Almost a year after the United States and the European Union imposed unprecedentedly harsh sanctions against Iran to prevent it from developing nuclear weapons, the country is not only surviving, it is thriving.
At least that's the spin from Iran's Finance Minister Seyyed Shamseddin Hosseini. "Iran's economy is becoming more lively and energetic," said Hosseini in an interview.
Sanctions, which target oil exports and the country's ability to use international banking for trade, have cut Iran's oil sales in half and badly hurt the country's currency and ability to trade internationally. But Iran does seem to be adapting, even if this comes at the expense of private industry.
The influential Revolutionary Guards, the alternative military close to the regime, is gobbling up industries and profiting from smuggling as sanctions weaken the economy, analysts say. Iran has also adapted to the oil sanctions by substituting other exports, such as saffron and pistachios, to earn foreign exchange.
In terms of imports, Iran is compensating for higher prices by producing more domestically, said Hosseini, who claimed that GDP did not dip in 2012—an assertion that most analysts dispute.
Still, whether sanctions can convince leaders in Tehran to cut a deal on the nuclear program remains an open question. Iran continues to increase the number and effectiveness of the centrifuges spinning out the enriched uranium that can be the fissile fuel for civilian nuclear power but also for atom bombs; the country maintains the effort is peaceful and intended to generate electricity and make medical isotopes.
Mark Dubowitz, a dedicated advocate of sanctions, recently argued that Iran is 15 months away from being able to make a nuclear bomb, and that existing sanctions, as restrictive as they are, are not enough to break the "nuclear will" of the Iranian regime. "We will not get a nuclear deal with [Iran's Supreme Leader Ali] Khameini unless we make it very clear to him we're going to collapse his economy and that economic collapse could spiral into political collapse," Dubowitz said in a panel discussion in Washington in April.
The two sides are far apart since Iran wants sanctions lifted as a first step while the United States and its negotiating allies first want Iran to give up medium-grade enrichment. It is, however, widely assumed that the United States may be willing to strike a compromise in which Iran gets to keep some low-grade enriched uranium in return for guarantees that it won't work toward transforming it into weapon-grade material.
Ultimately, the question is not whether sanctions can bring the Iranian economy to its knees—a scenario most observers believe to be unlikely. Rather, the question is, will sanctions add enough pressure to compel Iran to make a face-saving deal in which enrichment is reined in, closely monitored, and controlled?
On this, the jury is still out.