noted that Iran had failed to cooperate fully with the IAEA and had resumed enrichment despite the IAEA's non-mandatory request to suspend such activities. SCR 1696 made the suspension, but not renunciation, of enrichment and reprocessing (including research and development) mandatory under Article 40 of Chapter VII, the step before sanctions (Article 41) or force (Article 42). The Resolution indicated that if the Security Council had not received by 31 August a report from the IAEA that such a suspension was in place, it would impose sanctions. No such report was received and in December 2006 the Security Council passed SCR 1737 unanimously under Article 41 of Chapter VII. It banned export to Iran of anything that might assist its nuclear enrichment, reprocessing and heavy water-related and ballistic missile programmes (which exempting LWRs, one of which Russia is building in Iran); banned related investment, training, education and other services; banned cooperation with related Iranian entities; and imposed travel monitoring (not bans) and financial freezes on named persons assisting those programmes. The Resolution also endorsed a proposal made in July 2006 which at least involved the US as well as the EU but which was a watered down version of the Framework Agreement, lacking security guarantees, recognition of Iran by the US and a commitment to full lifting of US sanctions. Iran has indicated that it may exercise its legal right to leave the NPT and hence end all IAEA inspections. Iran has also threatened to impose its own sanctions in the form of an oil embargo or an increase in its oil prices.

122. As in the case of North Korea, the US has recently been imposing financial sanctions on Iranian state-owned banks and has sought to discourage the global finance sector from working with Iran. Iran has responded by seeking to conduct its foreign exchange activities in Euros. In March 2007, Russia announced a delay in supplying nuclear fuel and in the construction of the LWR due to Iran falling behind with payments for them. Furthermore, all five permanent Security Council members agreed to prepare another resolution to ban financial assistance to Iran for anything other than developmental and humanitarian purposes, to almost double the list of Iranian companies and officials subject to targeted financial sanctions and to ban imports of arms from Iran. President Ahmadinejad has faced domestic elite criticism and electoral reverses for his fiery rhetoric, perceived mishandling of nuclear diplomacy and economic incompetence. For some, this is evidence that the combination of escalating UN economic sanctions and US military threats is starting to work. Others argue that President Ahmadinejad's domestic setbacks are unlikely to lead to the international compliance that is being sought. Thus far, there are no indications that Iran will comply. Ironically, due to the difficulties it faces in Iraq, the US is now talking to Iran about Iraq's future while still refusing to recognise Iran and normalise relations with it.

123. Dr Howells stated in his evidence: "I think the international community is right to feel a great deal of impatience and a sense, I suppose, of saying nothing has worked so far, so maybe we had better come up with sanctions" (Q 288). However, in December 2004 President Bush said: "We're relying upon others because we've sanctioned ourselves out of influence with Iran". The alternative that has not been tried with anything like sufficient vigour is getting the US on board with the EU's proposals. Mr Kovanda's statement that: "we are particularly proud that the United States subscribed to the European approach to diplomacy with Iran" is misleading in that the US had refused to offer the same full range of incentives as the EU (Q 273). It continues to be debated whether Iran is sincerely seeking a deal or whether it is stalling while it continues progress towards nuclear weapons potential. The only way to find out for sure is to offer a comprehensive deal which includes the US. We urge the Government to make every effort, bilaterally and through the EU, to persuade the US to commit fully to involvement with the EU's proposed Framework Agreement.

Implications for policy towards North Korea and Iran

124. Reliance on sanctions as the main means of resolving the current disputes with North Korea and Iran appears to be a recipe for failure.

125. Lord Renwick stressed that fear for security in the case of either state will promote intransigence (Q 281). We found it plausible that this has been a central consideration. Iraq was unwillingly denuclearised under international control only following massive aerial bombing and then exceptionally severe economic sanctions, with regime security concerns slowing compliance. This experience suggests that Iran and North Korea can only be coerced into changing their nuclear policies by the kind of sanctions, reinforced by bombing, that are so costly in humanitarian terms that they are unlikely to be imposed due to widespread political opposition, or by invasion and occupation, with all its attendant uncertainties, costs and risks of escalation. Libya's abandonment of its nuclear ambitions showed that substantial economic sanctions can contribute to a positive outcome only with full US commitment to abandoning regime change and normalising relations in all spheres.[44]

126. The prospects for success would appear to be maximised by a pragmatic emphasis on securing a sustained US commitment to broader international initiatives offering lifting of sanctions, economic incentives, diplomatic recognition and security guarantees. These incentives should be phased and coordinated with verifiable, reciprocal steps by North Korea and Iran.

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Parliamentary material is reproduced with the permission of the Controller of HMSO on behalf of Parliament.