The Scopes and Musts of the Neighborhood Policy in Defusing Unilateral US Sanctions

Introduction

The IR of Iran has faced an array of sanctions since the victory of the Islamic Revolution to date at different times. These foreign pressures and restrictions have taken their toll on the country’s economy. In other words, the sanctions are part of the process to threaten the infrastructure of strategic power in the IR of Iran with the aim of regime change. In addition, the US has also used its maximum pressure approach, pursuing unilateral sanctions to attain its desired objectives in West Asia; unilateral sanctions which lack global legitimacy and consensus, and most governments and businesses are unwilling to be tied to them. In this environment, the security and political requirements of the country call for appropriate mechanisms to deal with unilateral US pressures as the sanctions are intended to disrupt the function of its economic and strategic infrastructures and portray the political system as a failed one, thus reducing the country's influence and strategic capabilities at the national and regional levels.

The national economy also faces myriad restrictions on the international stage due to sanctions. The unilateral US sanctions as an external factor have targeted the vulnerabilities of the Iranian economy and imposed restrictions on its trade, financial, and banking transactions. The most significant impacts of unilateral US sanctions have been a drop in oil exports, increased cost of trade due to increased transport costs, lack of cooperation by foreign banks in transferring money, ban on the import of certain goods into the country, losing foreign partners and export markets, and the increased credit risk of transactions with Iran. These, in turn, have increased production costs and made exports difficult. Therefore, neutralizing and lifting unilateral US sanctions must be the main strategy of the 13^th government’s foreign policy. As the strategy to lift sanctions is a complicated legal, political, and economic procedure, and rather time-consuming and difficult contrary to popular belief, it cannot be a suitable option for attaining foreign policy goals in the short term. Nevertheless, the legal and political pursuit of lifting unilateral sanctions is an unavoidable obligation. That said, the strategy of neutralizing unilateral sanctions can be an ideal solution in the short term to diversify economic resources and reduce the pressures of sanctions. Of key importance in implementing this strategy is the pursuit of the neighborhood policy and focus on the economic capacities of neighboring countries. Therefore, establishing constructive interaction with neighboring countries is an approach well worth considering. This constructive opportunity can be used to improve the national economy within the framework of regional cooperation, aiming to diversify the country’s social and economic life. It is also necessary to outline general policy orientations to achieve superior power in the region and maintain peace and stability without domination.

The IR of Iran has land and water borders with fifteen countries. This number of neighbors can act as positive leverage to counter unilateral US sanctions, but this capacity has not been exploited to the fullest. According to statistics released by the Iranian customs and Trade Promotion Organization, Iran’s share of the market in its fifteen neighboring countries in an estimated 2.3%. As shown in the following table, Iran's trade statistics with its neighbors are not ideal. Even though this is also affected by unilateral US sanctions, this is not significant.

 

Table 1. Share of Neighboring Countries of Iran’s

Foreign Trade in 1399[1]

No	Country	Exports (MM dollars)	Imports (MM dollars)	Population (1400)
1	UAE	661.4	756.9	9,890,402
2	Russian Federation	504.0	30.1	145,934,462
3	Turkey	526.2	397.4	84,339,067
4	Iraq	448.7	134.00	40.222.493
5	Afghanistan	305.2	4.0	38.928.346
6	Pakistan	2.1	177.0	220,892,340
7	Azerbaijan	383.0	76.0	10,139,177
8	Kazakhstan	167.0	37.0	18,776,707
9	Armenia	305.0	17.0	2,963,243
10	Qatar	167.0	8.0	2,881,053
11	Kuwait	155.0	7.0	4,270,571
12	Bahrain	8.0	1.0	1,701,575
13	Turkmenistan	137.0	20.0	6,031,200
14	Oman	438.0	434.0	5,106,626

 

Thus, it seems that paying attention to the trade and economic capacities of neighboring countries must be a top priority for the government to neutralize sanctions. Examining the significance, capacities, and musts of expanding ties with neighboring countries to counter unilateral US sanctions is more crucial than ever before. Among other trade partners, these countries are also of strategic importance in countering and neutralizing the sanctions.

