Who Are We Sanctioning? America or Iran?

 

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By Reza Marashi

In the aftermath of a historic nuclear deal, U.S.-Iran relations are in flux. Washington and Tehran communicate more directly and frequently today than at any time since 1979 – but this fact alone does not guarantee that all remaining points of contention will be resolved. With political and cultural ties improving incrementally, the sparsity of economic ties between Washington and Tehran stand out. As the rest of the world’s economies reinvigorate trade relationships with Iran, a litany of unilateral American sanctions prevents U.S. businesses from pursuing similar opportunities. The cost of sanctions to the American economy is often overlooked, yet continues to grow.

In a recent report, I worked with two colleagues to examine these costs, and the results were astounding. Using an econometric “gravity model,” we assessed the trade that America lost as a result of sanctions on Iran since 1995. Based on the U.S. government’s statistics on the number of job opportunities that $1 billion of foreign trade produces, our report also assessed the number of job opportunities lost in the U.S. due to the Iran sanctions. Finally, our report estimated the states in the U.S. where these job opportunities likely were lost.

Unsurprisingly, the United States is by far the biggest loser of all sanctions enforcing nations. From 1995 to 2012, the U.S. sacrificed a whopping $134.7 to $175.3 billion in potential export revenue to Iran – greater than the losses of all other countries combined. This is surprisingly high, particularly compared to the non-existing debate about the cost of sanctions. Over the past four years, this number has continued to rise.

Congress has passed most sanctions on Iran with no more than a handful of nay votes. In 2011, the Senate even passed sanctions against Iran’s Central Bank 100-0, in spite of objections from the Obama administration about the potential havoc these sanctions could cause in the oil markets. Concerningly, none of the lawmakers’ debates raised the cost of sanctions to the U.S. economy. The absence of such discussion was concerning mindful of the ongoing efforts to reduce the U.S. unemployment rate – an objective directly undermined by the thousands of job opportunities lost due to the Iran sanctions.

These estimates reflect the loss solely from export industries, and do not include the detrimental economic effects of other externalities of Iran-targeted sanctions, such as higher global oil prices. Moreover, since Iran’s imports would be higher in the absence of sanctions, and sanctions have depressed Iranian GDP, the economic costs to sanctions-enforcing nations are greater due to lost exports. Consequently, the full cost to the U.S. economy is likely even higher than the report indicates.

The dollar loss of foregone export revenue represents only part of the cost of sanctions enforcement. There is also a human element, measured in terms of jobs needed to support higher export levels. On average, the lost export revenues translate into between 51,043 and 66,436 lost job opportunities each year. In 2008, the number reached as high as 214,657-279,389 lost job opportunities. Texas and California are likely the biggest losers in terms of lost employment, due to their size as well as the attractiveness of their industries to Iran’s economy.

The structure of Iranian imports also provides important insight into lost trade between the U.S. and Iran. To understand future potential losses (or gains), it is instructive to study the Iranian government’s stated areas of economic emphasis, which include, among others: energy-intensive industries; power generation; telecommunications; automobiles; aviation and shipping; roads and railways; banking and insurance; and mining. Taking both U.S. and Iran perspectives into account, a diverse range of sectors stand out as likely areas of future trade – or future losses, depending on whether remaining U.S. sanctions are lifted.

The cost of sanctions to the U.S. economy must be recognized as America deliberates how to proceed in its trade relations with Iran. Any debate that does not acknowledge such costs will be incomplete at best, and misleading at worst. The nuclear deal has proven that diplomacy can accomplish in two years what decades of sanctions could not. Looking ahead, decision-makers in Washington must ask themselves if the cost of sanctions to the U.S. economy is worth bearing, where other diplomatic options exist.

Reza Marashi has been the Research Director of NIAC since 2010

About the author: USIRCC