The nexus between international sanctions and multilateral negotiations: the case of Iran’s nuclear program

The effectiveness of sanctions imposed on Iran remained in contention from the onset of the nuclear dilemma in August 2002 until the implementation of the Joint Comprehensive Plan of Action (JCPOA) in January 2016. Some analysts believed that the sanctions exerted significant internal and external pressure on Iran, prompting it to change its negotiating position to reach a peaceful settlement. This view is supported by the fact that the JCPOA was concluded after the election of Iran’s President Hassan Rouhani, who had pledged during his 2013 campaign to negotiate an agreement that would lift sanctions and end Tehran’s isolation. Alternatively, some analysts claimed that sanctions failed to achieve their intended policy results, as Iranian leaders were unconvinced that their interests would be served by relinquishing their nuclear ambitions or abandoning their policies in the Middle East. Therefore, Iran did not alter its main negotiating position thanks to its ability to resist international pressure and mitigate the negative economic effects of these punitive measures (Takeyh and Maloney, 2011, pp. 1297–1298).

In light of these contradicting views, this paper fills a gap in the literature by studying the link between international sanctions and multilateral negotiations within the context of the Iran nuclear dilemma. Using international sanctions as a conceptual framework, the paper aims to assess the effectiveness of unilateral and multilateral sanctions imposed on Iran. It argues that the higher the costs incurred by the sender and target countries, the higher the possibility of concessions being made. Using a comparative approach, this paper investigates the impact of sanctions on the positions of the negotiating parties towards Iran’s nuclear dilemma, focusing on the period from June 2003 to January 2016. In June 2003, diplomatic talks started between Tehran and the E3 countries (Germany, France and the UK) after the International Atomic Energy Agency (IAEA) Director-General submitted a report indicating that Iran had failed to comply with its nuclear safeguards agreement. On 16 January 2016, the JCPOA entered into force after the IAEA Director-General submitted a report confirming that Iran had fulfilled its commitments and taken the necessary steps to fully implement this agreement. This paper asks, what were the objectives of sanctions on Iran? What was their impact on Iran and the E3/EU+3 group in terms of their negotiating positions?

In addressing these questions, this article is divided into three sections. The first section analyzes the different objectives of sanctions imposed on Iran to assess the importance of the issue in dispute. The second section examines the political and economic costs of these restrictive measures on the E3/EU+3 group – particularly the United States (US) and the European Union (EU) – in addition to the possible repercussions of such sanctions on the stability of the global oil market. The third section investigates the costs of sanctions on Iran by assessing their political, economic and humanitarian impact and their effect on Tehran’s efforts to develop its nuclear program.

International sanctions are commonly viewed as a foreign policy tool used by countries to achieve their objectives through pressuring the targeted entities to change their policies or behavior (Haass, 1997, p. 74). The literature has distinguished between economic and noneconomic sanctions according to the nature of punitive measures imposed. Economic sanctions may include restrictive measures such as boycotts, asset freezes, remittance limits, technology transfer prohibitions, foreign aid reductions or trade and financial restrictions. Noneconomic sanctions may include political and diplomatic measures, travel bans, communication restrictions, arms embargoes, naval blockades or restricting cultural exchange and scientific cooperation (Ronzitti, 2016, pp. 9–10).

David Baldwin introduced the concept of economic statecraft; states may employ various economic tools in administering their foreign policies to achieve political objectives. Economic statecraft primarily consists of three main components. First is the instrument; unlike other foreign policy tools, economic policies aim to influence the production or consumption of wealth of other countries through commercial measures or foreign aid. Second is the domain of influence; senders may try to influence other countries by targeting specific people or economic sectors and activities. Third is the scope of influence; senders may aim to change specific behaviors of the target country related to its internal or external policies (Baldwin, 1985, p. 32).

Accordingly, sanctions may have three functions. The first is preventative; sanctions can be used to prevent the target from carrying out an illegal act or achieving its goals. The second is punitive; by having an adverse or disruptive effect on the target – either comprehensive or targeted – in response to its policies. The sender(s) may seek to emphasize the need to respect international law or establish a strong negotiating position to pressure the target into changing its policies. The third function is primarily symbolic; sanctions are considered a means of demonstrating opposition to the policies of the target to a wide audience, including the constituencies of the sender country, audiences in the target country and other potential targets. This function can be strengthened if many countries collectively impose sanctions (Carter, 1987, p. 1170).

Some analysts have tried to assess the effectiveness of sanctions by measuring their success in changing the objectionable policies of a target country. They focused only on the punitive function, not the preventive or symbolic functions, often overlooking the reason why some countries, despite their outwardly stated objectives, may continue to impose sanctions even when it seems unlikely that it may compel the target to change its policies (Abbott, 1981, pp. 822–826). Accordingly, some argue that it is difficult to assess the effectiveness of sanctions due to the difficulty of evaluating economic foreign policy tools in general. Additionally, the impact of punitive measures on local societies may be disproportionate to the effect on the ruling class of the target country, especially when a combination of economic and noneconomic sanctions is used (Smith, 1995, pp. 230–241).

