How Trump’s sanctions are crippling Iran’s economy

US President Donald Trump has slapped fresh sanctions on Iran as part of his “maximum pressure” campaign against the Middle Eastern nation. Trump’s executive order on Monday targeted none other than Iran’s supreme leader, Ayatollah Ali Khamenei, and his associates with financial sanctions.

US Treasury Secretary Steven Mnuchin said Trump’s order will lock up billions of additional dollars in Iranian assets.

Read more: JCPOA reeling, Iran’s youth seek sustainable economic path

Tehran and Washington are currently locked in a bitter standoff, and escalating tensions have fueled fears of an unintended slide toward a military confrontation between the two sides, particularly after Iran shot down a US spy drone over the Persian Gulf last week.

The US has also beefed up its military presence in the region and blacklisted Iran’s Revolutionary Guards as a “foreign terrorist organization.” In response, Iran declared the US a “state sponsor of terrorism” and American forces in the Middle East and beyond as “terrorist groups.”

Last year, Trump unilaterally pulled the US out of the landmark nuclear deal that Iran and six world powers struck in 2015. He has since reimposed wide-ranging sanctions, aimed at putting an end to Iran’s oil exports, crippling its main source of foreign exchange and forcing Tehran to abandon its nuclear ambitions.

Since pulling the US out of the nuclear deal, Trump has reimposed wide-ranging sanctions on Iran

How have US sanctions hit Iran?

The US moves have hit the Iranian economy hard. While the oil-rich nation’s crude exports have been down, inflation and unemployment have spiraled.

Iran, which sits on the world’s fourth-largest oil reserves and second-biggest gas reserves, shipped over 2.5 million barrels per day of crude in April 2018, the month before Trump withdrew the US from the nuclear deal. That figure was down to about 400,000 to 500,000 barrels per day in May, reported Reuters news agency, citing industry sources.

The lifting of international sanctions in 2016 spurred rapid growth in Iran, with the country’s economy expanding by more than 12% in 2016. But the reimposition of sanctions last year dealt a massive blow. The Iranian economy, the second-largest in the region behind Saudi Arabia’s, shrunk by 3.9% last year, estimated the International Monetary Fund (IMF).

In 2019, IMF forecasts say, Iran’s economy will shrink by a massive 6%.

Read more: Pompeo seeks ‘global coalition’ against Iran

Frustration over the sanctions is running high among Iranians, who have seen the value of Iran’s currency rial plummet by about 60% over the past year. Inflation is up 37% and the cost of food and medicine has soared 40% to 60%, according to EU figures.

“In the last weeks and months, the prices of daily products have increased dramatically for every Iranian,” Michael Tockuss, managing director of the German-Iranian Chamber of Commerce, told DW. “The sanctions are not specific anymore; they’re not directed against special companies or against the rulers of the country. Instead, they hit average Iranians all over the country.”

What’s the effect on unemployment?

Many foreign companies, including carmakers like Daimler and Peugeot and oil group Total, have wound up their operations in Iran in recent months. This has driven up the jobless rate in the country, with overall unemployment currently hovering around 12%.

Iran’s young people are bearing the brunt of unemployment even more. The youth unemployment rate is closer to 30% in a country where 60% of the 80 million people are under 30.

A parliamentary report last September warned that rising unemployment could threaten the country’s stability. The report also said if Iran’s economic growth remained below 5% in the coming years, unemployment could hit 26%.

Iranian President Hassan Rouhani says his country is facing “economic war.” But Washington stresses that economic pressures on Tehran are directed at the government, not at the Iranian people.

In May, Iran said it would begin backing away from the nuclear accord’s terms, setting a July 7 deadline for the deal’s remaining signatories — the UK, France, Germany, Russia and China  to negotiate new terms or it would resume enriching uranium closer to weapons-grade levels.

Observers say should Iran follow through on enriching uranium beyond the permitted levels, the nuclear deal could collapse entirely. In that case, UN sanctions would also be reimposed, a move that could devastate the already crisis-hit economy.

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  Iran nuclear deal — treaty under threat

  The deal breaker

  President Donald Trump announced on May 8, 2018 that he was pulling the United States out of the 2015 Iran nuclear deal, arguing that the international accord was not in America’s “national interest.” The decision threw a cloud of uncertainty over the future of the nuclear accord and raised tensions with US allies in Europe.

