90 days and counting
Last Tuesday, President Donald Trump signed a National Security Presidential Memorandum withdrawing the United States from the Joint Comprehensive Plan of Action (JCPOA), much to the chagrin of the four other permanent members of the United Nations Security Council, the European Union and Germany, the other parties to the nuclear agreement. These states are currently attempting to stay in the deal through an intensive diplomatic effort, where Iran is looking for economic security and guarantees from the UK, France and Germany. If the Europeans can satisfy the Iranians concerns – and pockets – they will be able to keep the JCPOA alive.
By (illegally) withdrawing the US unilaterally from the agreement, President Trump began the process of bringing the full might of the American economic machine and financial system to bear on the regime in Tehran. Trump is accomplishing this through the re-imposition of sanctions. At the end of an initial 90-day period and a later 180-day period of time (also known as wind-down periods) US-based and foreign-based companies, as well a foreign countries doing business in Iran, must first winddown their operations and then cease all economic activity or face US-imposed sanctions and potentially be cut off from the much more lucrative and larger US market.
Sanctions are divided by categories, with two central types being “snap-back” (sanctions which were lifted as part of the JCPOA) and “primary” sanctions, which forbid certain economic activities and revoke specific licenses that are not directly (though usually indirectly) related to the JCPOA.
As of August 6, 2018 (after the 90-day period), the US will have forbidden the purchase and acquisition of the US Dollar by the Government of Iran as well as the purchase of Iranian sovereign debt. In addition, Iranian trade in gold and precious metals or the sale, supply and transfer of graphite, aluminum, steel and coal, as well as integrated industrial processes, will be banned. International transactions using the Iranian Rial or the maintaining of large amounts of Iranian Rial outside of Iran will also be banned. The automotive sector will also be sanctioned. In addition, Persian-origin carpets and foodstuffs will be banned, as well as the trade of goods and services related to commercial aircraft. As of November 4, 2018 (after the 180-day period), the US will re-impose sanctions on Iran’s seaports, shipping and shipbuilding sectors – including quasi-government owned companies such as the Islamic Republic of Iran Shipping Lines among others. Transactions by foreign financial institutions with the Central Bank of Iran or other Iranian private banks will be banned. The insurance sector in Iran will also face sanctions. But most crucially, petroleum-based transactions, including the purchase or trade of petroleum, petroleum-based products and petrochemical products originating from Iran will be banned.
THE LIST goes on, and the specific licensing agreements, authorizations and people who will be placed on US lists and banned from economic activity is truly staggering.
Iran’s economy is struggling. Over the last several years, immense amounts of US Dollars have flowed into the coffers of the regime in Tehran, but much of that money was lost to corruption, foreign adventures and regional proxies. The Iranian people are suffering from unemployment and inflation. The above-listed sanctions target central pillars of Iran’s economy. Petroleum, metals and minerals made up well over 60% of Iranian exports in 2015.
But US sanctions are by no means guaranteed to work. Trump’s unilateral move is in stark contrast to the Bushand Obama-era sanctions regime built up over eight years of painstaking diplomacy and slow economic reductions that not only brought the Europeans on board but even Russia and China. In the end, these sanctions created a situation which successfully led to the (flawed) JCPOA.
The other parties to the deal are currently attempting to find a way to keep the JCPOA alive. But Europe, who imports over $283 billion of goods and services from the US and exports nearly $435b., arguably has too much to lose over an approximately $20b. market with Iran.
There is a precedent of the EU using legislation to protect its business interests with Iran from 1996. The blocking regulations were passed after the Clinton administration also passed similar unilateral sanctions which were not enforced. Today, this would require consensus from all EU member states, doubtful in today’s political climate. Other suggested measures include conducting business in euros as opposed to dollars, but such measures would have minimal impact, considering the individual size of European private banking sectors per country.
We are already seeing the beginning effects of the US sanctions, with the French company Total halting its nearly $2b. petroleum project. We will likely see French car company Peugeot leave Iran. Airbus and Boeing stand to lose a total of $39b. from the ban on commercial aircraft and spare parts, many of which are partially produced in the US. The only potential protection the European private companies may have is through their national governments. But even then, the numbers just don’t add up. The Europeans will fold – they have too much to lose.
China and Russia will most definitely not adhere to a US-led sanctions regime. This will harm its effectiveness, as China especially is the largest importer of Iranian petroleum. It will also be difficult to persuade India to adhere to sanctions for the same reasons.
Once Iran begins enriching again and violates the JCPOA, the game will change. A breakout toward a nuclear weapon will change the equation. Even the more authoritarian powers of the world have their limits.