Since Mahmoud Ahmadinejad first became President of Iran, in August 2005, the country's economy has gone from bad to worse. As Steve 'hyperinflation' Hanke noted recently, the Iranian economy has, for decades, been cobbled together by religious-bureaucratic regimes that have employed mandates, regulations, price controls, subsidies, a great deal of red tape, and a wide variety of other interventionist devices, in an attempt to achieve their goals. It's all been kept afloat - barely afloat - by oil revenues. Shortly after Ahmadinejad took power, Iran began to draw the ire of the United States and its allies over a number of issues related to its nuclear ambitions and this 'loose' coalition of allies has ratcheted up economic sanctions. These sanctions are starting to have very significant impacts. From the Rial's greater-than-50% plunge to estimated inflation rates over 70%, the country's 'Misery Index', as noted in Bloomberg's Chart-of-the-day, has surged massively in recent months. For context, Iran's Misery score of 106 currently compares to Egypt's pre-Arab Spring Misery score of around 40! Whether the sanctions' "bite" will cause the regime to dig their heels in more and/or force the people to openly revolt (or turn ther anger on the sanction-enforcing aggressor?), it truly is no fun in Iran.
Hanke - "Even if sanctions have a massive impact on the economy, they tend to paradoxically do what they are intended not to do, the highest probability scenario in terms of interpreting the misery index in a case where you have sanctions is that as the misery index goes up the regime gets stronger and digs in."
The Chronology of Sanction against Iran:
There is no question that the sanctions the "allies" are imposing on Iran are starting to bite, and bite pretty hard. But, will this coercion win the "war?" Probably not. Prof. John Mearsheimer, in his masterpiece, The Tragedy of Great Power Politics, provides more than ample evidence to show that naval blockades and strategic bombing (and I would add financial sanctions) rarely produce their desired results. As Prof. Mearsheimer concludes:
"...the populations of modern states can absorb great amounts of pain without rising up against their governments. There is not a single case in the historical record in which either a blockade or a strategic bombing campaign designed to punish an enemy's population caused significant public protests against the target government. If anything, it appears that 'punishment generates more public anger against the attacker than against the target government.'"
Even though the sanctions are causing untold misery in Iran, history suggests that a good dose of skepticism about whether the Iranians will comply with the demands of the "allies" is in order — as Prof. Mearsheimer writes:
"...governing elites are rarely moved to quit a war because their populations are being brutalized. In fact, one could argue that the more punishment that a populations suffers, the more difficult it is for the leaders to quit the war. The basis of this claim, which seems counterintuitive, is that bloody defeat greatly increases the likelihood that after the war is over the people will seek revenge against the leaders who led them down the road to destruction. Thus, those leaders have a powerful incentive to ignore the pain being inflicted on their population and fight to the finish in the hope that they can pull out a victory and save their own skin."
So, in one sense, the sanctions are working; they are imposing a great deal of misery on Iranians. But, in another sense, they will probably fail — fail to force the mullahs to comply. Perhaps that's why Russia's wily foreign minister, Sergey V. Lavrov confidently stated that "Russia is fundamentally against [adopting even more sanctions], since for resolving problems, you have to engage the countries you are having issues with, and not isolate them."