As has been noted on Global Geopolitics several times, third-world economies have no bottom. They will always find another needy country to sell oil to — and there are plenty. They will always find another bank to clear payments with — and there are plenty. They will always find another currency and country to exchange goods and services with — and there are plenty countries dumping the US Dollar.
Although many, including in the media, have interpreted Iran’s economic woes as proof that economic sanctions are at last “working,” there are reasons to believe that the economic disaster inside Iran has little, if anything, to do with the sanctions, and — more generally — that sanctions cannot possibly “work” against Iran. The collapse of the Iranian currency is largely the byproduct of internal Iranian economic policy.
Economic sanctions are not the cause of the collapse of the Iranian rial. Economic sanctions never “work.”Rhodesia held out many years even with near universal sanctions against it. Sanctions can have some symbolic value and demoralize the targeted populations. But even nations seemingly subjected to the harshest sanctions — Rhodesia, South Africa, North Korea, Cuba — managed to function and trade in world markets quite well in spite of them. In Cuba and North Korea, their domestic poverty and misery are produced by rigid central planning more than by any sanctions.
Economic sanctions are more symbolic manifestations of anger or moral indignation than effective weapons of state. While economic sanctions have been used by various states for centuries, they have rarely, if ever, achieved much. They failed to change the behavior of Serbia, they failed to force Iraq out of Kuwait and they failed to mend human rights abuses in China. Any limited effectiveness economic sanctions have is usually when they accompany actual armed warfare, not when they substitute for warfare – for example, as in the sanctions that accompanied the two world wars and the Napoleonic campaigns.
Some of the “sanctions” against Iran were clearly pointless and ineffective. For example, the US and Western allies announced in January 2012 that Iran was being cut off from international payments and bank settlements systems, which are used to clear electronic payments and checks. More recently there have been calls to evict Iran from the payments clearing system for Euros (“Targeting Tehran’s Euros,” Wall Street Journal, February 18, 2013.) All Iran needed to do, however, to continue to participate in the world payments system was to find a single “correspondent” or representative bank willing to clear payments for the country, to accept payments coming in and use the proceeds to pay Iranian bills. To do this, it was not even necessary to choose from among the many banks from Islamic countries. There have been reports that the giant British bank HSBC has been providing Iran with correspondence services, and Russia also appears to have been providing clearing services. In other cases, the sanctions almost appear to be designed to solicit chuckles, such as those imposed by the UN in 2010 directed only against eight individual Iranian officials.
The most important reason for skepticism about the role of “sanctions” in the collapse of the rial, however, is the evidence that internal economic policy and regime incompetence in printing money and thereby devaluing was what produced the mess.
Full article: The Collapse of Iran’s Rial (Gatestone Institute)