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  Iran nuclear deal — treaty under threat

  Slap in the face

  Britain, France and Germany lobbied the Trump administration and Congress to remain in the nuclear accord, arguing that the deal was working and a US violation without a follow up plan would be destabilizing. In European capitals, the Trump administration’s withdrawal was viewed as a slap in the face of allies.

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  Iran nuclear deal — treaty under threat

  Iran scrap ‘voluntary commitments’

  A year to the day after Trump’s announcement, Iran informed the other signatories of the accord that they would no longer adhere to certain “voluntary commitments.” Iranian President Hassan Rouhani said the signatory nations had 60 days to implement promises to protect Iran’s oil and banking sectors or Iran would resume the enrichment of uranium.

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  Iran nuclear deal — treaty under threat

  Response to US pressure

  The decision came after the United States deployed an aircraft, the USS Lincoln, along with a bomber task force to the Middle East. Washington said the deployment was intended as a “clear unmistakable message.” Iran said it took action because the European Union and others “did not have the power to resist US pressure.”

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  Iran nuclear deal — treaty under threat

  A triumph of diplomacy

  The Joint Comprehensive Plan of Action (JCPOA), better known as the Iran nuclear deal, was signed in 2015 by United States, China, Russia, France, Germany and Britain (P5+1) and Iran following years of negotiations. Under the international agreement, Iran agreed to dismantle its nuclear program and be subject to monitoring in exchange for the lifting of international nuclear related sanctions.

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  Iran nuclear deal — treaty under threat

  Compliance and verification

  The JCPOA includes a robust monitoring, verification and inspection regime carried out by International Atomic Energy Agency (IAEA). The UN watch dog has verified Iran’s compliance with the deal in 12 quarterly reports. The JCPOA allows Iran to pursue a peaceful nuclear program for commercial, medical and industrial purposes in line with international non-proliferation standards.

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  Iran nuclear deal — treaty under threat

  Obama’s achievement

  The Iran nuclear deal was President Barack Obama’s signature foreign policy achievement. Seeking to undo nearly every Obama administration legacy, Trump came into office calling it the “worst deal ever.” The Trump administration argues the nuclear deal doesn’t address other unrelated issues such as Iran’s ballistic missiles, regional influence, support for “terrorist” groups and human rights.

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  Iran nuclear deal — treaty under threat

  Iranians approved

  The nuclear deal and lifting of punishing nuclear related international sanctions created optimism in Iran after years of economic isolation. However, even before Trump pulled the US out of the deal, Tehran blamed the US for holding back international investment and not fulfilling its end of the bargain due to the uncertainty created by Trump’s threats.

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  Iran nuclear deal — treaty under threat

  The opponents

  After eight years with Barack Obama, Israeli Prime Minister Benjamin Netanyahu found the US president he wanted in Donald Trump. The Israeli leader repeatedly slammed the deal despite his own military and intelligence chiefs’ assessment the that JCPOA, while not perfect, was working and should be maintained. Saudi Arabia and the UAE are the other main opponents of the nuclear deal.

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  Iran nuclear deal — treaty under threat

  Who’s left?

  The EU-3 (Britain, France, Germany) have scrambled to ensure that Iran receives the economic benefits it was promised in order to avoid Tehran pulling out of the deal. As EU businesses face retaliation from the US for doing business with Iran, many are opting to avoid Iran. This would likely be a present to Chinese and Russian businesses.

Can Europe help?

Following Trump’s withdrawal from the nuclear deal, Germany, France and the UK set up a special payment channel called INSTEX to circumvent US sanctions and continue trade with Iran. The European move came despite the Trump administration warning against initiatives to sidestep sanctions on Iran.

The mechanism was set up in January, but it has so far failed to deliver. While the payment channel would theoretically shield European companies from US sanctions-related penalties, many businesses have been reluctant to trade with Iran due to concerns they could find themselves on the wrong side of US law and risk losing access to the American market.

The failure has caused disappointment in Iran. Iran’s supreme leader, Ayatollah Ali Khamenei, even dismissed INSTEX as a “bitter joke.”

“Practically, at the moment, this system plays no role,” said Tockuss.

Holly Dagres, nonresident fellow at the Washington-based Atlantic Council, told DW in May that the EU’s options were limited when it came to preserving the nuclear deal and trading with Iran.

“The reality is that Europe is limited in terms of telling its companies to go and do business in Iran. There is this greater fear that they will be sanctioned,” said Dagres.

Article source: https://www.dw.com/en/how-trump-s-sanctions-are-crippling-iran-s-economy/a-49335908?maca=en-rss-en-all-1573-rdf