WHAT is the likely economic impact in Iran?
Iranians have already been feeling the impact of the collapse of the rial, the country’s currency. In May, after United States President Donald Trump announced the withdrawal from the nuclear deal, it fell to its weakest position against the dollar in history. It has now lost more than 80 percent of its value since April.
Recently many Iranians, angry at high inflation and the increasing economic hardship, have been protesting across their country. State news and social media posts have reported demonstrations in several cities.
As the currency weakens, investors have been seeking to protect their wealth via physical assets such as gold bars and coins, demand for which has soared in recent days. There are predictions that this will lead to profiteering, and already there have been reports of arrests.
Analysts say the sanctions have hit ordinary people massively via shortages of daily essentials and equipment, while a mushrooming black market has brought exorbitant prices. Although the sanctions will target food and medicine directly, Iran will be cut from the international financial system, so imports will be affected, causing delays in delivery. People who might otherwise live normal lives with the aid of their medications will needlessly die.
Some experts say the sanctions compound deep structural problems within the Iranian economy. President Hassan Rouhani’s government, which for years has kept the dollar at an artificially low level, has now seen that strategy blown out of the water.
What exactly is the Trump administration imposing?
The first batch of sanctions, as set out in a United States Treasury document in May, is targetting Iran’s trade in gold and other metals, as well as the car industry. They will be followed in early November by a second wave of measures on energy and financial industries, hitting Iran’s oil exports, ports and shipping sectors, and transactions with Iran’s Central Bank.
Last month the United States Department said the Trump administration would not ‘hesitate’ to punish foreign companies that did not comply with the sanctions. United States government officials have toured Europe and other parts of the world on a series of ‘road shows’ to explain the policy.
The threat is clear: firms that explored the Iranian market following the 2015 nuclear accord could soon face United States penalties unless they pull out, even if their countries are signatories to the deal and are fighting to keep it going. The Trump administration has showed little willingness to grant exemptions to companies or waive the sanctions, and has also indicated it seeks to punish firms who try to sell products to Iran from outside.
The United States has demonstrated its clout when acting against transgressors in the past, an example being the near $9 billion fine handed out by a United States court to the French bank BNP Paribas in 2015 for alleged sanctions violations.
The sanctions are also re-imposed on previously blacklisted individuals, many of whom are accused of siphoning off Iran’s wealth abroad. That prompted a bizarre tweet from former President Mahmoud Ahmadinejad, under whose watch cronyism and corruption flourished, according to his detractors.
What has been the international response?
The European Union has scrambled to keep the nuclear deal alive and protect European businesses in the wake of Trump’s announcement in May. But the reality is that for many international businesses the risk of losing access to United States markets far outweighs any gains from dealing in Iran.
A French carmaker is suspending investment, while the other is likely to follow suit, though it has said it wants to retain a presence in Iran. Energy firms are heading towards the exit, as are Airbus, Boeing, General Electric, Maersk, Reliance and Siemens. Africa’s largest telecommunications provider is also said to be putting investment plans on hold.
The investment freeze, some might say company exodus, comes despite the European Union’s efforts to mitigate the punitive effects. In May the Commission said it was reviving a ‘blocking statute’, drawn up in the 1990s to counter the United States sanctions on Iran, Libya and Cuba, seeking to ban European companies from complying with Washington’s measures, and to allow them to seek compensation.