Watching for Ripple Effects as Sanctions Nip at Iran

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A small but intriguing news nugget emerged from the world of international shipping this week, one saying something much larger about the effort to economically isolate Iran because of its nuclear program.

The owner of a large tanker, which was to carry gasoline from a Turkish refinery to Iran, stopped the ship from sailing as scheduled. The uncertainties of doing business with Iran these days, and the potential penalties under international sanctions for firms that do so, apparently created too much doubt about the wisdom of completing the transaction.

Just one deal in an ocean of global commerce, to be sure, but also a sign of how sanctions imposed on Iran in a United Nations Security Council resolution six weeks ago appear to have some real bite.

Given the spotty (to be generous) record of economic sanctions, the latest ones were passed amid general skepticism that they could have much impact. Iran itself was dismissive of them. But there is evidence that the sanctions—followed as they were by additional measures the Obama administration imposed on its own, as well as a new U.S. law aimed at penalizing international investment in Iran's energy businesses—may be causing some meaningful problems.

The sanctions' bite figures to get a bit deeper Monday, when the European Union announces its own set of additional sanctions, aimed in particular at cutting off financing and trade with Iran's transportation and energy sectors.

Most intriguing, the economic strictures may be feeding broader economic headaches that have prompted a strike and expressions of general discontent by Iran's politically powerful bazaar merchants. Unrest among the bazaaris—set off by a giant tax increase proposed by President Mahmoud Ahmadinejad—opens a new front of protest beyond the one that emerged after last summer's disputed presidential election.

It's still hard to know how much difference sanctions can make in the long run. The range of potential effects is exceptionally broad, from simply annoying the regime, to creating real costs and difficulties in keeping Iran's economy running, to creating enough pain to spark domestic unrest, to the ideal goal of prompting Tehran to alter its nuclear program. The U.S. and its allies contend that the Iranians aim to develop weapons, while Tehran insists its program is purely for civilian purposes.

Right now the impact lies on the annoyance/real cost end of the spectrum, and nowhere near the goal of forcing a change in nuclear strategy. There is also no guarantee the pressure will be maintained. For instance, Russia, while honoring the letter of the sanctions resolution, has signaled in recent days that it will continue some arms and fuel sales to Iran, effectively lowering the pressure.

Still, the sanctions may at least be illustrating that there is an economic penalty for Iran's continued enrichment of uranium. More important, they have the potential to directly slow Iran's nuclear program by shutting off the flow of international financing and technology needed to keep elements of it moving ahead.

If nothing else, that prospect seems to have eased—just a little—Israel's fears that it needs to resort to a military strike to really crimp Iran's ambitions.

"What we're trying to do is make it clear to the Iranians that there's a cost to continuing down this road," said one Obama administration aide deeply involved in the sanctions effort. "It sharpens the choice for these guys. One way to relieve the pressure is to make a different [nuclear] policy choice."

The sanctions are designed so that their real impact doesn't lie in anything American or European governments can do directly to Iran. Rather, officials say, their effect rests more on how the provisions threatening fines or denial of lucrative Western government contracts for doing business with Iran can prompt firms to cut ties on their own.

And indeed, in recent days BP PLC has cut some sales of jet fuel to Iran's national airline, and Lloyd's of London has declined to insure shipments of petroleum products to Iran. In addition, the engineering arm of Iran's Revolutionary Guard Corps, one specific target of the new U.N. sanctions, announced that it was withdrawing from projects in a big Iranian natural-gas field.

In addition, as the Journal reported this week, German officials have begun investigating an Iranian-owned bank in Hamburg for allegedly supporting Tehran's nuclear program.

Inside Iran, the effects of this squeeze will prove most profound if they have a ripple effect extending into the political sphere. Mr. Ahmadinejad, spiritual leader Ayatollah Ali Khamenei and their Revolutionary Guard allies already face discontent from young and intellectual Iranians disillusioned by last year's election, and from a traditional clerical establishment that considers the president an unfit upstart.

If economic discomfort creates a third front of opposition among the nation's merchants, the pain of sanctions would spread well beyond the regime's checkbook.

Write to Gerald F. Seib at jerry.seib@wsj.com