The Rise and Fall of U.s. Secondary Sanctions: the Iran Outcasting and Re-outcasting Regime

• Jurisdiction: United States,Federal
• Citation: Vol. 50 No. 2
• Publication year: 2022

The Rise and Fall of U.S. Secondary Sanctions: The Iran Outcasting and Re-Outcasting Regime

Pardis Gheibi^*

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TABLE OF CONTENTS

I. INTRODUCTION.....................................................................................392

II. HISTORICAL CONTEXT.........................................................................394

III. THE PRE-JCPOA OUTCASTING REGIME..............................................397

A. Phase One: Unilateral U.S. Sanctions...................................397
B. Phase Two: U.N. Sanctions...................................................398
C. Phase Three: The Turning Point...........................................399

i. Sanctions Targeting Iran's Financial Sector....................401
ii. Sanctions Targeting Iran's Oil Revenue..........................404

IV. OUTCASTING ON THE GROUND: THE DOMESTIC IMPACT OF THE PRE-JCPOA SANCTIONS REGIME.........................................................407

A. Economic Impact of the U. S. Secondary Sanctions Regime.... 408
B. Tempting a Path to Reintegration..........................................411
C. Outcasting Alters Iran's Foreign Policy................................412

IV. COOPERATION IN EXCHANGE FOR REINTEGRATION.............................417

A. The Lead-Up to the JCPOA...................................................417
B. The JCPOA...........................................................................418
C. Reintegration........................................................................420

V. THE IRAN RE-OUTCASTING REGIME.....................................................421

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A. U.S. Withdrawal from the JCPOA and the Re-Imposition of U.S. Secondary Sanctions.............................................................423
B. The Iran Re-Outcasting Regime as Counter-Productive........427

i. U.S. Secondary Sanctions as Empty Threats....................427
ii. Long-Lasting Chilling Effect...........................................432
iii. Chilling Effect Following the JCPOA..............................433
iv. Re-Outcasting Amplified the Chilling Effect....................435

C. Moving Forward: the Future of the Iran Deal and Beyond....437

VI. CONCLUSION......................................................................................440

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ABSTRACT

The Joint Comprehensive Plan of Action (JCPOA) was the product of aggressive "secondary sanctions"—innovative sanctions that put economic pressure on the target state by punishing states and entities that engage in transactions with the target state. Prior to the JCPOA, the United States used secondary sanctions to "outcast" Iran—isolate it from the international community. After Iran entered into the JCPOA, these sanctions were removed as a reward for its cooperation. In May 2018, however, the United States withdrew from the JCPOA and re-imposed the secondary sanctions in order to "re-outcast" Iran. But unlike the pre-JCPOA outcasting regime, the re-outcasting regime was not imposed in response to any violation of international law by Iran; instead, it was imposed for solely policy reasons. As a result, members of the international community condemned the use of secondary sanctions as politically motivated and illegitimate.

Although the use of secondary sanctions is a relatively new phenomenon, it has become increasingly more prevalent since the Iran sanctions regime, serving as one of the main sources of pressure against nations such as Cuba, North Korea, Russia, and Venezuela. In contrast to the growing prominence of secondary sanctions, however, the academic literature on the topic remains thin. This piece seeks to fill that gap. By comparing the pre-JCPOA outcasting regime with the re-outcasting regime, this piece provides a timely insight into the counter-productive consequences of imposing secondary sanctions for purely policy reasons. This piece highlights that without international law, secondary sanctions are viewed as illegitimate, which leads to defiance by states and creates a "chilling effect" that makes cooperation less attractive for the outcast. Thus, this piece proposes that the United States should only impose secondary sanctions in response to a state's violation of international law in order to avoid undermining the power of these sanctions in the long run.

