Even Iranian officials now admit that the US-led sanctions regime against Iran is damaging its economy.

But the pressure has failed in its primary aim: to slow Iran’s nuclear progress. That has become obvious to the US and European officials imposing crippling sanctions, as has the fact that sanctions may have even sped up Iran's nuclear advancement.

A report released today – based on 30 in-depth interviews with Iranian officials, analysts, and businessmen – explains that dilemma and Iran’s determined defiance to Western policymakers, who will conduct a fifth round of nuclear negotiations with Iran in Kazakhstan next week.

The report's conclusions provide a rare glimpse from high levels in Iran of how sanctions have and have not worked, which could directly affect decisions by Western nuclear negotiators, and a US Congress keen on adding more sanctions, but reluctant to offer enough sanctions relief to convince Iran to stop its most sensitive nuclear work.

“It’s critical to understand how massive pain is being channeled and absorbed in Iran, because just sitting there expecting pain to deliver results is somewhat naive,” says coauthor Trita Parsi, president of the Washington-based National Iranian American Council (NIAC), which produced the report.

“Putting pressure is just half of the equation; [US and European officials] have succeeded with that, undoubtedly the pain on Iran is immense,” says Mr. Parsi. “But to channel the pain is a very, very different task.”

The wrong incentive?

Sanctions now include a European oil embargo, exclusion from the SWIFT international banking system that enables Iranian banks to transfer money, and US measures that target Iran’s central bank.

These measures have begun to bite, causing economic isolation and a precipitous fall in both oil revenues and the value of the Iranian currency. But Iran has still added thousands of centrifuges to enrich uranium, and deployed a more efficient, second-generation centrifuge model; stepped up uranium enrichment levels from 5 percent to 20 percent, which is technically not too far from weapons-grade; and moved its most sensitive work to a deeply buried site impregnable to air attack.

Those results so far indicate that pressure is not working, according to the NIAC report, because “escalating sanctions as a [Western] bargaining chip also gives Iran the incentive to advance its program for the same reason.”

It also suggests that rethinking the scale of sanctions relief on offer may be necessary when the P5+1 group (the United States, Russia, China, Britain, France, and Germany) sits down to nuclear talks with Iran next week, if they are to have any chance of success.

The NIAC study concludes that “it is highly unlikely that the regime will succumb to sanctions pressure … [when] no proportionate sanctions relief is put on the table by the P5+1, and capitulation is seen as a greater threat to the regime’s survival than even a military confrontation with the United States.”

'Never give in and never give up'

Iran’s supreme leader, Ayatollah Ali Khamenei, said last week that Iran had turned “threats into opportunities” and was emerging victorious despite the “negative effects” of sanctions.

“They have announced that their goal is to cripple the Iranian nation and to bring it to its knees,” Ayatollah Khamenei said, according to a transcript on his website. “Therefore, if our nation resists their pressure, stays vibrant, and achieves more advances, they will lose credibility.”

The US had been the “enemy” and “main center for designing machinations” against Iran since the 1979 Islamic revolution, Khamenei said. “The sanctions have had an effect, but they have not had the effect that they were after," he added.

Senior Iranians quoted in the NIAC report – titled “Never give in and never give up," in reference to the core regime ideology at play – also explain how Iran’s unexpected reaction raises questions about the utility of sanctions.

The report states that "individuals close to the core of Iran's power structure are relishing the narrative of resistance" because although there is economic suffering, Iran “is also gaining newfound respect on the international stage due to its refusal to succumb to Western pressure.”

A senior Iranian parliamentarian “influential in the top layers of the regime” told NIAC that Iran’s resistance had even become a “role model” for developing countries – a view echoed by a number of other Iranian officials.

“Stark divisions among the Iranian elite are unmistakable,” notes the NIAC report. “[But] if the testimony of elite insiders is to be believed, sanctions have helped strengthen cohesion rather than intensify rifts.”

One current Iranian official told NIAC that Western governments expected Iran’s economy to collapse: “Well, now they know that they have failed. If they continue this way, it will just strengthen Iran’s resolve to confront the West.”

Describing regime thinking, a former deputy foreign minister said, “It was obvious to us that the sanctions pressure will increase and … the main target was to weaken the regime, but that compelled us to stay strong, work together, and prove the Western strategy wrong.”

Iran: 'No balance' in current offers

This is likely to be food for thought on Capitol Hill, at the White House, and among European Union officials, who have so far offered Iran only modest sanctions relief – and none at all on oil or financial sanctions – in exchange for capping its most sensitive nuclear work. Iranian sources have told the Monitor the current offer has "no balance."

The report's conclusions echo another detailed sanctions analysis from the International Crisis Group (ICG) in February.

“Compliance with Western demands, in Ayatollah Khamenei’s mind, likely will not result in alleviation of pressure” because it would project weakness, noted the ICG. “Under this view, the [nuclear] deal, not its absence, could be the poison that brings down the Islamic Republic.”

The sanctions juggernaut against Iran “illustrates the risk that, precisely due to their inability to secure their primary goal, sanctions may turn into an end in and of themselves,” reports the ICG. “That such [economic] pain does not translate into the desired policy change becomes … almost an afterthought.”

Many of the US sanctions can only be lifted or adjusted by Congress, which has shown little interest in giving Iran what some see as a “reward” for its defiance.

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“The key thing for the US is what are the sanctions that politically can be lifted without causing major mayhem or a backlash from Congress,” says NIAC’s Parsi, who co-wrote the report with the Vienna-based Iranian economist Bijan Khajehpour and NIAC research director Reza Marashi.

“It is truly a litmus test for diplomacy, because if it ends up in a situation where the president is incapable of convincing Congress to play ball, and actually be helpful for diplomacy, rather than being unhelpful, then the US doesn’t have any cards to bring to the negotiating table,” adds Parsi.