The renewed American sanctions against Iran have yet to go into full effect. But even before the first set was reimposed in early August, Iran’s markets began to destabilize. In the previous round of sanctions, which ended with the 2015 nuclear agreement, officially known as the Joint Comprehensive Plan of Action (JCPOA), the United States made an exception for medicine and medical equipment. But then and now, Iranian officials attribute the country’s medicine shortage to the sanctions. On July 29, Dr. Hassan Ghazizadeh Hashemi, President Rouhani’s minister of health, said claims that medicine supplies had not been affected by the sanctions were untrue [Persian link].
And yet the US State Department has denied this claim. The American Treasury Department had announced that Iran would be able to buy medicine and medical equipment as long as it was done in a financially transparent way and that the transactions did not go through Iran’s Central Bank and other Iranian banks that appeared on the sanctions list. The treasury made it possible for Iranian currency to be transferred for the purpose of buying medicine as long as it didn’t do it via these proscribed banks, not least because the Iranian banking system does not operate under international rules for financial transparency, including those of the Financial Action Task Force on Money Laundering (FATF). These measures made it more difficult and dangerous for international banks to work with Iran.
Some US officials, such as David Cohen, the former undersecretary of the US Treasury under President Obama, have said that the effect of sanctions on medicine was manageable and Iran had exaggerated the problem, but Iranian officials repeatedly insisted this was a lie. [Persian link].
In his book, The Art of Sanctions: A View from the Field, Richard Nephew — responsible for the development and execution of US sanctions strategy for Iran for the American National Security Council (NSC) from 2011 to 2013 — writes that one of the secrets to the success of sanctions under President Obama was the “propaganda” that accompanied them. According to him, the exemption of medicine and food from sanctions was part of this, since the US could argue that the measures were not inhumane. At the same time, it the US Treasury sought to remove any chance of money laundering.
Front for the Revolutionary Guards
So international banks had no appetite to deal with Iranian banks because the sources of funds were not transparent. Also, it was possible that Iranian pharmaceutical companies or importers were providing a front for the Revolutionary Guards and the real identities of the banks could not be ascertained. Some so-called “private” banks were actually owned by the Revolutionary Guards or the Paramilitary Basij Organization. Any country, business, or individual dealing with these banks could be forced to pay heavy fines, so Iran became synonymous with these dangers.
The purchase of radiation therapy equipment and radiopharmaceuticals was next to impossible because of their connections to the nuclear industry. According to Kamran Bagheri Lankarani, President Ahmadinejad’s minister of health during his first term, in the winter of 2008 Iranians “were told as we woke up that they would no longer give us radiopharmaceuticals ... Some governments that claimed to be our friends called us and offered to sell us radiopharmaceuticals that [should] cost around $200 for $2,000.”
Iranian healthcare providers were caught off-guard by the shortage of medicine and medical equipment. In 2011, with the intensification of sanctions and the near exhaustion of Iran’s medicine reserves, the shortage turned into a crisis. At the time, imports of medicine fell by one third.
But was it only the sanctions that caused this crisis?
According to official reports, fully 40 percent of the raw material used by Iranian pharmaceutical companies is imported. Before the first round of sanctions, most of the materials were imported from Europe, the United States and Canada. But when sanctions began, China and India replaced these countries as the major suppliers of medical raw material.
Iran imports more than 300 types of medicine, including special drugs for hard-to-cure illnesses. The emerging situation led to tragedies that would have been otherwise preventable. For instance, in 2012, Iranian media reported that a 15-year old teenager, Manouchehr Esmaili, had died from hemophilia in Khuzestan because his doctors did not have access to the necessary medicine.
Luxury Cars instead of Medicine
However, the crisis did not come about simply because of the sanctions. Pervasive corruption and the government’s mismanagement actually posed a bigger problem for those trying to procure medicine and medical equipment. When Marzieh Vahid Dastjerdi, President Ahmadinejad’s second-term health minister and Iran’s first female cabinet minister, publicly criticized the mismanagement and misappropriation of funds that had been earmarked for importing vital medicine, she was summarily dismissed by Ahmadinejad. “I have heard that luxury cars have been imported with subsidized dollars but I don't know what happened to the dollars that were supposed to be allocated for importing medicine," she said on state television.
