American Sanction.. A nail in the coffin of the Iranian regime

Date & time : Thursday, 13 September 2018

The economic crisis in Iran has entered a new phase after US President Donald Trump announced a new package of stances against Tehran. Trump warned European companies of sanctions if they continued to deal with the Iranians. This represents a dramatic step toward the economic crisis in Iran. Many European companies tended to withdraw from the Iranian market.

The latest wave of sanctions includes a ban on dollar exchange with the Iranian government, as well as a ban on precious metals, especially gold, and sanctions on the automotive, steel, coal and aluminum industries. Sanctions will also be imposed on institutions and governments that deal in Iranian currency or Iranian government bonds and prohibit donations or purchases of foreign debt to Iran. The sanctions against Iran’s aviation sector will be reinstated, and Tehran’s supply of civilian aircraft and spare parts will be blocked. The new sanctions impose restrictions on Iran for the import or export of technology associated with industrial, civilian and military dual-use technology programs.

In addition, a new wave of sanctions will be imposed on November 5 including the following:

  • The Iranian energy sector, including the purchase, acquisition, sale, transfer or marketing of petroleum, petroleum products and petrochemical products from Iran.
  • Transactions of foreign financial institutions with the Central Bank of Iran and Iranian financial institutions.
  • Banning of dealing with Iran’s port operators, shipping and shipbuilding companies, including shipping lines in Iran, shipping lines or subsidiaries.
  • Specialized financial correspondence services to the Central Bank of Iran and the Iranian financial institutions.
  • Insurance or reinsurance for Iranian shipping, ports and oil sectors and some other activities.

Trump administration seeks tough sanctions on Tehran in order to force to negotiation table to fix what Washington sees as flaws in the 2015 nuclear deal and discuss with it its regional role. The American president reveals to two options face the Iranian regime either change its threatening and destabilizing behavior and reintegrate into the global economy, or continue the path of economic isolation.

Once trump administration decided to reinstate economic sanctions against Iran, many European and international companies decided to exit the Iranian market for fear of US sanctions, notably Total Gas and Oil, Zimans, Airbus, Annie, Saga, Alliance, Deneli and Mercek. About 100 international companies tend to leave Iran after the US sanctions on Tehran.

  • French giant Total has announced its tendency to withdraw from a $ 1 billion development of an Iranian natural gas field.
  • AB Müller-Maersk, the world’s largest container company, announced that it will close its operations in Iran.
  • Italian steel company Daniele has suspended contracts of 1.5 billion euros (1.8 billion dollars)
  • Norwegian solar company SAGA, which announced the suspension of a 2.5 billion euro contract for five years with the Iranian energy company Amine, signed it in October 2017.
  • Airbus announced in December 2016 that it had signed a contract to deliver 100 aircraft to Iran.
  • Italian company ANI, which signed an agreement to study oil and gas fields with Iran in June 2017 decided to cancel the agreement
  • Allianz, a multinational financial services company based in Munich, Germany, announced its decision to leave Iran after Washington announced its withdrawal from the nuclear deal.
  • South Korea’s Dilem Industrial canceled a 2.23 trillion won ($ 2.08 billion) contract for a refinery project in Iran on Monday.
  • Swiss company Stadler entered into a deal with the Organization for the Development and Modernization of Iranian Industries, known as “Edero” last February, for the production and supply of about 960 subway trains between Tehran and the city of Karaj, west of the Iranian capital, American nuclear agreement, and the imposition of economic sanctions on the mullahs. Peter Wentlen, head of the Swiss sector said that The current situation is very difficult to deal with Tehran in light of the current US position.

Recent studies estimate that the withdrawal of the United States from Iran’s nuclear deal will lead to Iranian economic losses of up $ 72 billion. Comparing this volume of losses to the country’s domestic production, this means the Iranian economy faces a mass collapse.

According to estimates by the Iranian Revolutionary Guard’s Tasnim, the sharp rise in the value of the dollar against the Iranian riyal has resulted in $ 32 billion in Iranian capital and the $ 16 billion foreign exchange reserve. Iranian oil revenues reached $ 55.7 billion in 2016, contributing 90% of the $ 61.7 billion in commodity import costs. Thus, foreign exchange reserves witnessed a deficit of $ 16.3 billion in 2016-2017.

Capital escaped outside Iran at a rate of 24%, the continuation of this may lead to a further tightening of the deficit in foreign exchange reserves in Iran. According to a study by the Center for Iranian Parliament Studies, the flight of capital from Iran is due to the lack of confidence in the Iranian economy, as well as the consequences of the US withdrawal from the nuclear agreement, which leads to a significant appreciation of the dollar against the dollar and imposing of further restrictions on currency conversion Between Iran and other countries such as China, Turkey and Dubai, so the Iranian market is full of risks compared to previous years. The lack of confidence in countries that have trade with Iran such as Turkey, China and others, led in the past three months to a sharp rise in the exchange rate of the US dollar against the Iranian riyal, which amounted to more than 60 thousand Iranian riyals per dollar.

The future of Iranian economy in light of the current crisis

Trump administration confirmed that it wouldn’t hesitate to punish US and foreign companies that will not comply with the decision to restore sanctions on Iran, that will allow the Iranians to conduct transactions in the United States. Iranian economy suffers from corruption and mismanagement, according to a report of the Atlantic Council, but the exit of the United States from the nuclear agreement increased this suffering, which led to the collapse of the price of the Iranian domestic currency. The dollar reached 118,000 riyals this week on the black market. Trump’s comments that he was prepared to meet with Iranian officials would ease the rapid collapse of the currency as the currency stood against the dollar on the black market following Trump’s statement to 104,000 riyals.

The current crisis is not limited to certain sectors of Iran’s economy. The effects of this crisis extend to all sources of national income such as oil revenues. The decline in Iranian energy exports is about 300,000 barrels per day. Iran may be able to sell oil to its friends such as China, Russia and India, but it will have to sell oil at low prices. Therefore, it is normal for the currency to continue to fall, which has an impact on the prices of goods and services. The economic crisis will affect development plans. Iran hoped to revive its economy through cooperation with international companies, so as to meet the needs of the middle class and ease the political and social pressure resulting from the economic crisis

Conclusion

The current economic crisis is becoming increasingly dangerous because of its association with the future of the regime in Iran. It is not just a crisis in a particular economic sector but a structural crisis that strikes the Iranian economy in infrastructure. This crisis is reflected in the legitimacy of the ruling regime in Iran because it is unable to control its breadth.

The most important function of the political system is its ability to provide for the needs of citizens, and therefore the inability of the Iranian regime to deal with the current crisis will affect its survival.


Iranian Studies Unita

References

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