The clash between Iran and the United States is back with a vengeance. US president Donald Trump has decided not to renew the sanctions exemption for eight countries (China, Japan, India, South Korea, Taiwan, Turkey, Italy and Greece) and to renew for only 90 days, rather than 180, the exemptions that allow China, Russia and some European countries to collaborate with Tehran’s civil nuclear program. For his part, the Iranian president has announced his intention to review Tehran's compliance with the Vienna nuclear agreement. In particular, Rouhani spoke of a potential resumption of uranium enrichment activities beyond the levels established in Vienna and certified by the International Atomic Energy Agency (IAEA) should there be no development within sixty days regarding the sanctions regime that has affected Iran since the definitive withdrawal of the US from the agreementlast November.
The effects of the new sanctions
The withdrawal of the exemption from sanctions could further complicate compliance with the Vienna agreement by some European and Asian countries and have long-term effects on oil prices. Following Trump’s announcement, the oil price rose to 74 dollars a barrel: the highest level seen since November 2018.
US president Donald Trump has stated his intention to reduce Iranian oil exports to zero. Secretary of State Mike Pompeo added that the decision to reinstate the sanctions is intended to “step up the campaign of pressure to achieve national security objectives while maintaining supply in the global oil markets”. Trump has therefore announced that he has had bilateral meetings with Saudi and UAE authorities to facilitate exports from these countries. “We are confident that the supply of oil in energy markets will remain at good levels”, tweeted Trump. Iranian oil exports have already fallen below one million barrels a day, a very low level compared to the 2.5 million barrels being shipped before the unilateral abandonment of the agreement by the US.
Following Iranian statements abouta potential resumption of uranium enrichment, the US announced that the aircraft carrier Abraham Lincoln and the warship USS Arlington were being deployed to the Gulf. National Security Advisor John Bolton spoke of the intention to show that “the US is ready to respond to any attack” in connection with potential retaliation against American interests in the region by the Iranian pasdarans. Iran has a military presence and bases in Syria, Afghanistan and Iraq.
Reactions from countries affected by the sanctions
Five of the eight countries that benefited from the six-month sanctions exemption (Greece, Italy, Japan, South Korea and Taiwan) have already stopped importing Iranian oil. The European countries that took part in the P5+1 group which negotiated the Vienna agreement had said they intended to keep the agreement alive. Therefore, in order to side-step the US sanctions, France, Germany and the UK created the INSTEX Special Purpose Vehicle. The purpose is to continue with payments to and from Iran. Thus far, INSTEX has been used to manage financial flows and in sectors not affected by the sanctions, but it could also be used for oil market transactions.
China and India have instead criticized Trump’s decision. Beijing, in particular, could bypass the US sanctions and continue to import Iranian oil. “Cooperation between China and Iran is open and transparent and must be respected”, declared the Chinese foreign ministry spokesman Geng Shuang. Statements along the same lines have been made by the Turkish foreign ministry: the US decision “is not in the interests of regional peace and stability”.
The sanctions are severely affecting the Iranian economy, drastically reducing the value of the local currency, quadrupling inflation rates and keeping foreign investments away. The International Monetary Fund (IMF) expects the Iranian economy to shrink by 6% in 2019. Iran has announced it will do everything possible to bypass the US sanctions, as confirmed by the deputy oil minister Amir Hossein Zamaninia. Tehran will continue to export its oil in defiance of US sanctions. “We have mobilized all our resources to continue selling our oil, to counter unfair and illegal sanctions”, assured Zamaninia.
Since January 2018, continuous waves of protests and strikes have been taking place across the country against rising prices and low wages. The latest demonstrations took place on April 26 and May 1, with the participation of local trade unionists and activists. Tensions are growing between Iran and the United States following the sanctions targeted against the Iranian pasdarans, designated as a terrorist group by the US, and following Tehran’s threat to block the Strait of Hormuz. The extension of the sanctions to all countries that continue to import Iranian oil has provoked a harsh reaction in Tehran, where compliance with the Vienna agreement of July 2015 could be reviewed by the summer. The US decision has not only increased the prospect of war in the region but also led to an immediate increase in oil prices, while the decrease in oil production in Iran could definitively bring the local economy to its knees, weakening Rouhani’s leadership in favor of the hawkish ayatollahs.