Her dismissal did not stop her from talking about it. “At the height of sanctions [in 2012] when I joined the government’s Special Measures Headquarters, I saw that the foreign currency situation was very dire,” Kharab Online quoted Dastjerdi as saying [Persian link]. “I told my colleagues that they must do their best to find currency to acquire medicine. We needed around $2.5 billion to buy medicine and medical equipment for treating heart illnesses and the like, but they gave the Health Ministry only $41 million. This made my blood boil...Our medical needs were the eighth priority. Dog food and horse saddles were the fourth and fifth priority.”
And the mismanagement did not stop here. The government consistently delayed the release of supplies to pharmaceutical companies, and medicine patients desperately needed remained inaccessible in customs warehouses. There were many reports about medical teams using out-of-date anesthetics — a direct threat to the lives of Iranian patients.
“We are under sanctions but we ourselves have put sanctions on medicine imports,” said Mohammad Reza Naderi, the deputy head of Iran’s Department of Customs. But Mahmoud Bahmani, then the governor of Iran’s Central Bank, denied accusations that the government had failed to supply the foreign currency needed to import medicine; he in turn accused the importers of medicine of using the currency to bring in luxury cars [Persian link]. In one case, the Central Bank announced that there had been plans to use the government’s foreign currency to import dozens of luxury cars.
The government had found ways to bypass sanctions, but those people who had access to the Central Banks’ dollars at the official price preferred to import non-essential goods because they were more profitable.
Feel the Pain
According to Richard Nephew, when the United States was getting ready to impose sanctions on Iran, it removed luxury items from the sanctions list so that, first of all, the Islamic Republic’s currency reserve would be exhausted faster and, secondly, “the feeling of pain due to sanctions” would intensify among Iranians.
So both medicine and luxury items were exempted from the sanctions regime by design, but mismanagement and the corruption within the Iranian financial environment assured the success of the two goals of the US sanctions as defined by Richard Nephew — exhaustion of currency reserves and deepening the class divide — by awarding priority to luxury cars that were more profitable than the medicine needed by Iranian health providers.
Starting on August 6, some US sanctions were reimposed on Iran’s access to US currency, gold and precious metals, and the full sanctions regime will resume in three months’ time. But Iranian officials have said that they are fully prepared to take on the approaching storm and provide Iranians with the medicine and medical supplies they need [Persian link]. One such measure was an agreement that was signed during President Rouhani’s state visit to Switzerland in July to counter the effects of US sanctions in the areas of medicine and health. And Iran’s Food and Drug Administration has announced that it has identified what is necessary to supply medicine to Iran under sanctions. At the same time, the extent of corruption and mismanagement in Iran is so vast that even a humanitarian concern like medicine becomes overshadowed by them.
As the return of sanctions drove up the price of the dollar in the open market to 12,000 tomans [120,000 rials] the government reported that some Iranian pharmaceutical companies, having received dollars at an official price of 3,8000 tomans in early August, chose to import vacuum cleaners and steam irons instead of drugs and medical supplies because they will attract a greater profit.
When Iranians lived under re-JCPOA sanctions, life became increasingly difficult, with basic necessities and medicine unavailable or unaffordable. But in reality, the corruption and mismanagement so rife in Iran during that time played a more important role in these shortfalls than the sanctions themselves. Today, and in the light of fresh sanctions, it looks as if this cycle is once again taking hold.
More on the aftermath of Trump’s withdrawal from the nuclear treaty with Iran:
Iran’s Revolutionary Guards Commander Threatens Trump, July 26, 2018
Decoding Iran’s Politics: The 12-Point US Ultimatum, July 6, 2018
Guards Sell Missile Program to the Iranian Public, June 22, 2018
Iran and its Fleeting Dream of New Airplanes, June 13, 2018
Khamenei Calls for Immediate Action on Nuclear Enrichment, June 6, 2018
President Rouhani's Plane on the US Sanctions List, June 1, 2018
Decoding Iranian Politics: Ayatollah Khamenei’s Stance on the JCPOA, June 1, 2018
The Nuclear Deal: Will Khamenei Get What he Wants?, May 29, 2018
Khamenei’s Eight Conditions for Talks with Europe, May 25, 2018
Revolutionary Guards Respond to Pompeo’s “Empty Bluff”, May 23, 2018
The 12 Demands of Pompeo's New Iran Strategy, May 21, 2018
When Will US Sanctions Hit Iranian Oil Sales?, May 18, 2018
The JCPOA: A Missed Opportunity, May 17, 2018
The Future of Iran’s Economy as the US Bows Out of the Deal, May 10, 2018
What are Iran’s Choices as US Abandons the Nuclear Deal?, May 9, 2018