Who Are We Sanctioning? America or Iran?

 

 BN-DR626_sancti_G_20140714185635 (1)

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

Update on Iran’s Re-Entry into the Global Economy

Delisting of Entities on the U.S. Sanctions Lists

January 16, 2016, marked the Implementation Day for the Joint Comprehensive Plan of Action (“JCPOA”) – known in Iran as Barnamey-e Jame Eghdam-e Moshtarek (“BARJAM”). On Implementation Day, the International Atomic Energy Agency (“IAEA”) verified that Iran implemented key nuclear-related commitments set forth in the JCPOA, and the U.S. Secretary of State confirmed the IAEA’s verification. As a result of Iran meeting its JCPOA commitments, as part of the lifting of nuclear-related sanctions, the United States Government removed over 400 individuals and entities listed in the following:

  • the Specially Designated Nationals (“SDN”) List;
  • the Foreign Sanctions Evaders (“FSE”) List; and
  • the Non-SDN Iranian Sanctions Act (“NS-ISA”) List.

The above Lists are overseen and published by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). SDNs are individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries, and also lists non-country-specific individuals, groups, and entities. SDN assets are blocked and U.S. persons are generally prohibited from dealing with SDNs. FSEs are foreign individuals and entities determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Iran, as well as foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions. Transactions by U.S. persons or within the United States involving FSEs are prohibited. As of Implementation Day, sanctions imposed on all persons named on the NS-ISA List were terminated, and that list is now empty.

Following Implementation Day, noteworthy delisted entities include, among others:

  • the Central Bank of Iran and most Iranian financial institutions;
  • a number of American, Asian, and European shipping and trading companies;
  • almost all of the aircrafts and vessels that belong to Iran Air, Iran Shipping Lines, and the National Iranian Tanker Company;  
  • Iran’s Ministry of Energy and its Ministry of Petroleum; and
  • major Iranian energy companies and their foreign affiliates, including the National Iranian Oil Company (“NIOC”), and Naftiran Intertrade Company (“NICO”).

The names of the approximate 400 delisted individuals and entities are set out in Attachment 3 to Annex II of the JCPOA. Nevertheless, more than 200 Iranian or Iran-related individuals and entities continue to remain on the SDN list.

Simultaneous with delisting of Iranian aircrafts from the SDN list, OFAC established a favorable licensing policy regime through which U.S. persons may request specific authorization to engage in transactions for the sale, export, lease, or transfer of commercial passenger aircraft and related parts and services to Iran. OFAC’s licensing policy also applies to associated services including the supply of parts, warranty service, brokering, insurance and financing, as well as the involvement of individual U.S. persons in the transaction.

In addition, non-U.S. persons are no longer subject to sanctions for investing in Iran’s oil, gas, or petrochemical sectors, provided that transactions do not involve persons on the SDN list. In addition, U.S.-owned or controlled foreign entities are now permitted to engage in transactions that would otherwise be prohibited if engaged in by a U.S. person.

With the removal of over 400 individuals and entities from the SDN, FSE, and NS-ISA Lists, particularly the Central Bank of Iran, Iran Air, and the National Iranian Oil Company, the global marketplace can expect changes to emerge within the spectrum of transactional options available with respect to Iran, particularly its civilian aerospace and natural resource sectors.

 

The views expressed in this article are solely those of the author; they do not necessarily represent the position of the Department of Labor or of any other agency.

Emad Maghsoudi is a 2016 Juris Doctor candidate at Fordham University School of Law, and holds an MA in Management from Harvard University. Emad served as an International Trade Analyst for the U.S. Department of Labor.