Iran waiting for Trump: US sanctions policy – results and prospects

On July 15, 2015, the UN Security Council's five permanent members - namely China, France, Russia, the United Kingdom, and the United States plus Germany – and Iran signed a comprehensive nuclear deal. On Jan 16, 2016, following the IAEA’s approval of Iran’s nuclear program, the UN Security Council lifted most of the sanctions imposed on the country in 2010. But the United States’ sanctions applied for support of international terrorism, human rights violations, independent regional policy and active efforts to have own missiles are still in force. Unlike the Americans, the Europeans have lifted almost all of their anti-Iranian sanctions, except for the ban on the sale of arms, missiles and equipment for internal repressions.

During his presidential campaign, Donald Trump spoke against the new nuclear deal with Iran. He said that the deal was not a solution but a respite granted by Barack Obama to the Iranians and promised to cancel it.

Shortly after Trump’s election, the EU stood up for the deal. According to the Europeans, de jure, the Americans cannot cancel a UN decision but, de facto, they can do it: de facto, there is no real obstacle that can prevent Trump from rejecting the deal and renewing the sanctions lifted in Jan 2016. Putting a veto on the deal will be enough.

Should the Americans re-impose their sanctions, all those who have renewed their contacts with Iran will face penalties and high risks.

The Americans’ current anti-Iranian steps are part of a policy launched after the Islamic Revolution of 1979 - a policy aimed at curbing Iran’s growth as a regional Shia power.

Below are the United States’ preconditions for lifting its sanctions against Iran. For the Americans to lift the sanctions, the Iranians should

- stop any activities to buy mass destruction weapons;

- stop any activities to sponsor terrorism;

- stop being a threat to the United States’ national security.

The real goal of the sanctions imposed in 2011-2016 was to change the political regime in Iran. But that goal has not been achieved as despite economic problems and falling oil prices, the Iranians continue supporting their rulers and their policies to cooperate with militarized movements in Syria and Iraq and to develop their country’s nuclear and missile capacities. Quite contrary to the Americans’ plans, the Iranians have enlarged their influence in the Middle East and, particularly, in Shia Baghdad, and have boosted their military potential.

On the other hand, the sanctions have forced the Iranians to elect a less anti-Western president, Hassan Rouhani, and a mostly moderate Majlis. But if Trump cancels the deal, radicals are sure to come back into power.

Now let’s see what Iran has lost as a result of the sanctions. In 2010, the country’s GDP has shrunk by 15-20%. In 2014, as many as 20% of Iranians were unemployed. In 2012-2014, the Iranian rial rate dropped by 56%, while prices rose by 50-70%. But in 2015, the Iranians got used to the sanctions and registered a 2-3% GDP growth.

Before the sanctions, energy made up 20% of Iran’s GDP, 80% of the country’s currency earnings and 50% of its budget. The sanctions were a big blow for Iran’s energy sector, but in 2015-2016 things improved a bit due to higher diversification. Now energy makes up 1/3 of the incomes required for financing the imports, which is not bad.

On the other hand, Iran has cut the import of luxury goods and has cancelled almost all social benefits.

The sanctions have forced the country to produce more import-substitutes and to train more own specialists. As a result, today, Iran enjoys the world’s highest percentage of own engineers.

Even though in Iran the economy is still controlled by the government, over the last years, some state-owned companies have been given to quasi-private structures. One of the major owners of the Iranian economy is the Army of the Guardians of the Islamic Revolution. That mixture of a secret police, a national guard and an internal party controls all nuclear, energy and military programs in Iran. In 2014, The Wall Street Journal reported that Khatam al-Anbia, a company controlled by the Army, had state contracts worth a total of $50bn and employed as many as 40,000 people.

In other words, though having crippled Iran economically, the sanctions have failed to hit it in the heart. This is why in 2014-2015, the Americans made up a list of even tougher sanctions, such as:

- banning any non-humanitarian trade;

- banning any contacts with the energy sector;

- banning any investments in the energy sector;

- banning the import of oil products made from Iranian fuel;

- suspending membership to the IMF;

- banning any commercial loans;

- banning the purchase of Iranian government bonds;

- banning the insurance of Iranian ships;

- suspending all flights to and from Iran;

- banning visits by Iranian diplomats.

But the UN Security Council would hardly approve that list, and so, Obama agreed to a certain compromise. On the other hand, he had certain plans in view.

He planned that after the lifting of the sanctions, Iran would use most of its additional revenues for improving its civil economy. In 2011-2016, Iran’s crude exports dropped by 60% from 2.5 million barrels a day to 1.1 million barrels a day. As a result, since 2012, the country has lost almost $160bn in oil revenues. In 2016, when the sanctions were lifted, Iran raised its crude exports to the pre-sanction level but falling oil prices took almost half of the revenues. As a result, in 2016, Iran’s GDP grew by just 4%.

Now that the sanctions are lifted, Iran can use the SWIFT system again, which will make its business transactions much quicker. In the best scenario case, the Iranians would like to get $500bn in investments for modernizing their infrastructures but they have much more serious problems to solve. In 2011, they lost $60bn in foreign investments. By 2020, Iran needs no less than $130bn for keeping its oil production at the current level and is actively working to this end: in 2016, the Iranian authorities decided that foreign investors would enjoy a certain percentage from produced Iranian oil for 20-25 years. In Nov 2016, they signed a $4.8bn gas contract with Total, in Dec 2016, gas contracts with Royal Dutch Shell and Gazprom and oil contracts with PTTEP and Gazprom.

The attitude of the new U.S. President may put an end to these projects.

EADaily’s Middle East Bureau