In The Sanctions Paradox, Daniel Drezner argued that senders consider the likelihood of future conflict when imposing sanctions, and targets consider conflict expectations when deciding to resist. He highlights a paradoxical effect: (1) adversaries will sanction each other more often but with little success because both sender and target are concerned with relative gains and reputation and (2) allies will use sanctions less often but with greater success due to concerns regarding economic losses (Drezner, 1999, pp. 4–6). Furthermore, sanctions are more likely to succeed against allies and close trading partners because they may compromise in deference to the overall relationship. Allied countries may be willing to make concessions to preserve or improve their existing ties, unlike adversaries who have narrow interests and relations with the sanctioning countries. Therefore, in light of the policy convergence between allied countries, the sender may request limited changes in the target’s policies or positions, perhaps even before they have to resort to sanctions (Hufbauer and Schott, 1985, pp. 403–408).

Despite these difficulties, the success of sanctions can be evaluated by considering the following determinants. Two of these determinants assess the result of sanctions from the sender’s perspective, while another two focus on the target’s perspective, before the impact on both is assessed in conjunction with one another. First, the goals of the sender are examined. Not all goals are equally important; the more important the goals and the more difficult they are to achieve, the more successful the sanctions should the desired result be achieved. In parallel, the stakes for the target are considered. The more important the issue under dispute, the more difficult it is to accept and implement the requested policy changes. Additionally, the higher the target’s conflict expectations, the less willing it is to make concessions that can be translated into future leverage or blemish a reputation for tough bargaining. Therefore, the more complex the undertaking and the higher the stakes for the target, the more valuable the impact of sanctions imposed by the sender country, should they achieve the expected result (Morgan and Schwebach, 1995, pp. 260–261).

Assessing the costs of sanctions compared to the expected benefits is one of the main determinants of their efficiency, since net value is the overall measure of success of any statecraft technique. In terms of the costs to the sender, sanctions are deemed more successful if they involve lower costs than pursuing alternatives. Any sanctions necessitating unwarranted or exorbitant costs cannot be considered successful regardless of the outcome. As it pertains to the target, the ability of a sender to inflict costs for noncompliance can be regarded as a measure of success even if sanctions fail to gain compliance; the higher the costs for noncompliance incurred, the more successful the policy (Dashti-Gibson et al., 1997, pp. 608–610).

Essentially, determining the effectiveness of sanctions can be assessed by determining their scope, weight and domain. The scope denotes the range of issues affected by sanctions (e.g. nuclear proliferation, democracy promotion or human rights). The weight symbolizes how sanctions affect the various scopes of the target’s behavior (i.e. low, medium or high impact). The domain represents the parties affected by the sanctions (e.g. countries, non-state actors or international organizations). Thus, the wider the scope, the higher the impact of sanctions in terms of weight and the larger the domain, the more effective the sanctions. However, the impact of sanctions may diminish with the increased importance of secondary or implicit objectives, making it difficult to assess their effectiveness (Baldwin, 1999, pp. 89–92).

These five determinants provide a more comprehensive and policy-relevant estimate of the success of sanctions in achieving their objectives, despite the complexity of measuring their success. Consequently, the use of sanctions can be considered more successful the more complex the objectives, the lower the costs for the sender, the higher the stakes and the costs of noncompliance for the target and the greater the effectiveness of sanctions. Building on this conceptual framework, this paper fills a gap in the literature of international sanctions by studying its linkage to multilateral negotiations within the scope of the chosen case study by examining their relationship as methods to resolve a dispute.

Different economic and noneconomic sanctions were imposed on Iran to compel its elite to change their policies and negotiating position toward the development of its nuclear program. Traditional sanctions were levied to increase pressure by restricting Iran’s freedom to export and import various products and commodities, targeting vital economic sectors – particularly the oil and banking sectors – to boost popular discontent against the Iranian government and increase the cost of pursuing its goals. Moreover, targeted trade restrictions and military sanctions were enacted to prevent Iran from obtaining materials and technology that could be used to develop its nuclear program or defence systems. The sanctions also specifically targeted individuals, companies and entities involved in Iran’s nuclear program through imposing such measures as travel restrictions and asset freezes (Anthony and Bromley, 2016, pp. 87–88).

The declared and implicit objectives of imposing sanctions on Iran have changed throughout the dilemma from its outset until the conclusion of the JCPOA and have complicated the sanctions regime, considering the involvement of multiple national and international parties. Additionally, the different policies and legal frameworks by which this regime was established complicated the standards and procedures through which sanctions could be lifted, suspended or waived. Therefore, unilateral and multilateral sanctions differed in terms of their targets and objectives, as they included financial and commercial measures besides travel and transport restrictions (Giumelli and Ivan, 2013, pp. 13–15).

