On July 1, following the lead set days earlier by the United States, the European Union slapped sanctions on purchasers of Iranian oil. While Iran’s leaders acknowledged the new sanctions have bite, they scoff at the idea they will be effective. “The enemy assumption that they can weaken Iran is, of course, wrong and a result of their merely materialistic calculations,” Iranian President Mahmoud Ahmadinejad declared on July 3.

The Obama administration, however, argues that their strategy of gradually increasing sanctions is working. “We believe that the economic sanctions are bringing Iran to the table,” Secretary of State Hillary Clinton declared, the day after the United States tightened its unilateral sanctions.

Both are wrong.

Despite Ahmadinejad’s bluster, sanctions can work against Iran. Nevertheless, Obama’s team has yet to contemplate the level of sanctions necessary to force Tehran to abandon its nuclear ambitions.

Twice since the establishment of the Islamic Republic, revolutionary authorities have staked out extreme positions only to reverse course.

On November 4, 1979, Iranian students believing that a November 1 handshake between their prime minister and President Carter’s national security advisor presaged a betrayal of their revolution, stormed the U.S. embassy in Tehran. Their initial aim was to hold the embassy staff for just 48 hours. However, after Gary Sick, a Carter national security aide, leaked that Carter had taken military action off-the-table in favor of a diplomatic resolution, the students augmented their demands and transformed a fleeting protest into a prolonged crisis which would last 444 days.

Iranian authorities released the hostages on the first day of Ronald Reagan’s presidency. In the weeks and months that followed, Carter administration officials gave interviews and penned articles and books claiming that the key to the hostages’ release was the persistence of diplomacy. Carter’s team never gave up: They tried everyone from radical former Attorney-General Ramsey Clark and Palestine Liberation Organization terrorists to German bankers and UN diplomats as mediators. In the end, it was the Algerian government whose mediation succeeded.

The late Peter Rodman, a former Henry Kissinger aide, saw things differently. In an important 1981 article, he argued that the persistence of diplomacy had little to do with the hostages’ release. Instead, Rodman suggested that what changed Ayatollah Khomeini’s calculus was Iraq’s invasion of Iran. The war challenged the Islamic Republic’s very existence. The cost of continuing Iran’s isolation by holding American hostages had grown too great to bear.

The second time Iranian authorities reversed course and dropped long-standing demands involved Khomeini’s war aims. The Iraqi invasion had caught Khomeini—and just about everyone else—by surprise. It took about two years for the Iranian army to push back the Iraqi invaders out of Iranian territory.

After the Iranian army recaptured Khorramshahr, Khomeini considered accepting a ceasefire, but his revolutionary advisers convinced him not only to order his army into Iraqi territory, but to continue all the way to Jerusalem. There followed six more years of stalemate, at the cost of almost a half million more lives. Describing it akin to “drinking a chalice of poison,” Khomeini accepted the ceasefire he had rejected years earlier; the cost of continuing his policy had become too great for even the self-declared deputy of the Messiah on Earth to bear. Khomeini was not going to pursue war at the cost of collapsing the regime that was his life’s vision.

Fast forward 30 years: No unilateral or multilateral sanction has come close to isolating Iran to the degree that it was in 1981 when Khomeini agreed to release his American hostages. Indeed, the Obama administration has waived penalties on Iran’s top 20 trading partners, in effect making American sanctions little more than symbolic.

Turkey’s trade with Iran, for example, has increased more than tenfold over the past decade. Against this context, the suggestion that Prime Minister Recep Tayyip Erdoğan, whom Obama has named as one of his closest international friends, simply needs a little more time to unravel Turkey’s interests in Iran is false. Every loophole to which Obama and Clinton agree in order to assuage allies undercuts any possibility that the current Iranian regime will ever reverse course.

Sanctions exist on a spectrum from the broad-based to the targeted. Against Iran, Western politicians have sought to target specific companies and individuals to avoid hurting the broader populace who bear little responsibility for their unelected leadership. Erring on the side of caution, however, allows the regime effectively to play anti-sanctions Three-card Monte.

When the United Nations or U.S. Treasury Department designates an Iranian company as involved in Iran’s illicit nuclear or missile programs, Iran’s leaders simply take a state-owned factory and, in the name of economic reform and privatization, offer an IPO on the Tehran stock exchange. The purchaser is almost always a Revolutionary Guards-owned front company which, within hours, can shift operations from the sanctioned firm to the new company. The only way to undercut Iran’s strategy is to sanction whole industries, something Obama, his European counterparts, and the United Nations are unwilling to do.

Simply put, for sanctions to work, Iran’s isolation must be absolute and the costs imposed on the regime must be beyond that which its leaders can at present imagine. Rather than sequence the application of sanctions, they must be imposed at once. American officials will gain leverage, and can tie the dismantling of Iran’s nuclear program to their lifting. The commercial and diplomat incentives Obama and Clinton now embrace only reward Iranian malfeasance.

It is time to face down the Iranian leadership to convey that they cannot imagine the pain the United States and its allies are capable of inflicting. The Iranian leadership may respond with bluster but, if policymakers are serious both about avoiding a prolonged military conflict with Iran and denying the Islamic Republic a nuclear weapons capability, then the United States will have no choice but to call Iran’s bluff. When Khomeini challenged American resolve in 1988, Reagan ordered Iran’s navy destroyed. It is time to signal to Tehran the true costs of its actions. If history is any guide, the ayatollahs will blink first.

Michael Rubin is a resident scholar at the American Enterprise Institute. Follow him on Twitter@mrubin1971.