 

The Importance of Neighbors and Regions in a Multipolar System

The future of the international system is a function of how power is organized at the regional level. It is, therefore, the regions that form the system of power. Namely, regions play a pivotal role in the global system of power. National and international security is also entwined with regional security and states must have a special look at their regional security for their national security. The main feature of global developments is the multiplicity of formal and informal actors and the distribution of global power among a large number of actors. This situation creates serious competition between states at the regional level and allows governments to play a part in regional equations and dynamics. With the international system coming out of unipolarity and powers such and Russia, China, India, and Brazil emerging, regional role-playing has created new opportunities to diversify the foreign policy of other states.

The regions are important for the IR of Iran by twofold for their geographical, cultural, and economic advantages. In terms of connections,  Iran's geographical space links the two geographical areas of land and water on the north-south axis and is located on the route connecting Europe and Asia-Pacific, in particular South and Southeast Asia. As such, it is situated on the path of strategic interactions and shifts which are in some way related to its location. Iran’s distinct geographical position, its fifteen regional neighbors and substantial populations, transit advantages such as short, secure, low-cost routes as compared to other competitors providing it with the opportunity for diverse imports-exports, the chance to connect its northern and Central Asian neighbors to the southern ones, and a wide range of products, all indicate that Iran’s regional environment and its neighboring countries endow it with the best chance to play a role in a multipolar system.

In terms of culture, there are linguistic, religious, and historical commonalities between Iran and its neighboring countries, enhancing the mutual understanding of the parties in discussing common interests. Paying attention to this common culture can have abundant benefits for the expansion of political and economic ties. One of these would be to reduce the cost of marketing in these countries. Through shared culture, goods can be manufactured economically to suit the consumer’s cultural requirements, reducing customer need assessment costs. Hence, a common culture can serve as a powerful tool for stronger ties and further integration between neighbors. It must be noted that the points of cultural divergence must not be highlighted in this process. Putting emphasis on cultural divergence rather than convergence can create serious obstacles on the path of expanding trade and economic ties.

The IR of Iran has unique opportunities to strengthen its national sources of power due to the distinctive geographical location of the five subsystems of the Indian subcontinent, Central Asia, Caucasus, and West Asia, Persian Gulf plus having neighbors among the important countries of these regions and sharing common cultural ties. Alongside the capacities and advantages of Iran in its regional environment, the independence and relative freedom of regions in a multipolar system and the ability of its diplomacy apparatus to have active agency in the area will pave the wave for mobilizing resources to counter unilateral US actions. Because in a multipolar system, the US ability to control the behavior of other actors, regional actors in particular, will be weakened, and the will and ability of other actors and regional actors in particular to play an independent role in forming new alignments and security arrangements will be strengthened.

 

Neighborhood Policy Aptitudes to Counter Unilateral Sanctions

Any economic constraints can pave the way for the pursuit of multilateralism in foreign policy. In fact, multilateralism must be seen as a balancing act against sanctions imposed on Iran by the US and other European countries. Under such circumstances, pursuing the expansion of ties with neighboring countries can serve as a suitable tool to minimize the threats of economic sanctions. Focusing on Iran’s advantages and capacities in its neighborhood is the most significant component in policymaking to reduce the impact of unilateral US sanctions. Sharing borders with fifteen other countries gives Iran ample opportunity to take a leap in national production and neutralize the effects of economic sanctions. The most important of these capacities include:

1. Transit and Energy Transfer Advantages: Due to its distinctive geographical position, the IR of Iran enjoys the advantages of low-cost, secure transport by having access to the Persian Gulf and the Sea of Oman in the south and the Caspian Sea in the north of the country. Iran can act as a hub and regional distributor for energy producers and consumers in the Persian Gulf, Central Asia and the Caucasus, East Asia, and Europe. The idea of acting as a regional bridge is, therefore, a strategic approach in Iranian foreign policy, seeking to connect the geographical advantages and the geoeconomic, geostrategic, and geocultural capacities of the country. Pursuing this approach will promote Iran’s regional and global standing and neutralize the effects of the economic sanctions imposed by the US and the West at the same time. This policy will bring singular dynamics and pave the way for its economic development by transforming it into a trade, transit, and energy transfer hub.