In light of the diversity of policies and actors involved in imposing sanctions on Iran, the E3/EU+3 group – which consisted of the EU, China, France, Germany, Russia, the UK and the US – and other international actors have sought to achieve various objectives. These included slowing down Iran’s progress by restricting Tehran’s ability to obtain components and materials essential for developing and operating its nuclear facilities or delivery systems. They aimed to persuade Tehran to make concessions to reach a negotiated agreement that would prevent it from obtaining the fissile materials needed to build nuclear weapons. They also hoped to convince Iran to allow IAEA inspectors to regularly monitor its facilities. Moreover, these sanctions would act as a signal to Iran that the international community rejected its alleged violations of the nuclear non-proliferation regime. Simultaneously, they would forestall domestic and external calls from US political constituencies and some Middle Eastern countries – particularly Israel – asking for a military response to Iran’s nuclear program (Anthony and Bromley, 2016, pp. 91–93).

The sanctions also included other objectives that are not related to Iran’s nuclear program. Primarily, forcing Tehran to stop its support and financing of militias in the Middle East, in addition to restricting its support for the Syrian government. Additionally, they sought to constrain Iran’s military capabilities and its regional influence through restricting its ability to develop ballistic and cruise missiles and other conventional military equipment. Furthermore, they pressured Iran to change its domestic policies, aiming to improve its respect for human rights. Alternatively, they hoped to overthrow the ruling regime or bring about fundamental changes in Iran’s domestic and external politics through provoking civil unrest and creating divisions within the government (Sadeghi-Boroujerdi, 2012, pp. 3–4).

The diversity and correlation between the different objectives of sanctions made it difficult to assess their effectiveness in achieving the desired outcomes. The steady progress of Iran’s nuclear program has prompted the E3/EU+3 group to increase the range and intensity of sanctions. Particularly, the US and the EU aimed to hinder Iran’s progress and pressure it to change its negotiating position in the hope of resolving this nuclear dilemma. They considered sanctions to be the most potent alternative to military force, which might entail high material and human costs (Rafique and Shah, 2012, p. 15).

Accordingly, the US and the EU imposed stricter unilateral sanctions based on the assumption that it could generate changes in Iran’s nuclear policies through increasing pressure. They presumed that Iran would have to decide whether to tolerate the continued deterioration of its economy or to accede to their demands (Luers, 2012, pp. 27–29). For example, they imposed a series of sanctions after the IAEA released a report on 8 November 2011, which indicated that Tehran was making progress in expanding its program and detailed various outstanding issues related to the possible military dimensions of Iran’s nuclear activities (Amano, 2011). They resorted to unilateral sanctions, aiming to increase external pressure on Tehran, because Russia and China opposed the imposition of more United Nations Security Council (UNSC) sanctions. The restrictive measures specifically targeted Iran’s financial and energy sectors to further isolate Tehran globally (Cordesman et al., 2013, pp. 1–7).

The E3/EU+3 group succeeded in building a large coalition of nations that oppose Iran’s nuclear aspirations and activities in the Middle East. Despite the negative impact of sanctions on Iran, the senders – particularly the US and the EU – also incurred some direct or indirect costs. Additionally, these restrictive measures had adverse effects on the stability of the world’s energy market, especially after EU and US oil and gas firms stopped operating in Iran, as political risks outweighed the potential benefits (Bahgat, 2010, p. 334).

In an attempt to isolate Iran, the US and the EU resorted to pressuring other countries to impose restrictive measures. The US extraterritorially imposed unilateral sanctions on third-country banks, companies and entities dealing with Iran. Accordingly, political tensions rose between the US and other members of the E3/EU+3 group that objected to US sanctions on Iran’s Central Bank, asserting that they amounted to the imposition of a global ban on trade with Iran (Luers, 2012, pp. 45–46). For example, on 31 July 2012, the US Treasury Department announced the imposition of sanctions under the Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA) against the Bank of Kunlun, a financial institution of the state-owned China National Petroleum Corporation, for facilitating transactions worth millions of dollars for sanctioned Iranian banks (USDT, 2012). In response, China’s Foreign Ministry protested these sanctions, considering them a violation of the rules of international relations, warning that they would damage Sino-US relations (Ma, 2012).

Such disputes have reflected the different perceptions of the E3/EU+3 group regarding the goals of sanctions. While the US and the EU stated that their goal was to increase the political and economic costs of Iran pursuing its policies, Russia and China believed that the primary purpose was to constrain Iran’s ability to develop a nuclear program for military purposes. Therefore, they objected to sanctions that might harm Iran’s civilian economy and foreign commercial relations, which undermined the unity of the E3/EU+3 group, making it more difficult to implement sanctions mandated by the UNSC (Khajehpour et al., 2013b, p. 9).

