Iran’s struggle for existence in the face of new sanctions

Implementing a financial package just in time before the first round of US sanctions hit its economy, Iran has tried to halt a currency free-fall with measures to control allocation of foreign currency and keep it strictly for essential imports.

Preparing for the worst, people have also started hoarding goldcausing high prices and an insufficient supply. Hoping to continue with the JCPOA nuclear deal if its demands of continued oil exportation and access to the global banking system are accepted, Iran is trying to survive.

Making things worse, unemployment and the crunch of inflation is beginning to hit the middle class and discontent has erupted on the streets even as the Iranian rial sinks.

Seeking to stem “malign activity” by Iran in a decisive manner, since the previous deal was “decaying and rotten”, Pompeo has declared that the US requires “enormous change” in Iran if it wants to escape sanctions. Abandoning the JCPOA (Joint Comprehensive Plan of Action) nuclear deal in May, the US has imposed the first string of sanctions targeting a range of economic sectors.

Banning the purchase of dollar bank notes by Iran as well as preventing it from trading in precious metals or acquiring industrial metals, the Trump administration also offers a dozen additional concessions in return for accepting new limits on its nuclear program.

In the impending second round in November, Iran’s exports ranging from carpets to pistachios will be affected while its auto sector and oil and energy industries will suffer severe setbacks.

Hinting at stringent measures to fully contain the Iranian nuclear program, the intention is to coerce Iran to re-negotiate under economic crisis. Offering negotiations, the White House national security adviser John Bolton recently advised that, “They could take up the president’s offer to negotiate with them, to give up their ballistic missile and nuclear weapons programs fully and really verifiably not under the onerous terms of the Iran nuclear deal, which really are not satisfactory.”

Saving the Iranian regime will get difficult if the sanctions don’t work the way the US wants, the next step could be cutting off Iranian oil exports

Sabena Siddiqui

Complete denuclearization

Observing that if the Iranians want a deal they would come to the table, Bolton felt this factor alone would prove their sincerity. As predicted before, the US intention does appear to be the complete denuclearization of Iran as per its long-term strategy to allow a very select few nuclear powers in the world.

Walking out of the JCPOA had not given fast results because the EU was not supportive. Maintaining sustainable trade could enable Iran to survive even a second round of sanctions if the Europeans, China and India play their role. For a while, many European firms did try to continue doing business but could not risk falling out of favor with the US, especially as they could face ‘secondary sanctions” from Washington.

Forcing various European energy giants to scale back or fully cut their operations in Iran, the United States has now clearly demarcated the two sides of the divide. Even India had intended to continue purchasing oil from its third largest supplier and continue as normal, but two of the largest Iran affiliated banks in the country have already begun falling in line with American demands for sanctions.

But now the situation is different as the economic crisis at home gets worse, it is fast becoming reminiscent of US-Iran relations before the nuclear deal. Protests at home along with the departure of European trade from Iran has upped the ante and it is a make or break situation. Washington believes the choppy domestic scenario will pressurize Iran into agreeing to negotiations for a new deal.

Stabilizing the rial remains Iran’s only safeguard and finding space, Chinese oil futures contracts have spiked 5 percent extra from their daily limit even as the US sanctions sunk in, significantly boosting yuan denominated oil trade. Previously, banking transactions were conducted in US dollars and the shortage of foreign exchange forced Iran to look for an alternative currency like the yuan.

Eventually however, it will not be just a matter of economic survival for Iran. Saving the present regime will also get difficult if the sanctions game does not work the way the US wants, the next step could be cutting off Iranian oil exports.

Countering this move, Iran could block oil shipments through the Strait of Hormuz affecting oil supplies all over the world. Even Tehran’s foreign policy is turning more aggressive with warnings that regional insecurity will spin out toward the Middle East and beyond.

The extreme worst-case scenario would be Iran speeding up its nuclear activities, creating a war-like situation and potentially affecting global security. Stabilizing the region, the JCPOA deal was a diplomatic success.

Considering the implications, it would be best for Iran and the other stakeholders that a nuclear deal be re-negotiated at the earliest.
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Sabena Siddiqui is a foreign affairs journalist and geopolitical analyst with special focus on the Belt and Road Initiative, CPEC and South Asia. She tweets @sabena_siddiqi.

Last Update: Thursday, 9 August 2018 KSA 10:30 - GMT 07:30

Disclaimer: Views expressed by writers in this section are their own and do not reflect