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Examining the Effects of Economic Sanctions on Iran

September 21, 2010 at 12:00 AM EDT

JIM LEHRER: Now:Economic sanctions on Iran, are they hurting or are they working? Margaret Warner has our story.

MARGARET WARNER: Iran’s president, Mahmoud Ahmadinejad, arrived in New York this week for the annual U.N. General Assembly meeting, reveling in his role as nemesis of the West.

At a U.N. poverty summit this morning, he assailed capitalism and the current international political and financial order.

MAHMOUD AHMADINEJAD, Iranian President (through translator):The undemocratic and unjust governance structures of the decision-making bodies regarding international economic and political issues are the roots of the problems humanity is confronting today.The demands of liberal capitalism and multinational corporations have caused the suffering of countless women, men and children in so many countries.

MARGARET WARNER: What he didn’t mention was that sanctions imposed by that same international order aimed at Iran’s nuclear program are beginning to bite at home.

Last June, the U.N. Security Council adopted its toughest set yet.And the U.S., European Union, Australia, Japan, South Korea, and Norway followed up with specific measures of their own.

The number-one target?Hog-tie Iran’s access to the global financial system, especially major banks.U.S. Treasury Undersecretary Stuart Levey heads the department’s Terrorism and Financial Intelligence unit.He’s been working for six years on designing and enforcing sanctions that hurt.

STUART LEVEY, Undersecretary for Terrorism and Financial Intelligence:They’re having a dramatic impact.I think that the U.N. Security Council resolution was underestimated.It was underestimated by Iran, and it was underestimated by lots of people in the international community.

But there are provisions in the resolution, particularly the financial provisions, which say things like, you can’t provide any financial services, meaning banking, insurance, re-insurance, to Iran if you have reason to believe that those services could — and I underscore could — assist Iran’s nuclear missile firms.

And the implementation of those provisions of the financial — of the Security Council resolution has been very powerful, and I think has caught the Iranians off guard and has been more powerful than people expected.

MARGARET WARNER: So, financing is really at the heart of this, their access to the international financial system?

STUART LEVEY: It’s one of the key pieces of it.And the reason it is, is because Iran had been abusing the international financial system for years.

MARGARET WARNER: Independent news accounts confirm European banks have joined the U.S. in freezing assets of targeted Iranian companies and individuals and in denying them access to credit or transactions.

Major international firms, including Toyota and Lloyd’s of London, have announced they’re curtailing their business with Iran.Iran’s major national shipping company, vital to its oil industry, is having difficulty getting insurance.The oil industry is finding it hard to purchase needed equipment.And Tehran is having trouble importing refined petroleum products like gasoline.

All of this comes as Iran is struggling with rising unemployment, officially pegged at 14 percent, and inflation of at least 9 percent.Last week, former Iranian President Ali Akbar Hashemi Rafsanjani, a longtime rival of Ahmadinejad, warned the country’s leaders about the mounting burden.

He said: “We have never been face with so many sanctions.I would like to ask you and all the country’s officials to take the sanctions seriously and not as a joke.” Ahmadinejad offered this retort Sunday on ABC’s “This Week.”

MAHMOUD AHMADINEJAD (through translator):We do take sanctions seriously.But taking it seriously is different from believing that they are effective.These are two different issues.

MARGARET WARNER: That is in fact the question.As the sanctions bite harder, will it persuade the Iranian regime to negotiate limits on its suspected nuclear weapons program?So far, the world is still waiting for any evidence of that.

Just two weeks ago, the U.N.’s nuclear watchdog agency, the IAEA, reported that Iran is still denying access to international inspectors and continuing to build up its enriched uranium stockpiles.Stuart Levey says the sanctions’ aim is to change Tehran’s calculation on that.

STUART LEVEY: It’s to put before the leadership in Iran a very clear choice and make that choice even more stark.There is a path that leads towards greater isolation and even more consequences of the type that we have been talking about, or there’s a path towards integration with the international community, predicated on adhering to their international obligations.

MARGARET WARNER: Former State Department official and Iran expert Ray Takeyh of the Council on Foreign Relations thinks Washington will be waiting a long time for Tehran to choose the second path.

RAY TAKEYH, Council on Foreign Relations:This is not a normal nation state making sort of a conventional assessment based upon cost-benefit analysis.This is a country that is an ideological republic.And it has to always live up to that ideology.And that ideology is one of resistance and defiance of the West, irrespective of the price that comes with that.

Now, the question is, can the economic price get to the level where that country veers away from its ideology?At this point, that’s not the case.

MARGARET WARNER: What do you say to people who say, look, this isn’t your typical government that makes a rational calculation of cost and benefits in the national interest, that they are — actually, they like the isolation; they don’t want to engage with the West?

STUART LEVEY: I don’t believe that this regime is interested in isolation, as you say.They don’t want to be North Korea.They have had centuries of integration commercially with the outside world.They don’t view themselves as a hermit nation.And we believe that this sort of isolation that they’re experiencing now is isolation that they don’t welcome.

MARGARET WARNER: But Takeyh says Iran’s decision will be made not by its merchant class, but by an aging and powerful clerical leadership that wants to hold onto power, led by Supreme Court Ali Khamenei.

RAY TAKEYH: There’s no question about the fact that many within the Iranian elite are disturbed by the country’s isolation and loss of economic opportunities.But those in leadership, the supreme leader, the president and others, may not want to pay the ideological costs of economic benefits.

MARGARET WARNER: Levey believes the sanctions course is still worth a shot.

STUART LEVEY: I think that anyone trying to predict the way the leadership will ultimately react has to admit that it’s uncertain.No one knows for sure.

We do think that the kinds of measures that we’re — we’re imposing are leading some in Iran to think: What — what does — where does this path lead? You know, where does this path lead? We’re not able to develop our most important industry. We’re not able to create jobs for our young people. And we have a disproportionately young population. We have a serious brain drain problem. We can’t do business with legitimate financial institutions, legitimate insurance companies around the world. Where does this path lead?

MARGARET WARNER: That is a larger question for the entire world to consider.