The West’s sanctions strategy against Iran lacked the support of many developing countries. For instance, the 120 member states of the Non-Aligned Movement (NAM) affirmed their support for Tehran’s nuclear program and criticized unilateral sanctions adopted by the US and the EU against Iran at the end of their 16th summit that was held in Tehran in August 2012 (NAM, 2012). This reflected their unwillingness to assist the E3/EU+3 group in isolating Tehran while pressing Iran to abide by the relevant UNSC resolutions and IAEA requirements. Iran portrayed this declaration as a diplomatic victory for its nuclear program (Albright and Stricker, 2012). Moreover, some developing countries that were non-permanent members of the UNSC abstained or voted against the adoption of resolutions imposing sanctions on Iran. For example, Brazil and Turkey voted against UNSC Resolution 1929 of 9 June 2010, as they believed further sanctions would be ineffective. They viewed this resolution as a failure of diplomacy because it ran against their efforts to build confidence between the negotiating parties (UNDPI, 2010). Brazil and Turkey negotiated with Iran and signed the Tehran Declaration of 17 May 2010, aiming to provide nuclear fuel to the Tehran Nuclear Research Reactor through a fuel swap deal. However, the E3/EU+3 group dismissed the declaration as an alternative to the IAEA October 2009 fuel swap proposal. They voiced their concerns, stating that the Tehran Declaration did not address Iran’s production or retention of 19.75% enriched uranium. As Iran’s stockpile of low-enriched uranium (LEU) increased from 1,500 kg in October 2009 to 2,500 kg in May 2010, they believed that the removal of 1,200 kg of LEU would still leave Tehran substantial amounts, decreasing the confidence-building value of the original IAEA proposal (Reuters, 2010).

Despite attempts by other states to bust the sanctions against Iran and compel the US and the EU to backpedal, they were unsuccessful due to the level of cooperation and coordination between the Western countries. However, the economies of the E3/EU+3 group members incurred direct economic losses in addition to other opportunity costs for trade that were foregone. The EU’s sanctions against Iran have hampered trade flows between the two trading partners in almost all sectors, except for the primary ones. The impact of these sanctions on the EU’s total imports from Iran was more than four times stronger than its total exports to Iran. Targeted sanctions have also tried to prevent Iran’s military and intelligence sectors from retrieving technologically advanced goods from the EU (Ghodsi and Karamelikli, 2021, pp. 20–24). Even though sanctions might have succeeded in increasing international pressure, they indirectly contributed to the creation of new foreign trade opportunities for Iran (Fathollah-Nejad, 2014, pp. 55–56). Taking into account that the EU was Iran’s first trading partner before sanctions, such restrictive measures have pushed Tehran to pivot away from Europe.

Iran began to explore new avenues of cooperation in Asia – particularly China and India. As Western companies exited the Iranian market due to sanctions, China replaced the EU as Iran’s largest trading partner by 2007 (Harold and Nader, 2012, p. 5). Sanctions had a significant negative effect on bilateral trade between Iran and the EU (by an average of 46.9%), while it had a positive impact on trade between Iran and other Asian countries (by an average of 85.2%) during the period from 2006 to 2013 (Popova and Rasoulinezhad, 2016, p. 1). Additionally, the EU’s exports to Iran dropped from 13 bn euros in 2005 (1.2% of exports to all EU partners) to 6.5 bn euros in 2015 (0.4% of exports). The total trade volume between the EU and Iran decreased from 24.5 bn euros in 2005 to 7.7 bn euros in 2015 (European Commission’s DG for Trade, 2016, p. 3). The financial penalties and other restrictive measures – especially the partial oil embargo – discouraged Western corporations from investing in Iran. Accordingly, some US and EU energy companies wound down their involvement or pulled out of Iranian oil and gas markets to avoid being subject to US sanctions. Iranian and non-Western – Indian, Chinese, Turkish and Russian – energy firms, with the support of their governments, were more willing to ignore these sanctions (O’Sullivan, 2010, pp. 13–15).

As Iran has the world’s fourth-largest oil reserves (9.3% of the world’s total), escalating tensions between Iran and Western countries have occasionally led to international oil price fluctuations (OPEC, 2012, p. 22). Disputes over Iran’s nuclear program led to increased prices in anticipation of supply disruptions. In February 2006, after the Iranian government announced it would cease all cooperation with the IAEA, oil prices continued to rise from 55.70 USD per barrel until they peaked at 147.30 USD per barrel in July 2008, when they began to go down due to the global recession. In February 2012, oil prices reached over 120 USD per barrel after the EU adopted an unprecedented oil embargo against Iran in January (Isidore, 2006; Bolton, 2021, pp. 9–17). In 2012, Iran threatened to block the passage of Gulf oil tankers through the Strait of Hormuz. Such threats did not result in a significant increase in oil prices due to the decline of Iran’s share in the global oil market, the rise of US oil production and the ability of some Arab Gulf states to adjust their oil production. Additionally, Iran did not follow through on threats to block the Strait of Hormuz due to its own heavy reliance on it and US warnings of a possible military confrontation if this strategic waterway was closed (Bumiller et al., 2012).

Moreover, EU and US sanctions had detrimental effects on Iran’s share in the global natural gas market. Such measures have constrained Iran’s ability to meet the growing demand for natural gas worldwide. Western companies withdrew or scaled back their involvement in Iran’s natural gas production projects. Meanwhile, Chinese, Russian and Indian state-owned corporations – such as SinoPec, Gazprom and OVL – signed deals for natural gas projects. However, progress has been slow in achieving any development, and in some cases, these corporations have decided to pull out altogether (Carter, 2014).

