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  The Alternative to War: Are Sanctions Working on Iran?

The Alternative to War Are Sanctions Working on Iran?

By SPIEGEL Staff

Part 2: Can War Be Averted?

Mostly, though, it will continue to be the small and mid-sized businesses facing the greatest difficulties. For the last two years, there have been virtually no government safeguards against non-payment by Iranian companies. In response to pressure from the US, Berlin reduced its so-called Hermes debt guarantees for exports to Iran to almost zero in the past two years.

And Iran? The country seems determined to put up with the sanctions. For one, it is making up for lost business by making deals elsewhere and it is also continuing to behave as if the international community were incapable of harming it.

In response to a recent UN increase of sanctions, Iran said it "cannot and will not accept a requirement which is legally defective and politically coercive." During a recent visit to Berlin, Iranian Deputy Foreign Minister Mehdi Safari told Europe, "please, don't lose the market. If you don't supply some of the parts, we will substitute them and it will be very hard to come back."

Tehran reportedly took steps to offset the sanctions against Bank Melli by withdrawing its assets from Europe in time. Iranian experts report that Ahmadinejad instructed bank officials to withdraw $75 billion (€48 billion) in European deposits. The Iranians are now seeking to portray the act of withdrawing the funds as a tool in their arsenal. "When you withdraw billions of dollars from European banks," says Safari, "it will, of course, lead to a scarcity of money and will affect the global economy."

Iran has long since turned to trading partners in other parts of the world. Asian countries, in particular, have had no qualms about taking over the Europeans' business. According to data supplied by Germany's Federal Office for Foreign Trade, China has almost doubled its trade volume with Iran since 2005, from $10 billion (€6.5 billion) to $18.5 billion (€11.9 billion).

Pakistan and India have also expanded their economic relations with Tehran, and trade with the Arab nations across the Persian Gulf has increased considerably. In addition, many countries in Asia and Europe, but also the United States, have managed to get around the sanctions by working with middlemen, mostly in the Gulf region.

Still, despite the blustering from Iran and the efforts to circumvent the sanctions, they are in fact working as intended in some areas. Bank Melli's exclusion from doing business in Western Europe was a "serious blow," says Tehran economist Sayyid Leilos. One of the consequences, according to Leilos, is that imports have become "more complicated and expensive" and have pushed up inflation, currently estimated to be higher than 20 percent.

Probably the best-known Iranian company seriously affected by the sanctions is the national flag carrier Iran Air, which is running out of spare parts for its aircraft. Although the airline can get the parts it needs through middlemen, if the aircraft do not undergo regular maintenance by the manufacturers or authorized special repair shops, Iran Air could lose the license issued by the International Air Transport Association (IATA). Without this license, the airline would lose its clearance to land at major international airports. Iran Air has already cut some of its routes.

The sanctions have also seen some success in the energy sector. After years of trade limitations, Iranian oil production has begun to decline. Since the 1979 revolution, oil production in Iran, which has the world's third-largest oil reserves and second-largest natural gas reserves, has declined from 6 million to 3.9 million barrels a day. A study by Johns Hopkins University concludes that if domestic demand continues to rise, Iran will no longer be able to export any oil by 2015, unless billions are quickly invested in energy production. But securing funding for such large projects has become difficult now that major Western banks are no longer permitted to do business with Iranian companies.

The development of the vast South Pars natural gas field, which Iran shares with Qatar on the other side of the Gulf, is a case in point. While the Arabs have invested billions in the development and processing of the field's gas reserves, expansion has stalled on the Iranian side. Only last month, both the British-Dutch multinational Royal Dutch/Shell and the Spanish oil and gas company Repsol pulled out of the South Pars project.

Still, although the sanctions are causing problems for Iran, the leadership in Tehran seems to have accepted them as a necessary evil and continues to refuse to be deterred from pursuing its nuclear program. This attitude has led to growing impatience in the United States and Israel, where confidence in the embargo is already weak.

In Jerusalem, the discussion has long since moved from whether a strike on Iran's nuclear facilities will take place to when it will take place. "Israel will not tolerate the possibility of a nuclear Iran," Prime Minister Ehud Olmert promised his fellow Israelis several months ago. "Israel will not stand by idly while Iran builds a nuclear bomb. If necessary, we will use force," says retired Air Force General Isaac Ben-Israel.

But when? Those "who don't want war are playing for time now," says Middle East expert Flynt Leverett -- enough time for a new president to have moved into the White House. Richard Perle, an advisor to former US Defense Secretary Donald Rumsfeld and once a staunch advocate of America flexing its military muscles, holds a similar view. Nowadays Perle sounds more resigned than confident when he writes: "Seven and a half years after denouncing Iran's nuclear weapons program, a hapless president and his coalition can only look on while the Iranians rush to the finish line."

By Dieter Bednarz, Ralf Beste, Hans Hoyng, Cordula Meyer, Wolfgang Reuter and Christoph Schult

Translated from the German by Christopher Sultan