Iran's Shift Is More Than Political

06/26/2013 7:00 am EST

Focus: GLOBAL

There has been a major shift in Iranian politics of late, and it is entirely down to the efficacy of economic sanctions, writes James Doran of The National.

Not many people believe economic sanctions work, and they often use Iran as a prime example.

There is a common argument against the efficacy of such restrictions and it goes like this: In restricting trade, the effect of economic sanctions is felt most on the street, where the price of consumer goods goes through the roof, leading to rampant inflation and general misery for the people who cannot afford to put food on the table or clothe their children.

The argument continues that the political elite in such countries against which sanctions are levied, such as Iran, care little enough for their people and continue to focus on whatever policy or behavior that prompted the sanctions in the first place. In the case of Iran, of course, this means the continued pursuit of an alleged nuclear weapons program.

In that Iran has made no moves to dampen the international community's belief that it is indeed working on nuclear weapons, the anti-sanctions brigade are right. Sanctions do not appear to have worked.

There has been a major shift in Iranian politics of late, however, and I believe it is entirely down to the efficacy of economic sanctions.

The change I refer to is not the election of Hassan Rowhani, the Shiite cleric who won the presidential elections last week in a landslide on a promise of great social, economic and diplomatic change. Rowhani's victory, I believe, is in fact a product of a much earlier and much more important shift that came about as a direct result of economic sanctions.

In July last year, it was revealed that HSBC (HBC) had been facilitating certain financial transactions between foreign entities and Iran. It was also accused of allowing Mexican druglords to use its services and all sorts of other nefarious deeds.

But it was the Iranian trade finance that got HSBC in real hot water. The bank was fined almost $2 billion for its failure to police clear violations of money-laundering laws and US sanctions.

No one has accused HSBC of deliberately helping Iran or actively helping Mexican druglords. No, they were accused of turning a blind eye in a very big way. Such a big way that many Tehran-watchers believe it was blocking this conduit for Iranian trade and the big slap on the wrist to ensure it would never reopen that marked a turning point in the way sanctions are felt in Iran.

One such expert I spoke to this week told me that this money-laundering activity was in fact a major avenue for Iranian currency trade, without which the regime itself had little room to maneuver on international markets.

"This wasn't just hurting ordinary people," he said. "The regime actually felt this one. This was a backdoor to the markets for them, and it had been slammed shut."

And so it was almost a year ago, perhaps, when the idea of presenting a softer image to the West became a necessity. And it was a direct result of imposing economic sanctions, and then setting loose a watchdog with teeth to bite those in the West who sought to breach them.

The pressure was ratcheted up further still earlier this month, as President Barack Obama imposed tighter sanctions on foreign financial companies that trade or help others to trade in the Iranian rial.

The currency has already lost two-thirds of its value since sanctions were tightened in 2011, and faces further declines against the dollar after this latest move, which comes into effect next month. If the currency continues in this vein, it will be useless for buying anything on international markets, whether potatoes or plutonium.

It remains to be seen whether Rowhani is the reformer he promises to be. He is, after all, a Shiite cleric and very close to the supreme leader, Ayatollah Ali Khamenei. The president of Iran also has little or no involvement in the nuclear program. Decisions on that are left to the Ayatollah and the military.

What is certain is that Iran has signaled it would like to return to the days when its people prospered as fully paid-up members of the global economy. Many people believe that the election of Rowhani is all a part of that process.

But I do not believe this was a miracle at the ballot box, and that the people of Iran have triumphed over their oppressive leaders.

I would agree with the naysayers that sanctions against Iran have not worked. But in an important distinction from that crowd. I would add "yet."

I think the strict economic measures are working and working well, which should give us all hope that perhaps one day we will be able to declare that sanctions have achieved what they were designed to do.

Read more from The National here...

Related Articles on GLOBAL