Consequently, EU and US sanctions have profoundly affected Iran’s oil and gas industries. These penalties prevented Iran from obtaining the foreign investments and modern technology needed to develop its ability to export natural gas. However, such sanctions have also entailed costs for the Western countries due to fluctuating oil prices. Since EU and US companies were forced to exit the Iranian energy market, they had to develop alternative oil and gas fields that were more costly and of a lesser quality (Behboudi et al., 2014, p. 74). Accordingly, sanctions had temporary adverse consequences on the stability of the global energy market and a negative impact on the investments of Western corporations.

Accurately assessing the economic and noneconomic impact of the severe sanctions regime on Iran is a subject of debate. Expert views have differed due to the difficulty of assessing the direct effects of sanctions separately from the damage caused by other internal and external factors affecting the Iranian economy. Despite the diversity of types and objectives of sanctions on Iran, it mainly targeted the vital energy and financial sectors. These measures had negative repercussions on most aspects of the Iranian economy and by extension, had a humanitarian cost. However, sanctions have not dissuaded Iran from pursuing its nuclear program (Khajehpour et al., 2013a, pp. 82–85). The following section attempts to assess the various effects of sanctions on Iran’s economic sector, the resulting humanitarian cost, the political and military repercussions and their impact on Iran’s nuclear program.

Several macroeconomic indicators have demonstrated the negative impact of sanctions on Iran – particularly in 2012 after the imposition of strict EU and US sanctions that targeted Iran’s financial and energy sectors. This policy coordination between the US and its allies demonstrated that many countries might cooperate in imposing sanctions on a target country if the leading sanctioning country were a dominant state. As a result of sanctions, the poverty rate reached 8% and the Iranian economy shrank by 6.6% in 2012 and a further 1.9% in 2013 (Iran Primer, 2015). Iran’s gross domestic product (GDP) also contracted by 9% between March 2012 and March 2014, and again in March 2015; it became 15–20% smaller than what it would have been had it remained on its pre-2012 growth trajectory (Lew, 2015). Iran’s general unemployment rate in 2012 and 2013 increased to more than 17% for the national average and nearly 27% for youth (Harris, 2013).

The remainder of this section considers the implications of these sanctions on the various aspects of the Iranian economy, particularly the seemingly intertwined energy and financial sectors.

Sanctions on Iran’s energy sector have undermined its ability to profit from the production, sale, and transportation of its oil and natural gas. The EU and the US targeted this sector specifically, since Iran’s oil exports represented about 80% of its foreign exchange earnings, 25% of its GDP and around 65% of its state budget revenues in 2008 and 2009. The oil export ban led to a 55% decline in Iran’s oil exports from approximately 2.5 m barrels per day in 2011 to 1.1 m barrels per day in January 2014, when the Joint Plan of Action (JPA) – an interim agreement setting out an approach towards reaching a long-term comprehensive solution – entered into force. This decline forced the Iranian government to cut its budget after oil export revenues dropped by about five billion USD per month. Additionally, Iran’s importance as a global energy player declined. As sanctions reduced Iran’s oil exports over time, international energy supplies and prices became less susceptible to sudden shocks that might be caused by Iran’s threats to halt oil exports (Behboudi et al., 2014, pp. 67–68). Additionally, Iran’s economic cooperation with other countries worldwide was negatively affected. In 2012, once sanctions were imposed, China continually reduced its reliance on Iranian oil and natural gas to not be denied access to the US financial sector, and its investments in Iran declined by nearly 87% and their bilateral trade dropped by 18%, despite mutual interest in developing a robust partnership economically, politically and militarily (Keck, 2013; Harold and Nader, 2012, pp. 1–2).

Furthermore, sanctions restricted access to oil sale revenues due to freezing more than 100 bn USD in foreign banks. However, the relevant US and EU sanctions’ regulations allowed Iran to use these revenues to buy other goods from the importing countries or to buy only humanitarian goods from any third party worldwide. They aimed to limit Iran’s ability to transport oil and other commodities. Their sanctions banned companies from providing insurance or reinsurance services to oil firms and tankers operating in Iran. The sanctions regulations also imposed severe restrictions on the supply of ships or other services related to Iran’s shipping and shipbuilding industries. Finally, they targeted investments in Iran’s oil and gas production, preventing foreign firms from providing Iran with the necessary equipment and technology to develop its oil and gas production facilities, limiting Iran’s ability to modernize its energy sector (Cohen, 2012).

US and EU sanctions on Iran’s financial sector have effectively isolated its financial institutions, including the Central Bank of Iran, from the global financial system. These measures have weakened this sector and impacted Iran’s economic growth. The most prominent financial punitive measures included imposing sanctions on all major Iranian banks and, thereby, creating an environment in which banks, insurance companies and money transfer businesses worldwide practiced self-scrutiny when dealing with Iran, fearing sanctions.

