Iranian regime running out of options as sanctions hit

The second tranche of US sanctions on Iran have now taken effect. The new sanctions have been described by the White House as the strongest and most crippling in the history of sanctions imposed on the Iranian regime since the 1979 revolution. This package will reimpose all the sanctions previously lifted following the signing of the landmark nuclear deal between Iran and the P5+1 group of nations in 2015.

These sanctions are only the latest in a number of massive political and economic challenges facing the regime at home and abroad, with widespread public anger rising steadily at the regime’s brutal, oppressive, theocratic Vilayat-e Faqih (“Guardianship of the Islamic Jurist”) ruling system. Calls for the ousting of the rulers, which nobody would have dared express a few years ago, are now common.

The hottest issue at the moment is the mounting US pressure on Tehran, including the halting of exports of Iranian oil, which the US wants to see reduced to zero. We know that the US administration did not achieve this objective before the start of the second package of sanctions. Eight nations have been exempted from this embargo, including China, Japan, India, Italy and Turkey, all of which were granted an opportunity to slowly reduce their reliance on Iranian oil. These temporary exemptions indicate that the US administration is intent on achieving its ultimate objective, albeit with a little alteration to the original timeframe.

The continuing steep decline of the value of the Iranian rial against foreign currencies, especially the US dollar and the euro, is expected to continue through the coming months. This comes despite Tehran’s efforts to maintain the current value of its currency for domestic political ends. Iranian banks are also set to face more difficulties, with the Central Bank expected to be shaken by a number of crises in the upcoming months. Iran will also face obstacles in getting revenues from its oil and non-oil exports.

Compounding the regime’s woes, European governments’ efforts to find alternative financial mechanisms and solutions to circumvent the US sanctions have been wholly unsuccessful. Meanwhile, countries like Turkey, India, China and Japan may resort to paying for their oil imports from Iran through the traditional barter process, such as trading goods for oil rather than for cash, which may require a reduction in the price of Iranian oil to attract buyers.

In the past week, Iran’s attempt to drum up trade by putting its oil on sale at a local bourse was largely unsuccessful, attracting only a few buyers and forcing the regime in Tehran to further reduce the price to sell at least some of its output.

All of the options currently available to Iran aim solely to curb rather than to avert losses, meaning the negative impact of the sanctions will definitely take a heavy toll.

While some small European and Asian companies that have no dealings with the US may continue to deal with Iran, these will be too small to save the Iranian economy or to fill the vacuum left by the departure of big companies.

Dr. Mohammed Al-Sulami

Conducting oil transactions via barter would primarily be beneficial for the importers, who can both guarantee a buyer for their products and use Iran’s dire economic circumstances to impose their own conditions. This will also increase the regime’s suffering, making it harder for the leadership to obtain hard currency and leading to further deterioration in the nation’s economy. Ultimately, the regime in Tehran may be forced to accept the 12 conditions laid out by the Trump administration to have the sanctions lifted and resume negotiations.

The Iranian regime is awaiting the results of the 2020 US elections to discover whether the current administration will be re-elected or a new one will come to power. This is a high-stakes gamble, which will place the rulers in a more complicated situation should Trump win a second term or if a new administration adopting the same current hard-line policy comes to power. This is apart from the possibility of a rise in domestic pressure on the regime due to worsening living conditions.

Iran’s regime also remains unable to provide any solutions to its domestic crises, which continue to expand both geographically and socially, accelerated by the large-scale collapse of the small and medium-sized commercial sector. These two sectors have been effectively pushed out of the market in light of the plummeting national currency, heavy taxes, and bureaucratic obstacles.

In the meantime, the sectors run by the Islamic Revolutionary Guard Corps (IRGC), which have overcome all these obstacles through exemptions and facilitations, are also dependent on smuggling and on effective ownership of government firms that offer direct and indirect facilitations to other IRGC-affiliated firms under civilian names.

This point will pose significant challenges to the US Treasury Department’s efforts to track individuals and entities associated with the IRGC and place them on the sanctions list. While it is true that Washington constantly announces new lists of names, the IRGC owns many entities domestically and overseas that may need more time and extraordinary efforts to identify and blacklist.

Overseas, meanwhile, with the possible exception of Russia and China, and — for political reasons and others related to competitiveness — with the US, many nations, including European countries, are being forced to stop dealing with Iran, albeit gradually. Investing in Iran is almost impossible at present.

While some small European and Asian companies that have no dealings with the US may continue to deal with Iran, these will be too small to save the Iranian economy or to fill the vacuum left by the departure of big companies.

On a related note, regional nations, especially the Gulf countries, are expected to adopt a carrot-and-stick approach in their efforts to force Iran to comply with US measures through, inter alia, building relations with companies that have been forced to withdraw from the Iranian market or to freeze their trade relations with Iran and to grant these firms competitive investment shares in local markets. By contrast, transactions with firms that ignore US sanctions and deal with Iran will be halted.

  • Dr. Mohammed Al-Sulami is Head of the International Institute for Iranian Studies (Rasanah). Twitter: @mohalsulami

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