Shadow Government

Two brief thoughts on last night's debate

Like everyone else, I thought Governor Romney helped himself last night. I won't dwell on my reactions because the debate focused on topics far removed from Shadow Govt's ballpark, though both candidates did make a passing reference to foreign policy. Doubtless the Shadow Govt. team will have more to say when the ball moves into our court with the October 22 foreign policy debate.

However, I can't resist making two observations that I haven't seen get much emphasis in the commentary I have read thus far:

1. Obama talked the longest but Romney said the most. I was watching on MSNBC (I wanted to get a sense of what my Duke colleagues were thinking to gird myself for the inevitable hallway ambushes) and their pundits all seemed to think that Romney had run roughshod over the moderator and, in Rachel Maddow's words, won on "time of possession." That struck me as odd, because my sense was that Obama had droned on longer than Romney. It turns out I was right, according to CNN's clock,which had Obama speaking for 42 minutes and 50 seconds while Romney spoke for only 38 minutes and 32 seconds. It felt like Romney was more efficient with airtime -- alternating between rapid-fire statistics and repetition of key points -- whereas Obama meandered and often seemed at a loss for words, maybe even at a loss for thoughts. There is no question Romney was more commanding -- more sure of himself and more sure of the facts -- but he was not commanding the clock.

(2) Obama seemed like he had something bigger on his mind than the debate. In part because the president came off as distracted, I began to wonder what was distracting him. There have been many hypotheses advanced: maybe he was distracted by actually getting challenged, given how gentle the press usually treats him; maybe he needs his teleprompter to help him; and so on. Perhaps because of the bias of my interest in foreign policy, I wondered whether he had just had a very troubling intelligence briefing. I imagined him standing there and thinking about this briefing about some horrible pending threat and then having to overcome that distraction to focus again on, what was it, oh yes, my $716 billion worth of cuts to Medicare. Of course, there is no evidence for my hypothesis beyond Obama's halting performance, but an enterprising reporter might want to dig in that direction a bit.


Shadow Government

Is Iran's currency crisis evidence that sanctions are working?

Both the Obama administration and Iran's President Ahmadinejad have blamed the recent dramatic fall in value of Iran's currency on international sanctions. It is a convenient explanation for both -- for the White House, it suggests that U.S. strategy towards Iran is working; for Ahmadinejad, it deflects responsibility away from his own policy decisions and toward an external scapegoat. 

But as my colleague Patrick Clawson explains, sanctions are only partly to blame for Iran's economic travails. The currency crisis and associated inflationary spiral has its origins in the Ahmadinejad government's mismanaged subsidy reform initiative. Sanctions have indeed exacerbated the problem, both by raising the cost to foreign firms of doing business with Iran and reducing the regime's foreign exchange earnings. The increasing threat of war has also played a role, deepening Iranians' worries about economic stability and increasing their inflationary expectations, and thus leading them to dump rials and seek safe haven in dollars and other hard currency to protect their savings. 

However, the regime's maladroit domestic response to the sanctions (for example, its decision to set up "foreign exchange centers," which sparked the current run on dollars) and its loose monetary and fiscal policies have made matters far worse. This is arguably the result of years of economic mismanagement in Iran, particularly under Ahmadinejad, who has subverted what little independence the Central Bank previously possessed and drained it of economic expertise.

Ironically, however, the Iranian regime is relatively sheltered from the present crisis. Although sanctions have reduced its oil exports, they remain high at 1.2 to 1.5 million barrels per day, meaning that the regime's foreign exchange income is considerable, even if diminished. What's more, it has limited external liabilities, and in any event its oil income is dollar-denominated, protecting it from exchange rate risk. This means that as the rial plunges, the regime's fixed rial-denominated payments become effectively cheaper. Meanwhile, Iran's rampant corruption likely shields elites and their families from the worst of the country's economic woes, such as unemployment and increasing scarcity.

As a result, Iran's economic crisis is unlikely to directly cause the regime to change its nuclear calculus. Instead, the sanctions implicitly depend on domestic Iranian outcry -- or the regime's worries of unrest -- to cause the regime to make the desired strategic shift. However, as bad as Iran's economy is, there are few signs of major unrest, and fewer signs still that the regime is responsive to the concerns of the Iranian people (although this will further diminish Ahmadinejad's standing). This is, after all, the regime that showed no compunction in brutally putting down protests in 2009.

By implication, the United States and our allies should be careful not to count on the current sanctions to resolve the nuclear crisis by themselves. Nor should we abandon our focus on targeted sanctions in favor of a return to broad sanctions, which rarely succeed in inducing policy changes in autocratic regimes. Rather than hoping that giving current sanctions "time to work" will force Iran back to the negotiating table, the United States and our allies should add further pressure to the regime and the elites who comprise it, including through additional targeted economic sanctions, diplomatic isolation, bolstering the credibility of our military threat to the regime, and support for the Iranian opposition. 

On their own, sanctions are unlikely to work. Instead, for the United States to succeed in its aims, sanctions must be just one part of a broad, coordinated, and disciplined policy which brings all policy tools to bear on the goal of preventing Iran from acquiring nuclear weapons.