The US imposed more financial sanctions to prevent sanctions-busting and money laundering practices. These measures were adopted in light of the various methods used by Iranian financial institutions to evade restrictions, such as using non-sanctioned banks to conduct transactions for sanctioned banks or using money exchange companies and commercial firms to conceal the purposes of transactions. Furthermore, these punitive measures have forced foreign financial corporations to choose between dealing with the US or these Iranian banks. In March 2012, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) – a consortium based in Belgium and subject to EU laws – decided to expel Iranian financial institutions from its network. This unprecedented step constrained Iran’s ability to conduct international business by cutting off communications services with major banking centers worldwide. Thus, Iran was forced to search for alternative ways to transfer funds internationally, such as through Hawala. Additionally, it became more difficult for Tehran to import essential products because it was unable to conduct transactions (Gladstone and Castle, 2012).

In November 2008, the US Treasury Department revoked a U-turn license used to conduct US-dollar financial transactions to or from Iran or for the direct or indirect benefit of persons in Iran or the Government of Iran (correspondent banking services) (USDT, 2008). This decision halted Iran’s ability to deal with the global oil market as it banned Iranian banks from making any US-dollar money transfers (Levitt, 2010, p. 124). Additionally, in November 2011, the US designated the entire Iranian financial sector as a jurisdiction of primary concern for money laundering under Section 311 of the Patriot Act (US Congress, 2001). The US Treasury Department specifically targeted Iran’s Central Bank as the only bank authorized to receive oil sales payments, which they accused of being involved in illegal financial activities to conceal such payments, including transferring funds to other Iranian banks subject to sanctions. Furthermore, CISADA gave the US Treasury Department the authority to request that US banks end correspondent relationships with foreign banks involved in financial transactions with sanctioned Iranian banks. Consequently, most foreign banks terminated their correspondent relationships with Iranian banks to ensure their continued ability to conduct financial transactions in US dollars (Macaluso, 2014, pp. 11–12). Private financial institutions prohibited any transactions related to Iranian clients or bank accounts and tried to avoid high regulatory costs, which would damage their reputation if it were revealed that they facilitated illegal financial transactions with Iran. Iran was unable to recover more than 100 bn USD of frozen money locked up in foreign banks and lost more than 160 bn USD in potential oil revenues from early 2012 until mid-2015. The Iranian rial lost roughly 56% of its value against the US dollar between January 2012 and January 2014, which led to a rise in Iran’s annual inflation rates between 40 and 60% in 2012 and 2013 (Gladstone, 2012) – before the implementation of the JPA, in which Iran agreed to voluntarily freeze sensitive nuclear activities for a short term in exchange for the suspension of some economic sanctions (E3/EU+3 and Iran, 2013).

US sanctions negatively affected Iran’s civil aviation sector and auto industry. They made it more difficult for Iran to import new aircraft or spare parts for its civilian fleet. This caused delays in necessary repairs and upgrades for Iran’s civilian airplanes, as many of them were US-made. The increase in aviation accidents damaged the safety record of Iran’s airlines. However, it was not clear how many of these crashes, if any, were due precisely to the difficulty in importing US spare parts. Iran’s auto industry shrank by around 40% between 2011 and 2013, which had a detrimental effect on one of the main pillars of the economy (Erdbrink, 2012, 2013).

Hence, sanctions had significant negative consequences on various aspects of the Iranian economy. The EU and US sanctions targeting the financial and energy sectors were costlier for Iran than the multilateral sanctions imposed by the UNSC. Even though the EU and the US imposed these measures unilaterally, many other countries – especially US allies and some Middle Eastern countries – significantly reduced their imports of Iranian oil and restricted their commercial relations with Tehran. Additionally, sanctions have succeeded in specifically targeting the financial and energy sectors because of their critical importance. These punitive measures have thus exploited some of the weaknesses of Iran’s economy, such as its heavy dependence on oil exports and gasoline imports. Resultantly, the sanctions had both direct and indirect effects on Iran’s various economic activities as they pushed many foreign companies to withdraw their investments. It also pressured many banks and financial institutions to completely stop their financial dealings with Iran to avoid sanctions. Thus, some argued that despite the targeted nature of some sanctions, their harmful effects on ordinary citizens were more significant than their effects on Iran’s political leadership, which will be further explored in the following section (Khajehpour et al., 2013b, pp. 3–4).

US and EU sanctions on Iran had a detrimental humanitarian impact on the Iranian people. The EU and other allied countries were pressured to align their policies with those of the US. Accordingly, these countries imposed restrictions on Iran to avoid being subject to US sanctions. Even though the relevant US and EU regulations exempted humanitarian exports – such as food, medicine and other humanitarian supplies – to Iran from sanctions, reports indicate that the measures nevertheless caused much suffering for ordinary citizens. This humanitarian issue resulted from the harmful impact of sanctions on economic activities in Iran. Many companies and banks were unwilling to enter into financial and commercial transactions with Tehran – regardless of the goods or services being exchanged – to avoid being subject to sanctions if they were accused of non-compliance with US laws (Moret, 2015, pp. 125–127).