Evidently, with inaction and a lack of coherent, continuous strategy for Iran’s transit advantages, these have gradually faded away with new corridors planned by its competitors and enemies. For instance, leaving the North-South corridor incomplete has meant that the Nakhchivan corridor was promoted by Turkey following the war between Armenia and the Republic of Azerbaijan. This is a significant step in realizing the dream of Greater Turkestan by creating a land connection between Turkey and the Turkic-speaking countries of Central Asia. One of its outcomes will be the elimination of Iran from the equation of goods and energy transit in Central Asia and the Caucasus. If the corridor intended by Turkey stretches from Azerbaijan to Nakhchivan, Turkey will certainly transform this into a main lifeline for the transit of energy and goods and be successful in turning the Iran-Armenia border into a no man’s land. Also, the Lapis-Lazuli Transit, Trade & Transport Route initiative was signed on 15 November 2017 in Ashgabat, Turkmenistan, on a ministerial level between Afghanistan, Turkmenistan, Republic of Azerbaijan, Georgia, and Turkey. This route will connect Afghanistan to the Black Sea through Turkmenistan, Azerbaijan, and Georgia, and eventually to the Mediterranean and Europe through Turkey. The route aims to bypass and eliminate Iran from the East-West trade route.

2. Renewable Energy Potentials: Given its geographical location, Iran enjoys a high potential for renewable energies. According to a report by the Renewable Energy Organization, Iran can produce an estimated one hundred thousand gigawatts of wind energy. In addition to wind power, the country has great potential for the production of solar, geothermal, nuclear, and hydroelectric energies. If operational, this can supply most of the electricity needs of neighboring countries.

3. Mineral Reserves: In West Asia, Iran ranks first in mineral reserves. It also holds one of the top places worldwide, where twelve globally important mines, such as the Sarcheshmeh Copper Mine, are found. Worldwide, 8% of zinc deposits and 3% of lead deposits are in Iran. This country is also the fourth producer of ornamental stones in the world. Given such mineral and geological capacities in the country, a move must be made towards expanding regional cooperation in innovation and technology in this sector. Establishing an agency between Iran and its neighboring countries, such as Turkey, Syria, Iraq, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, who hold rich mineral reserves, will provide the opportunity to plan and create bilateral or multilateral financial mechanisms working with currencies other than the dollar to facilitate cooperation between the member countries and the transfer of technology and services in this sector.

4. International Farming: Certain countries have adopted the strategy of exploiting agricultural production and resources in countries which have plentiful, low-cost resources for food security. This is known as international farming or international agriculture. The benefits include using transnational resources (soil and water), planning and maintaining the country’s basic production resources, having a secure market for international farming investors, providing a suitable market for the export of production inputs such as agricultural equipment, and most importantly exporting technical and engineering services in agriculture and creating a suitable working space to employ agricultural graduates. Iran and its fifteen neighbors will enjoy many advantages in international farming within this framework. Expanding ties in this sector can play an important part in bringing food security to the country, attracting foreign investment, and managing water resources.

