Despite sanctions’ toll on Iran, U.S. sees no shift in nuclear behavior

Harsh economic sanctions have taken a serious toll on Iran’s economy, but U.S. and European officials acknowledge that the measures have not yet produced the kind of public unrest that could force Iranian leaders to change their nuclear policies.

Nine months after Iran was hit with the toughest restrictions in its history, the nation’s economy appears to have settled into a slow, downward glide, hemorrhaging jobs and hard currency but appearing to be in no immediate danger of collapse, Western diplomats and analysts say.

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At the same time, the hardships have not triggered significant domestic protests or produced a single concession by Iran on its nuclear program. Although weakened, Iran has resisted Western pressure through a combination of clever tactics, political repression and old-fashioned stubbornness, analysts say.

The mixed results from the sanctions complicate the West’s bargaining position ahead of the next round of nuclear talks with Iran, in early April. At the last round, in February, the United States and five other world powers offered significant new concessions to Iran in exchange for curtailment of its uranium-enrichment program, but Iran has neither accepted the proposal nor offered concessions of its own. Iran’s continuing resistance also will make it tougher for President Obama to reassure Israeli and Arab allies when he arrives in the region midweek.

The Iranian regime shows no sign of giving in. On Thursday, a powerful cleric taunted the U.S. administration, vowing that economic pressure could never force Iran to abandon its nuclear program.

“The Iranian nation is committed to resist arrogant powers, including the United States,” said Ali Saeedi, the Iranian supreme leader’s personal representative to the elite Revolutionary Guard Corps.

Obama administration officials insist that the full effect of sanctions is not yet apparent, and they say Iran’s economic pain will deepen in the coming months. Still, U.S. and European officials and diplomats acknowledge that they are waiting for clear signs that Ayatollah Ali Khamenei, the supreme leader, is willing to change course.

Marine Gen. James Mattis, head of U.S. Central Command, said Iran has accelerated its nuclear program in the past year, despite the diplomatic and economic pressure. Iran continues “enriching uranium beyond any plausible peaceful purpose” and is probably using negotiations to stall for time, Mattis told the Senate Armed Services Committee on March 5.

“I’m paid to take a rather dim view of the Iranians, frankly,” he added.

Although Iran has been under U.S. sanctions since the 1979 takeover of the U.S. Embassy in Tehran, the restrictions imposed last summer were the most significant attempt to hit its oil sector and central bank. The results surprised even the strongest advocates of sanctions: Exports of Iranian oil, Tehran’s chief source of hard currency, fell to about 1 million barrels a day a year ago from more than 2.4 million barrels. At the same time, restrictions on Iran’s main banking institutions crippled the country’s ability to conduct business transactions abroad, with consequences that have rippled across the economy.

The impact has been hardest on the middle and working classes, which have seen savings evaporate and purchasing power dry up. Yet, in recent months, Iran’s fiscal crisis appears to have eased, and economists say neither complete collapse nor widespread rioting appears likely in the near term.

“The Iranians look at sanctions in terms of popular unrest,” said Ray Takeyh, a former Obama adviser on Iran. “If there are not people on the streets, sanctions aren’t biting.”

Adjusting to sanctions

As it has in the past, Iran has proved adept at adjusting to the economic restrictions imposed by the West. Although oil sanctions have cut deeply into exports, Tehran has sold enough oil — within and outside the bounds of the sanctions — to maintain basic services and preserve the affluent lifestyles of the ruling class and business elite, analysts say.

On Thursday, the Obama administration said Iran got crucial help evading sanctions from a Greek shipping magnate who sold hundreds of millions of dollars’ worth of Iranian crude to unsuspecting customers.

U.S. officials said the Greek businessman, Dimitris Cambis, operated as Iran’s secret oil broker, transferring millions of barrels of Iranian oil into his tankers to be sold to buyers around the world. Cambis has denied participating in such a scheme.

Iran has also found legal ways to soften the bite of sanctions, using currency reserves of euros in foreign banks and arranging complex financial deals that evade the U.S. banking system.

After the most recent tightening of sanctions last month, Tehran turned those restrictions partly to its advantage, congressional officials and Iran experts said. Under the rules, countries that import Iranian oil are allowed to continue the practice as long as they paid in local goods exported to Iran, rather than in the hard currency that Tehran desperately needs. The idea is to help key allies, some of whom are dependent on Iranian oil, to continue receiving shipments of crude while boosting their own economies by forcing Iran to buy their products.

Instead, Iran has used the imported goods — such as cars and air conditioners — to counteract high inflation at home, said a congressional staffer who tracks sanctions on Iran and who spoke on the condition of anonymity to discuss sensitive intelligence on Tehran’s economic policies. The imports help Iran conserve cash, which it uses to pay salaries and subsidize consumer prices to keep popular unrest at bay, the staffer said.

Concerns among oil buyers

U.S. officials, meanwhile, have struggled to ease concerns among Iran’s oil customers, some of whom are growing increasingly frustrated with sanctions. Key allies, such as Japan and South Korea, have substantially curtailed imports of Iranian oil, but support for continued cutbacks has wavered in the absence of clear evidence that the sanctions imposed so far are changing Iran’s nuclear trajectory.

The United States has granted six-month exemptions to all 20 of Iran’s major oil buyers in return for pledges to reduce the amount they buy. Among the exempted countries are China and India, Iran’s No. 1 and No. 2 oil customers, respectively.

Iranian oil exports, though sharply down compared with 2011, increased slightly in February, according to figures released by the International Energy Agency. The agency said Iran’s exports totaled 1.28 million barrels a day in February, compared with 1.13 million barrels the month before.

A senior administration official said cheating by Iran could help explain the unexpected spike. “We look very carefully at the trends, but we would not want to read in too much to a single month,” said the official, who spoke on the condition of anonymity to discuss U.S. diplomatic strategy.

The official acknowledged that each ratcheting up of sanctions has spawned innovative attempts at evasion by Iran. But he insisted that loopholes are being closed as quickly as they are discovered.

“We have responded aggressively to Iranian evasion attempts,” the official said, “both behind the scenes and by steadfastly exposing a host of front companies and subversive business practices.”

Jason Rezaian in Tehran contributed to this report.

 
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