Within this punitive framework, it became more difficult for citizens and organizations to make donations for humanitarian purposes. Even though personal donations to individual Iranians were permitted, it was impossible to provide such donations to organizations operating in Iran. Since such humanitarian agencies had to deal with the Iranian banking system, they were required to get a special license from the US Treasury Department, which presented its own difficulties. Consequently, reports indicated that many Iranian civilians were victims of malnutrition and disease due to the shortage of essential humanitarian needs, particularly during periods of natural disasters or other crises (Kokabisaghi, 2018, p. 374).

The Iranian government has invested a lot of political and economic capital in mobilizing internal and external support for what it perceives as its right to possess the complete nuclear fuel cycle and developing nuclear technology for peaceful purposes. Iranian negotiators were committed to preserving its nuclear capabilities and achievements, despite the high cost of sanctions (Milani, 2013). They were unwilling to make significant concessions and accept some of the proposals by the E3/EU+3 group. This was evident in the rhetoric of officials in which they advocated the rejection of what they perceived as unfair demands, foreign interference and an attempt to assert Western hegemony (Wright and Sadjadpour, 2014). Iran continued to develop its nuclear program sending a strong political signal to the E3/EU+3 group regarding the ineffectiveness of sanctions (Macaluso, 2014, pp. 13–14).

The economic impact of sanctions negatively affected popular support for the Iranian government due to its repercussions on the Iranian people. This was reflected in the statements of Iranian leaders – even from the conservative circles – who gradually admitted the dire state of the economy and its consequences for ordinary citizens. Although there were no public criticisms of Iran’s Supreme Leader, Ayatollah Ali Khamenei, some signs of discontent emerged among the senior ranks of the ruling regime. In August 2012, a group of former Iranian ministers sent a letter to the Supreme Leader calling on him to strip Iranian President Mahmoud Ahmadinejad of his powers and hand over the reins of executive power to a council. In order to counter the prospects of a serious break in the ranks of the ruling elite, religious leaders emphasized the imperative of tolerating the hardships inflicted by sanctions. They regarded the punitive measures as an economic war that required maintaining unity and following the Supreme Leader unreservedly (Sadeghi-Boroujerdi, 2012, pp. 19–20).

Despite the Iranian regime’s attempts to rally the people by blaming the West for the economic suffering, some reports indicated that some groups were heaping blame on the government’s incompetence in managing the crisis in a diplomatic and pragmatic manner to avoid sanctions. The reduction of government spending on social welfare and public services increased discontent. Reportedly, this public disapproval has resulted in an increase in widespread protests and demonstrations – particularly during the period from 2009 to 2012 – against the government of President Ahmadinejad, a hardliner who was unwilling to compromise on Iran’s nuclear program. On 12 June 2009, the Green Movement protests erupted in several major cities following the announcement that President Ahmadinejad had won a second term despite allegations of fraud and electoral irregularities. Reports indicate that these protests lasted for approximately six months until the beginning of 2010, and at their peak witnessed the participation of nearly three million people (Iran Primer, 2020). Several cities also witnessed a series of demonstrations from February 2011 to February 2012 protesting the deteriorating economic situation, which was exacerbated after the US and the EU imposed severe unilateral sanctions on Iran (Nasseri, 2012).

Accordingly, some reports figured that the difficult economic situation in Iran has contributed to the election of President Rouhani, who promised to follow more moderate and reformist domestic and external policy agendas. During the 2013 presidential election in Iran, President Rouhani pledged to peacefully resolve the nuclear dilemma by concluding a deal with the E3/EU+3 group that would lift international sanctions while preserving the components of Tehran’s nuclear program (Shanahan, 2015, pp. 1–4).

Several of the sanctions on Iran targeted its military to limit its ability to develop its capabilities. Sanctions banned the export of advanced conventional weapons or spare parts to Iran and prohibited the provision of maintenance services that were essential to the modernization of its defensive and offensive weapon systems. For example, in compliance with UNSC resolution 1929 of 9 June 2010, which banned the export of heavy conventional weapons to Iran (UNSC, 2010), in September 2010, Russia suspended a contract worth 800 m USD to supply Iran with five battalions of the advanced S-300 air-defence missile systems (Kramer, 2010). In compliance with the relevant UNSC resolutions, China also had to reduce its military cooperation with Tehran in order to avoid possible negative repercussions of such cooperation on Beijing’s economic relations with the US and the EU (Holmquist and Englund, 2020, pp. 24–25).

Considering Tehran’s heavy dependence on Russian and Chinese assistance to develop its military capabilities, the US, the EU, and their allies were more cooperative in imposing military sanctions on Iran since it was viewed as a member of an anti-Western bloc. The ban on heavy weapons sales to Tehran has led to a regional military imbalance increasingly unfavorable to Iran, especially at a time when its neighbors were receiving Western assistance in upgrading their militaries. In light of these restrictions and to deter further foreign interference, Iran developed its ballistic missile systems and adopted unconventional defence strategies relying more on asymmetric warfare tactics than conventional forces (Cordesman and Al-Rodhan, 2006, pp. 7–9).

