Putting the squeeze on Iran’s currency needs

Iran’s economic growth is rapidly in decline, and something mentioned in previous columns. This is having an obvious impact on living standards for its citizens, burdened as they are by rising inflation and unemployment and a currency collapse.

Since the implementation of the first phase of US sanctions announced by President Trump in early August, more countries and companies are exiting from their Iran associations. And regardless of what the Iranian media says, trying to mitigate the effects of the boycott with tough words that do not reflect reality. Iran’s key economic and trade partners, such as the EU, China, Russia, North Korea and India, are rapidly aligning with US sanctions even before these come into effect.

British Airways, Air France and Dutch carrier KLM announced last week that their flights to Iran will be suspended as of September. It is also expected that European and non-European airlines are going to suspend their flights to Iran in the coming period. Prior to the flights’ suspension, Asia’s imports of Iranian oil fell to a record level in June, while South Korea’s Hanwha Total Petrochemical Company increased its imports of US, Australian and European oil condensates to replace Iranian supplies. A move that is also being done by other South Korean refineries after the French company Total’s withdrawal from Iran.

In the energy sector, the British firm Quirkos said it would stop a €500 million (Dh2.1 billion) solar project, which would have been the world’s sixth largest solar power plant, because of US sanctions.

Meanwhile in the roads and communications sector, Germany’s Deutsche Telekom announced a gradual withdrawal from Iran, while car companies such as Germany’s Daimler-Benz and France’s Renault also announced withdrawals.

It is clear that sanctions will affect all sectors, oil and non-oil without exception, unlike previous sanctions under former President Barack Obama, which was not tough and easily circumvented. For its part, Iran is trying to find ways to seek alternatives, but it is not finding responses from even countries that do not agree with the sanctions, including those, which signed the nuclear agreement, because of their strong interests in dealing with the US.

For example, Iran is trying to urge Europeans to create an international payment system to convert Iranian oil sales to other currencies and cover the value of trade, instead of a US dollar-based payment system.

However, the German Chancellor Angela Merkel responded quickly that she is not in favour of a new international payment system, while Russian President Vladimir Putin announced that Russia is not dumping the dollar.

This has represented a setback for Iran in such a vital area, meaning no international financial and monetary transactions with Iran would take place after the full implementation of sanctions by November.

Until then, the US will seek to bring down Iranian oil exports to zero, which will deal a fatal blow to the economy.

This will lead to serious political repercussions for the regime internally and externally and lay the foundation for an inevitable collapse.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.