Countries in Central Asia and the Caucasus also have excellent openings for international farming. For example, Kazakhstan has prime land for international farming and the cultivation of wheat, oleaginus plants (Colza, safflower, Soya), rice, and livestock feed, plus livestock products, to enjoy joint ventures with Iranian companies. Large plots of land, given the 2.5-million-square-kilometres surface area of Kazakhstan (more than three times the size of Turkey or Pakistan), numerous rivers and lakes, natural refrigerators as water resources for irrigation, political stability, membership in the Eurasian Economic Union (alongside Russia, Kyrgyzstan, Belarus, and Armenia), and the Iran-Turkmenistan-Kazakhstan railway network are of the most important advantages of the republic in international farming. Afghanistan is also the best place for international farming and the cultivation of water consuming crops such as sugar beet. It must, nevertheless, be pointed out that many chances have been lost and many of Iran’s competitors, such as the UAE and Saudi Arabia, have invested heavily in international farming in Sudan, Ukraine, Kazakhstan, Russia, Malaysia, and Australia.

 

The Musts of the Neighborhood Policy in Defusing US Unilateral Sanctions

Given the unilateral US sanctions and political, legal, and economic complexities of lifting these, a good solution to neutralize them is to exploit Iran’s capacities in its neighborhood. But benefiting from these capacities requires good decision-making and a coherent roadmap. In other words, its neighborhood can have economic, political, and cultural interests for Iran only if the musts of the neighborhood policy are observed. To this end, the following solutions are recommended:

1. Defining Neighbors in Terms of Strategic Interests: Naturally, if neighbors are not defined in the context of Iran’s strategic interests, this will not only neglect their economic, geographic, political, and cultural potentials, their dynamics and evolutionary trends will also not be understood. In the first instance, as instrumental elites, neighboring countries must be defined in terms of strategic interests so that the strategic advantages can be suitably accessed. Also, from a purely security outlook, trade and economic interests must be prioritized and the realities of their economic landscapes be observed and assessed.

2. Strong Trade Diplomacy: Trade diplomacy determines foreign policy orientation for achieving economic goals. Trade diplomacy has the duty to negotiate, sign, and implement trade MoUs. In fact, the most important duty of trade diplomacy is to embed commercial ties with trade partners. Signing bilateral or multilateral preferential trade, free trade, or customs union deals can guarantee the long-term trade interests of the country and engage trade partners in the expansion of its socioeconomic activities. In order for trade diplomacy to achieve its goal of diversifying exports, it must endeavor to pave the way for linking national manufacturers to value chains and regional distribution networks through commercial agreements and facilitate the connection of small and medium-sized enterprises (SMEs) to regional corporations. Accordingly, a strong trade diplomacy can be very effective in maintaining export markets in the first instance and then expanding them. Given the economic sanctions, trade diplomacy must focus on neighboring countries, because land and sea borders and short distances reduce transport costs and lay the ground to back up exports. Common cultures also make marketing for exports an easier, less costly task.

3. Development of Monetary Agreements: Using national currencies in bilateral trade instead of the dollar can strengthen Iran’s foreign trade against widespread US-Western sanctions. Eliminating the dollar from bilateral trade will strengthen Iran’s trade and economic potentials to expand commerce with its neighbors. The following solutions can be considered for this:

● Iran, Russia, and Turkey, together with other regional allies, can establish a multinational bank to expand multilateral trade.

● Multilateral monetary agreements can be used to distribute risk and reduce the power of sanctions.

● Identifying unofficial groups and networks in neighboring countries: To facilitate financial exchanges and the transfer of currency into the country, unofficial groups and networks in neighboring countries, in particular Iraq, Afghanistan, Turkey, and Pakistan, must be identified. Also, by attracting regional governments and influential people in these countries, unofficial agreements can be reached to maintain financial and economic cooperation. In other words, under sanctions, connecting to individuals or companies active in trade and finances in neighboring countries can facilitate the transfer of currency in to the country.

● Developing free trade zones on the country’s borders: An effective channel in implementing official and unofficial economic agreements is using the capacities of the free trade zones. Based on this, developing these zones next to neighboring countries and making them operational can increase Iran’s trade capacity by manifold. By using this capacity, US-Western sanctions can be rendered less effective.

