ECONOMIC SCENE: Sanctions on Iran and Israel could defuse Middle East

For centuries, nations have resorted to economic sanctions when diplomacy has failed.

To stop the construction of Jewish settlements in the West Bank and East Jerusalem, the Obama administration could threaten to suspend the $3 billion a year it sends to Israel. That’s a move urged by former US Rep. Paul Findley, founder of a nonprofit group calling for even-handed US policy in the Middle East.

To keep Iran from acquiring nuclear weapons, key nations could stop buying its oil and selling it much-needed gasoline. Those are two elements of a 12-point Iran policy proposed by Jennifer Mizrahi, head of the Israel Project, a pro-Israel nonprofit.

For centuries, nations have resorted to economic sanctions when diplomacy has failed. “It’s an intermediate tool ... much preferable to declaring war,” says John Williamson, an economist at the Peterson Institute for International Economics in Washington.

But does it work?

Sometimes. A survey of 204 episodes of economic sanctions since World War I found that about 1 in 3 succeeded in changing the behavior of the targeted regime or changing the regime itself, says Kimberly Elliott, whose study turned into a Peterson Institute book. In the 1970s and 1980s, though, US unilateral sanctions worked in only about 1 in 5 cases.

The US finds it easier to employ economic pressure with Iran than Israel. Israel is a close ally whom America wants to cajole. Iran is accused of funding terrorists and aiming to develop nuclear weapons. Yet, the US already has severely cut back trade with Iran. To be effective, the Obama administration would need to persuade Iran’s other major trading partners to do the same.

It might have leverage with Germany, Iran’s No. 2 export market. But the United Arab Emirates (No.1) and China (No. 3) could be hard to sway. Economic sanctions usually need the cooperation of several nations to work. Furthermore, sanctions must be designed so the costs of compliance are less than the costs of defiance, says Ms. Elliott, now a senior fellow at the Center for Global Development in Washington.

The obstacles to sanctions on Israel, by contrast, arise from US domestic politics.

Washington certainly could exert enormous economic pressure. Its annual aid amounts to $357 for each Israeli. Moreover, the US has a cumulative trade deficit of more than $63 billion since it signed a free-trade agreement with Israel in 1985. Donations to certain Israeli charities get unusual tax advantages. Israel has special deals with the Department of Defense, and so on.

This spring, President Obama asked Israel to stop all settlement construction as a prelude to renewed talks about a Palestinian nation. So far, Benjamin Netanyahu, Israel’s prime minister, has not gone along fully. He has leverage of his own.

No prominent American politician wants to break off the close US friendship with Israel. No president in recent times has taken on a pro-Israel Congress on Israel-Palestine issues, says Philip Wilcox Jr., president of the Foundation for Middle East Peace, which aims at a “just solution” to the Israeli-Palestinian conflict. Moreover, the US is pledged to protect Israel’s security.

So experts doubt the US will use its economic leverage, at least publicly. Already, Mr. Obama’s insistence on stopping the settlements has made him a target of Israel’s lobby in the US, claims Mr. Findley, of the Council for the National Interest.

In 1919, President Wilson said: “A nation that is boycotted is a nation that is in sight of surrender. Apply this economic, peaceful, silent, deadly remedy and there will be no need for force.”

He should have added: You have to apply a boycott effectively.