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I. INTRODUCTION

On August 5, 2015, President Barack Obama, in a speech at American University, declared: "[w]e built a coalition and held it together through sanctions and negotiations, and now we have . . . a solution that prevents Iran from obtaining a nuclear weapon, without resorting to war."¹ President Obama made this speech less than one month after the implementation of the historic Joint Comprehensive Plan of Action (JCPOA).² The "Iran Deal," as it is more commonly known, was reached between the Islamic Republic of Iran and China, France, Russia, the United Kingdom, the United States, and Germany (the P5+1).³ The Deal sought to neutralize the threat of a nuclear-armed Iran and ensure Iran's compliance with its international-legal obligations.⁴

In his speech, President Obama highlighted the manner in which the international community reached this monumental achievement.⁵ Instead of resorting to violence, the international community imposed the most comprehensive economic sanctions regime to date in order to induce Iran's cooperation.⁶ By denying Iran the benefits of cooperation, the international community curbed Iran's nuclear program and enforced international law without resorting to violence—a process that Oona Hathaway and Scott Shapiro coined as "outcasting."⁷ The United States achieved this goal mainly through "secondary sanctions": sanctions that seek to pressure the target state (Iran) by punishing other states or entities that engage in business with the target state.⁸

Despite this initial success, however, on May 8, 2018, the United States unilaterally withdrew from the JCPOA and re-imposed all previous

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secondary sanctions.⁹ Given the unparalleled economic power of U.S. secondary sanctions, their re-imposition virtually "re-outcasted" Iran. But unlike the pre-JCPOA outcasting regime, the re-outcasting regime was not imposed in response to violations of international law; rather, the re-outcasting regime came despite Iran's full compliance with its international legal obligations.¹⁰ As a result, the re-outcasting regime was uniformly condemned by the international community as misguided and purely political.¹¹ This diplomatic context, in turn, led to two counterproductive results: (1) it encouraged sovereign nations to defy U.S. secondary sanctions in a way that might expose them as empty threats, and (2) it plagued the international private sector with a "chilling effect."¹² These consequences not only undermine the Iran re-outcasting regime, making it more difficult for the United States to re-engage with Iran, but they will also diminish the power of U.S. secondary sanctions in general, thereby undercutting their role as tools of international engagement.

This piece proposes that in order to prevent further weakening of U.S. secondary sanctions, these sanctions should only be used to outcast nations that are in violation of their international legal obligations. That is because international law legitimizes the use of these sanctions. In light of the rise of U.S. secondary sanctions against foreign states other than Iran, such as Cuba, North Korea, Russia, and Venezuela, this piece seeks to use the Iran sanctions regime as a case study to provide timely insights and suggestions for future uses of these sanctions.

This piece will proceed as follows: Section I will provide historical context for the sanctions by outlining Iran's nuclear developments; Section II will provide an overview of the pre-JCPOA outcasting regime and highlight the unique role of U.S. secondary sanctions in creating this regime; Section III will explore the way in which sanctions impacted Iran's economy, how the United States promised a path to reintegration for Iran, and how Iran's foreign policy changed in response to the sanctions and the diplomatic effort; Section IV will explore the lead-up to and details of the JCPOA as well as Iran's initial reintegration into the international community; and, finally, Section V will outline the Iran re-outcasting regime, examine its counterproductive nature, and explain the impact of the re-outcasting regime on the fate of the renewed JCPOA negotiations and future outcasting regimes.

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II. HISTORICAL CONTEXT

The international community's concern about Iran's nuclear program did not emerge in a vacuum; it arose in response to the rise of an aggressive and ideologically motivated Iran. Since the 1979 Islamic Revolution, Iran has been at the center of numerous international conflicts.¹³ And while Iran's nuclear program has only been a cause for concern since the mid-2000s, Iran's nuclear capabilities have been decades in the making. This Section will provide a brief overview of this historical context by summarizing the rise of a nuclear Iran and highlighting Iran's aggressive behavior.

In 1957, through its "Atoms for Peace" program, the United States took the first step in creating one of the most dangerous nuclear programs in the world.¹⁴ At the time, President Eisenhower wanted to help spread nuclear technology for peaceful purposes and helped the Shah of Iran create the Tehran Nuclear Research Center (TNRC).¹⁵ In 1970, Iran ratified the Treaty on the Non-Proliferation of Nuclear Weapons (NPT)¹⁶ as a Non-Nuclear Weapon State (NNWS), and in doing so agreed not use its nuclear program to manufacture or otherwise acquire nuclear weapons.¹⁷ Pursuant to Article III of the NPT, Iran signed a Comprehensive Safeguards Agreement (CSA) with the International Atomic Energy Agency (IAEA), which required Iran to be transparent about its nuclear activities and related facilities.¹⁸ For years, Iran developed...