Iran squeezed by US sanctions

In 2015, the US, along with the EU, China and Russia signed an agreement with Iran with the intention of curbing Tehran’s nuclear programme. In exchange, economic sanctions would be eased, which would allow for Iran to re-engage in global trade. Donald Trump made his disdain for the Iranian nuclear deal perfectly clear both as a presidential candidate, then as President.

Just a few months ago, I wrote that a new agreement with Iran can be reached. But this will not happen if the nuclear deal were to be scrapped, and matters can only deteriorate from there. In fact, President Trump announced that the United States would be leaving the Joint Comprehensive Plan of Action, and that sanctions would be re-imposed on Tehran – partly due to what he saw as a deal that gave away too much for little in return, and also because the nuclear deal did not curb Tehran’s nuclear ambitions indefinitely.

Trump’s disillusionment with the deal did have some merit, as there were a number of sunset clauses on key provisions which prohibited nuclear material research and development. Upon expiry of these provisions, many of which expired within 10 years or so, Tehran would be allowed to return to its previous path. However, critics have argued that Iran is bound by the nuclear non-proliferation treaty and prohibited from developing nuclear armaments in any case. But Trump’s opposition is not just to the agreement, which was a convenient scapegoat for his larger strategic view, which happens to be shared by those within his Cabinet – he sees Iran as a malign force in the Middle East and sees their ambitions for regional dominance as a direct threat to US influence and regional stability.

With the return in sanctions, the US hopes to coax Iran back to the negotiating table in order to hammer out an entirely new deal that not only curbs Tehran’s nuclear ambitions indefinitely, but also regional ambitions in places like Syria, Iraq, Yemen and Lebanon. Taken at face value, Tehran would be unlikely to give any serious consideration to such a request – it would be a serious loss of face for a revolutionary government whose very reason for existence depends upon the image of strength in the face of its traditional US adversary.

The European Union and European businesses have been caught between a rock and a hard place – Trump has threatened to impose secondary sanctions on any companies which do business with or inside Iran. Europe moved to shield its companies against the impact of American sanctions last Tuesday through a blocking statute, in what they said was in accordance with EU law and UN Security Council resolution 2231.

In effect, it means EU firms will be able to recover damages from US sanctions, and bans EU businesses with complying with American directives. However, some companies, like Mercedes, took immediate steps to end their operations in Iran, preferring to avoid complications with American authorities altogether, and potentially angering Brussels. By directing European companies to ignore US directives, President Trump will not react well to what he will see as a personal affront by the EU, which can have implications for their ongoing trade discussions which were announced in recent weeks.

From Iran’s perspective, the reintroduction of economic sanctions has come at a particularly bad time. Its economy is facing considerable inflationary pressures and currency depreciation, which has led to increasing protests by Iranians that have been hit by the deteriorating economic situation. In late 2017, $1 was worth 43,000 Iranian rials. At the end of July, you would get over 100,000 rials for the same US dollar. The rial’s depreciation has been both rapid and stark.

With the US re-imposing sanctions in recent days, the political and economic situation can worsen – but it is the US sanctions which will come in November on Iran’s oil exports that will affect it severely. It remains heavily reliant on oil revenues from oil exports, and the loss of revenue it is likely to experience will only fuel more social and political discontent at home, which is precisely what the Trump administration would not mind to see: a revolution to overthrow the current regime, and a more Western-friendly democracy in its place.

The likelihood of the Iranian regime being ousted remains low, by most estimations. The government and security services will go to great lengths to protect the current regime, and the Iranian Revolutionary Guard is a well-armed, and formidable force outside of the country; let alone within national borders.

But unless US sanctions are removed, or the other members of the nuclear agreement somehow make up for these sanctions, Tehran will be entering a winter of discontent, both literally and figuratively.

US policy is forcing the regime into a corner in the hope that it capitulates, at least politically, but it may have the opposition reaction – it may push Tehran to increase its activity in places like Yemen and Syria, which threaten US allies Saudi Arabia and Israel, respectively. It may even look to threaten access to the Strait of Hormuz, a vital waterway and access point for global shipping into the Persian Gulf from Asia, through which vital oil exports flow out to the rest of the world. It has held various military exercises in the past, simulating a blockade to deny access to the strait, which the US Navy has said would be countered should the need arise. Armed conflict is a distant, but still distinct possibility. Iran may consider some form of action just before the US midterms on 6th November, but it would carefully consider whether any military action or otherwise would hurt or help Trump’s chances to retain both Houses of Congress.

The aim of the new sanctions, both now and in November, are to push Iran to the negotiating table. There is little reason to believe that the current regime will be willing to appear weak by meeting Trump’s demands. It will even try to weather the fallout from sanctions and the protests from the economic effects they will leave in their wake. US policy towards Iran is set up to squeeze them economically.

But if Iran withstands the pressure and it were to leave the nuclear agreement also, Trump will have to choose between diplomacy from a weakened position or military action. Both choices have their perils, and the issue could go on to define the second half of his first Presidential term. One thing is certain – the issue will get worse before it gets any better.