Analysing the Economic and Political Fallout
Three months after the United States first announced it was withdrawing from the 2015 Iran Nuclear Deal, the Trump administration has imposed new sanctions on the Islamic Republic. The first set of sanctions targets Tehran’s purchase of US banknotes, trade in gold and other precious metals, as well as the use of graphite, aluminium, steel, coal and software used in industrial processes. They will also affect transactions related to the Iranian rial, the issuance of sovereign debts and the country’s automotive sector. Another round of sanctions, to be reinstalled on Nov. 5, will be on Iran’s port, energy, shipping and shipbuilding sectors, its petroleum-related transactions and business deals by foreign financial institutions with the Central Bank of Iran. The Trump administration will also re-list hundreds of individuals, entities, vessels and aircraft that were previously included on sanctions lists. Trump is hoping that this new round of sanctions will pressure the Iranian leadership to withdraw its military involvement in the conflicts currently raging in the Middle East. But, it could be a dangerous gamble!
The first round of renewed US sanctions on Iran entered into effect on Aug 07 as part of Washington’s strategy to apply “maximum pressure” on Tehran over its alleged malign activity. President Trump took to Twitter to announce, “The Iran sanctions have officially been cast. These are the most biting sanctions ever imposed, and in November they ratchet up to yet another level. Anyone doing business with Iran will NOT be doing business with the United States. I am asking for WORLD PEACE, nothing less!”
The sanctions prohibit Iran’s purchase of US dollars and precious metals, part of a larger move that attempts to cut the country off from the international financial system. Broad sanctions on Iranian industry, ranging from carpets and healthcare to the automotive sector, are also being re-imposed. In addition to prohibiting US persons and entities from doing business with Iran, the sanctions are also extraterritorial. This means that non-US firms and financial entities that do not comply with the sanctions could face fines and be cut off from the American-dominated global financial system. Let’s analyze the possible fallout of this Trumpian gamble:
Iranians have already been feeling the impact of the collapse of the rial, the country’s currency. In May, after Trump announced the US withdrawal from the nuclear deal, it fell to its weakest position against the US dollar in history. It has now lost more than 80 percent of its value since April. 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.
However, it is not for the first time that sanctions have been imposed on Iran; the Islamic Republic has faced them during 2012-14 as well. There’s no question that sanctions imposed during the Ahmadinejad administration hit hard the Iranian economy – they hit ordinary people massively via shortages of daily essentials and equipment, while a mushrooming black market brought exorbitant prices. Iran’s GDP contracted from a high of $600 billion in 2012 to a low of $385 billion in 2015. In 2017, two years after the signing of the nuclear deal, Iran’s GDP had grown to only $440 billion, largely on the back of oil sales.
Read More: The End of Iran Nuclear Deal
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