The release last week of the International Atomic Energy Agency's report on Iran's progressing nuclear program has to make one wonder whether more than 30 years of sanctions have helped to thwart — or even stall — the country's nuclear designs. There is no evidence to suggest that economic coercion has ever made Ayatollah Ali Khamenei, Iran's supreme leader, rethink the risks-versus-rewards calculus for developing atomic weapons. And the truly crippling sanctions that might have more of an effect would never be accepted by Western politicians, who are fearful of higher oil costs and of being seen as too harsh on the Iranian people.
But giving up on sanctions is not the answer. Instead, we have to make sanctions smarter, more mutually reinforcing.
The sale of oil — about 2.3 million barrels are exported every day — accounts for more than 50 percent of Iran's national budget. Under current American law, the importation of Iranian oil is prohibited, but gasoline refined from Iranian petroleum is not.
Sanctions obviously need to hit this industry harder. But they must also avoid causing a significant increase in petroleum prices. If the United States were to impose an international embargo on Iranian crude, the price would skyrocket, providing Ayatollah Khamenei with a windfall profit. Tehran could simply sell less oil and make more money, while American consumers would suffer. When unrest in Libya took its 1.3 million barrels per day of crude off the market, Americans saw a spike in oil prices.
But effective energy sanctions don't have to raise oil prices; they can actually do the opposite. Washington just has to learn how to leverage greed.
We should bar from operating in the United States any European and most Asian energy companies that deal in Iranian oil and work with the Iranian central bank, Revolutionary Guards or National Oil Company. At the same time, however, we should allow companies from countries that have little interest in Iran's nuclear program, or its pro-democracy Green Movement, and that are willing to risk their access to American markets — mainly Chinese companies — to continue buying Iranian crude in whatever quantity they desire.
This would reduce the number of buyers of Iranian petroleum, without reducing the quantity of oil on the market. With fewer buyers to compete with, the Chinese companies would have significant negotiating leverage with which to extract discounts from Tehran. The government could lose out on tens of billions of dollars in oil revenue, loosening its hold on power.
This approach may seem distasteful to some, because it does, in a sense, reward bad Chinese behavior. But the objective of sanctions is to cause real economic pain in Tehran, not to make Americans feel moral. It would also, admittedly, be a hassle for many of our allies, but the short-term diplomatic trauma would not overwhelm Washington. And most important, markets would react in a rational way.
The Obama administration is obviously worried that more robust sanctions could shut down the export of oil and spook the markets. But support for such measures is rising in Congress. A powerful bipartisan coalition has developed in the House demanding an investigation of the Iranian central bank to "expeditiously determine" whether it's been involved in aiding terrorist activities or the development and proliferation of unconventional weapons. Severe sanctions against the bank would immediately follow.
But such sanctions need to be targeted correctly. If we selectively prohibited oil transactions among those companies we could influence, while not enforcing sanctions against Chinese energy firms, energy traders would quickly sense that only the number of purchasers had changed, while the quantity of oil on the market remained the same. And the Obama administration just might ride into the 2012 elections with the Islamic Republic in turmoil.
Iran hawks should not view sanctions as a pusillanimous cop-out. Like President Obama's failed attempt at diplomatic engagement, sanctions are an unavoidable and necessary prelude to any more forceful action to stop Ayatollah Khamenei's nuclear ambitions. America may be in for a long cold-war struggle in which sanctions will play a critical role in weakening Tehran. And the Islamic Republic hardly has the resources of the Soviet Union. This time, sanctions might actually, sooner rather than later, put our enemy on his knees.
Reuel Marc Gerecht, a former C.I.A. officer, is a senior fellow at the Foundation for Defense of Democracies, where Mark Dubowitz is the executive director and head of its Iran Energy Project.