Iran Could Survive Sanctions

Tightening international sanctions against Iran look set to shrink its economy, push up inflation and further erode its currency, but they may fail to deliver a knock-out blow that forces Tehran to compromise on its nuclear ambitions.

Few areas of Iran’s economy now remain untouched by the sanctions. Because of payments difficulties, Iranian ships have in recent days stopped loading imports of Ukrainian grain. The United Arab Emirates has told its banks to stop financing Iran’s trade with Dubai. Iranians are finding it more difficult to obtain hard currency to travel abroad.

But the history of sanctions against other countries, and the strengths of Iran’s diverse and relatively self-reliant economy, suggest that as long as Tehran can find buyers for a large proportion of its oil, it will be able to limp along.

The pain will be felt throughout the country and could increase discontent with the government, but if President Mahmoud Ahmadinejad can cope with that political threat, there may be no overriding economic reason for him to back down.

“Iran can still scrape by,” said Gary Hufbauer, a fellow at the Peterson Institute for International Economics in the United States and a former U.S. Treasury official who has written extensively about the history of sanctions.

He ranks the measures against Iran – taken to stop what the West sees as Tehran’s nuclear ambitions – as among the toughest international sanctions of the past 50 years, but not as harsh as those once imposed on Iraq, North Korea and Cuba – countries which defied economic pressure.