● Activating the Diplomacy of Transport: The transport industry is a vital part of achieving a good economy and sustainable development. Exploiting the potentials of countries in Central Asia and the Caucasus and expanding bilateral ties with them have always been at the top of the agenda for regional interaction. Given Iran’s transit advantages, the transport of goods is one of the opportunities which must be considered by the diplomacy apparatus in line with economic convergence with neighboring countries. The transport sector (railways, road, and sea) can in fact affect the country’s macroeconomic variables, such as trade and employment. Exploiting the geographical location to facilitate trade and transit between countries has also become an advantage on the international stage and can be considered as an indicator for economic growth and development. Furthermore, countries who have used their geographical advantages and invested in their infrastructures have been able to find an important position in the transit of goods from other countries with a good income in foreign currency. Iran has a privileged geographical location for transit routes and can play an important part in complementing international corridors. But it must be aware that the transit advantages of the country cannot be exploited with its mere geographical position and competing countries will use replacement routes to circumvent Iranian territory. Therefore, Iran’s transit routes must be made competitive. The obstacles on the path of the country’s transit routes must be removed and a connection established between the economies of Iran and its neighboring countries in trade and transit. Preventing the creation of new transit routes which are a threat to Iran is not possible. But the transit routes going through Iran can be made attractive enough for business owners by adopting new initiatives, cooperation between the Ministry of Foreign Affairs and the Ministry of Roads and Urban Development, as well as diplomatic talks with neighboring countries.

● Identifying Service Needs in Neighboring Countries: In the current situation, the goods trade, for instance, can provide the country’s requirements for foreign currency directly, and improve foreign exchange earnings, trade balance, productive employment, and economic growth indirectly. To achieve this, it is necessary to identify the need for services in neighboring countries and guide national potentials and skills in providing these services towards it. In fact, identifying regional markets and the relative advantages of the technical and engineering services for export will entail a brighter future to expand trade policies with trade partners among neighboring countries.

● Expanding Small Border Markets: Border markets are enclosures situated at zero point gates, next to authorized customs or locations agreed to in signed MoUs between Iran and its neighboring countries, where the citizens of countries on both sides of the border can bring their products for sale by observing import-export regulations. All real personalities resident in border regions, and all legal personalities active in border regions, are allowed to work at these markets. Currently, there are an estimated fifty border markets in the country, the bulk of which are on the Iraqi border. The rest are situated on Iran’s borders with Turkey, Pakistan, Azerbaijan, Afghanistan, Armenia, Turkmenistan, Nakhchivan, and countries bordering the Persian Gulf. Of the positive activities of border markets, one can name the flourishing of industrial, mining, and agricultural products, as well and the handicrafts industry of border provinces. This helps grow exports, balance trade, balance foreign currency earnings, prevent goods trafficking, stop emigration by border inhabitants, and help expand political, cultural, and economic ties with neighboring countries.

 

Conclusion

The best strategy to counter unilateral sanctions imposed by the US is to keep growing trade, economic ties, and connections with neighboring countries, with which Iran has religious and historical bonds, and common regional goals and policies in addition to border proximity and short traveling distances. Therefore, strengthening trade ties between Iran and its neighbors must be at the top of the country’s economic agenda. Neighbors provide optimal political, security, and economic advantages for Iran to bring restrictions and systemic pressures under control. Geographical and transit proximity, as well as a great consumer market, common and versatile cultural backgrounds, and mutual economic requirements have provided Iran with an adaptable potential to diversify trade, financial, and economic exchanges. Using this potential requires a consensus in decision-making and approach towards its immediate neighborhood in defining its strategic interests. Conflicting opinions by elites on neighboring countries and a lack of coherent strategy as a result means that Iran’s immediate environment will turn into a threat rather than an opportunity. Moreover, prioritizing trade and economic interests in regulating relations with neighbors is an unavoidable must, because merely prioritizing security will only marginalize Iran’s economic interests in the push-and-pull of political conflicts.