February 7, 2024

IntelBrief: Sanctions Add Pressure on the Axis of Resistance

Office of the Iranian Supreme Leader via AP

Bottom Line Up Front

  • The United States and its partners have imposed additional sanctions on Iran and its axis of resistance partners to try to deny them the resources to continue their ongoing campaign of armed attacks.
  • Sanctions imposed since mid-January have targeted Iran’s Islamic Revolutionary Guard Corps (IRGC), Iranian allies in Yemen, Iraq, Syria, and Lebanon, and companies and persons helping these groups move money and weapons around the region.
  • Buyers of Iranian oil, primarily oil trading companies in China, are unlikely to reduce their purchases in response to expanded U.S. sanctions enforcement.
  • Adding sanctions is likely to have only marginal effect on Iran and its allies, in large part because they operate on the periphery of the global financial system.

In the forty-five years since Iran’s Islamic Republic came to power, economic sanctions have been used as a key U.S. tool to try to change Iran’s behavior and curb Iran’s ability to fund and arm its wide network of regional armed factions. Since the October 7 Hamas attack on Israel, Iran’s allies have escalated attacks on U.S. forces in the region, on Israel, and on commercial shipping in the Red Sea in an effort to halt Israel’s offensive against Hamas in Gaza. In response to the Iran-backed attacks, U.S. officials have coupled the imposition of additional economic sanctions with a campaign of military action to degrade the capabilities of Iran-backed non-state actors in the region, particularly the Houthi movement (Ansarallah) in Yemen. U.S. and allied officials have justified the imposition of new sanctions on the Houthis, Iran-backed militias in Syria and Iraq, and on Iran’s Islamic Revolutionary Guard Corps (IRGC) as an attempt to reduce their financial capability to acquire weaponry and conduct operations. Western officials present sanctions as employing all elements of national power and supplementing - not supplanting - the use of military action to degrade the arsenals of Iran’s allies.

Coinciding with escalating military action against Iran-backed militias, U.S. officials have added sanctions on a wide range cast of pro-Iranian actors. In mid-January, citing more than thirty Houthi attacks on commercial shipping in the Red Sea over the preceding two months, U.S. officials designated the Houthis in Yemen as a Specially Designated Global Terrorist (SDGT) group, providing for penalties against companies and banks that transact business with the Houthis. Less than a week later, the U.S. Treasury Department designated Iraqi airline Fly Baghdad and its CEO as terrorist entities “for providing assistance to the IRGC-Qods Force and its proxy groups in Iraq, Syria, and Lebanon.” According to the Treasury announcement, the airline has delivered shipments of weapons to Damascus International Airport for transfer to members of the IRGC-QF and Iran-aligned militia groups on the ground in Syria, including the Syrian Arab Republican Guard, Lebanese Hezbollah, the Iran-backed Iraqi militia Kata’ib Hezbollah (KH), and the KH-affiliated Abu al-Fadl al-Abbas Brigade. Subsequently, Fly Baghdad announced the suspension of its operations “in accordance with the decision of the government and Prime Minister Mohammed al-Sudani,” according to an airline statement.

Along with the Fly Baghdad announcement, the Treasury designated as terrorists three KH leaders and supporters, as well as a business (Massal Land Travel and Tourism Company) that allegedly launders funds for KH. Separately, the United States, United Kingdom, and Australia sanctioned a network of Hamas-affiliated financial exchanges in Gaza, including financial facilitators that transferred funds through cryptocurrency from Iran to Hamas and Palestinian Islamic Jihad (PIJ) in Gaza. That announcement was the fifth round of sanctions imposed on Hamas by the U.S. since its October 7 attack. On January 29, the United States and the UK again took joint action, sanctioning members of the IRGC’s “Unit 840,” which was cited by a British television (ITV) investigation as plotting to assassinate two television presenters from the news channel Iran International on UK soil. On February 2, as U.S. forces were undertaking the first retaliatory strikes on Iran-backed targets in Syria and Iraq for the drone attack that killed three U.S. military personnel in Jordan, U.S. officials sanctioned several IRGC officers for threatening the integrity of water utilities and for helping manufacture Iranian drones. Separately, U.S. authorities unsealed criminal charges against nine people from Iran, Turkey, China, and Oman for selling oil to finance Hamas and Hezbollah.

As Iran-backed actors have continued their attacks, a growing number of U.S. leaders, particularly in Congress, are calling for stricter enforcement of sanctions against Iran itself as the main donor of funds for all its regional allies. Critics argue that U.S. officials have not been enforcing the comprehensive, multi-sector U.S. sanctions in force against Iran, including penalties on China and others that buy Iranian oil. China’s oil trading sector is by a wide margin the largest importer of Iranian oil, buying more than one million barrels of Iranian crude per day. Critics of U.S. policy claim the Chinese purchases account for Iran’s ability to arm its allies, such as the Houthis, with sophisticated land-attack cruise missiles, ballistic missiles, and armed drones. However, even if U.S. officials were to impose the maximum penalties allowed, it is doubtful that China would reduce its oil purchases from Iran. Entities such as oil traders in China are relatively immune from sanctions because, for the most part, they do not require U.S. or other Western financing and do not operate in the U.S. market.

And, even the strictest and broadest enforcement of sanctions by a wide range of powers has not been shown to achieve dramatic strategic results against Iran. Global enforcement of U.S.-led Iran sanctions during 2010-2015 reduced Iran’s oil exports by more than 50 percent. The revenue shortfall undoubtedly contributed to Iran’s decision to enter into the 2015 multilateral Iran nuclear agreement – limiting its nuclear program in exchange for sanctions relief. However, achieving that multilateral deal was facilitated by U.S. acquiescence to Iran’s demand that it be permitted to continue its uranium enrichment program, although at a reduced level of activity. The 2010-2015 economic downturn did not cause Tehran to fundamentally change its national security strategy based on arming, training, and funding a network of regional armed factions, or deprive Iran of the financial wherewithal to help these groups. Despite a severe sanctions-induced economic downturn, Iran was still able to intervene militarily in 2013 on behalf of the beleaguered Assad regime in Syria, in the end helping save Assad from a defeat that would have seriously weakened Iran’s regional influence. In 2015, Iran was able to begin arming the Houthi movement in Yemen with a vast arsenal of ballistic and cruise missiles and armed drones that the group used against targets in Saudi Arabia and is now using against commercial shipping in the Red Sea. The Trump administration’s sanctions-centered “maximum pressure” policy toward Iran, implemented after the United States left the Iran nuclear agreement in 2018, was not backed by many global powers and failed to compel Iran to negotiate a “longer and stronger” nuclear deal than the one agreed in 2015. Nor did the maximum pressure strategy stop Iran from arming, training, and funding its regional allies.

Iran-backed non-state actors in the region, such as KH and the Houthis, are, in many ways, even less susceptible to sanctions pressure than are their main sponsors in Tehran. Non-state actors are largely absent from the global financial system, moving money via informal and unregulated channels such as hawala, other money exchangers, direct cash deliveries, and illicit financial networks. Iran-backed regional actors do not conduct transactions with U.S. corporations or banks that can be monitored and terminated by the imposition of sanctions. However, imposing additional sanctions on Iran’s allies often satisfies Western leaders’ need to be seen as “doing something” against aggressive regional actors, often as an alternative to military action that can affect innocent civilians. Still, the expanding regional conflict under way demonstrates that the failure of sanctions alone to accomplish their desired strategic objective often necessitates escalation to military action.