Even though Iran’s total military expenditures consistently rose from approximately 11 bn USD in 2011 to 15.7 bn USD in 2014 (Isaac, 2016, pp. 80–81), statistics show that from 2013 to 2015, due to the negative economic consequences of sanctions, the total average amount of annual reduction in Iran’s military spending was estimated to be approximately nine billion USD from 2013 to 2015 (Farzanegan, 2021, p. 10).

The main objective of imposing economic sanctions on Tehran was to constrain its development of sensitive technologies supporting its nuclear and missile programs. These measures aimed to persuade Iran to change its negotiating position through raising the cost of challenging UNSC resolutions and IAEA requirements (UNDPI, 2008). The UNSC resolutions highlighted international concerns about Iran’s nuclear ambitions while providing a platform for its permanent members to coordinate their policies and demands toward Iran and giving the US and the EU legitimacy to impose additional unilateral sanctions on Iran. Despite Iran’s noncompliance, the relevant UNSC resolutions – starting from Resolution 1696 of 31 July 2006 – demanded the suspension of all its nuclear enrichment-related and reprocessing activities (UNSC, 2006). Additionally, these resolutions imposed restrictions on dozens of Iranian individuals, companies, government agencies and other entities – including some major Iranian state-owned banks – because of their involvement in developing Iran’s nuclear and ballistic missile programs.

These targeted sanctions have reportedly slowed Iran’s efforts to expand its nuclear program by limiting its ability to obtain the necessary materials for development. Arguably, these restrictive measures limited Iran’s ability to import essential equipment and dual-use materials that could have enabled it to develop military nuclear capabilities (Albright et al., 2012, p. 3). However, some reports from the IAEA and foreign intelligence agencies indicated that Iran continued to make steady progress throughout the years, despite the constraints imposed by the relevant sanctions. Tehran was able to develop its domestic nuclear capabilities, increasing the number of its centrifuges to more than 20,000 devices by the time the JCPOA was signed in July 2015. Furthermore, Iran’s stockpile of low-enriched uranium (uranium-235 concentrated to 3.5–5%) reached more than 10,000 kg, and its stockpile of highly enriched uranium (uranium-235 concentrated to 20%) was about 450 kg. Since 2002, Iran has succeeded in establishing and operating more nuclear facilities located throughout the country, with the aim of possessing all stages of the nuclear fuel cycle (Amano, 2015).

It can be argued that, to some extent, sanctions might have constrained Iran’s ability to import components and equipment needed to develop its capabilities, impeding the progress of uranium enrichment and centrifuge manufacture. Additionally, the oversight activities by IAEA inspectors might have made it difficult for Iranian nuclear experts to use dual-use materials to develop military nuclear capabilities – if there was intention to do so. However, sanctions have failed to achieve their primary objective of changing Iran’s policies and negotiating position on possession of the complete nuclear fuel cycle (Rafique and Shah, 2012, p. 20).

Despite the negative repercussions of sanctions, Iran has not complied with the relevant UNSC resolutions and IAEA requirements concerning its uranium enrichment activities. Iran continued its nuclear activities, steadily succeeding in stockpiling large amounts of low and highly enriched uranium. It also manufactured and installed a large number of first- and second-generation centrifuges for uranium enrichment. Accordingly, the impact of sanctions was limited (Clapper, 2013, p. 7).

The limited impact of sanctions on the development of Iran’s nuclear program can – partially – be attributed to Tehran’s adoption of a national self-reliance strategy to reduce foreign influence. Iran realized the importance of possessing a complete domestic nuclear fuel cycle after the West’s withdrawal from nuclear agreements previously signed with the Shah following the 1979 Iranian Revolution. Tehran proceeded with efforts to reach self-sufficiency to complete billions of dollars’ worth of unfinished nuclear projects and to ensure that it would have adequate supplies of fuel for its nuclear reactors (Mousavian, 2012, p. 10).

In conclusion, the adverse effects of Iran’s sanctions regime imposed, which included financial penalties and trade restrictions, were more severe and costly on Tehran than on the E3/EU+3 group members. Iran incurred substantial economic and humanitarian consequences in addition to political and military costs due to the severe unilateral and multilateral sanctions.

The US succeeded in imposing a more comprehensive sanctions regime by employing the global reach of its foreign policy tools, especially in financial regulation and trade controls. The EU also gave extra weight to the US’s punitive measures by adopting additional sanctions, given their commercial relations with Iran. This reflected their conviction that unilateral sanctions were more effective in pressuring Iran to make concessions, despite their adverse effects on entities not directly involved in Iran’s nuclear policies.

The unilateral US and EU sanctions played a significant role in pressuring Iran due to the more comprehensive impact of these measures than that of the UN multilateral sanctions, which only served to legitimate US and EU sanctions, as evidenced by Iran’s demands to lift trade restrictions and allow access to frozen funds in foreign banks.

This paper opens the debate for further research on the relationship between international sanctions and multilateral negotiations in similar cases. It also paves the way for more research regarding the future developments of Iran’s nuclear dilemma, particularly under the administration of US President Donald Trump, who announced on 8 May 2018 the withdrawal of the US from the JCPOA.