Global Center for Security Studies
Although it is one of the key players in the Middle East thanks to its rich natural resources, educated population and advantageous geopolitical position, Iran is constantly exposed to international sanctions, and has again faced a serious economic crisis with the President Trump’s withdrawal from the nuclear agreement. It is curious to see how Trump, who does not have a consistent foreign policy, will financially squeeze Iran.
In fact, as claimed by many experts, this time it would be very difficult for Iran to cope with sanctions. Because of many years of sanctions and being cut off from the SWIFT system as well as the deprivation of modern technology, especially in the military and aviation fields, Iran has lost its competitive power in regional and global markets, and the country’s productivity has decreased due to the lack of modern technology, equipment and infrastructure.
Considered one of the major turning points in Iranian political history, the Nuclear Agreement was signed with P5 + 1 countries on June 14, 2015. Under this agreement, a Joint Comprehensive Plan of Action (JCPOA) allowing Iran to work and cooperate with other countries has been signed. Other than hardliners who has viewed it against the targets of the revolution, the nuclear agreement made with P5 + 1 countries has created a positive atmosphere both among Iranian public as well as international circles. With this agreement, even though the US has pledged to lift sanctions in a timely fashion and Iran has theoretically been taken into the SWIFT system, in reality, the US secondary sanctions have so far remained uninterrupted.
Taking an anti-negotiation stance since his 2016 election campaign, President Trump announced on 8 May 2018 that the United States would unilaterally pull out of the JCPOA.
From the beginning, messages coming from Trump himself as well as his administration have showed that the adverse attitude towards Iran could get stronger and, while it is a low probability, if this antagonistic approach turns into a military operation, it will not be surprising among the in this administration. National Security Adviser John Bolton and the Foreign Secretary Mike Pompeo, and many other officials as well as pundits in and outside the administration are very well known to unite easily when it comes to an anti-Iranian stance.
After the withdrawal, the US administration has initiated very aggressively taking steps toward deepening and expanding sanctions against Iran, both at home and abroad. The US is currently making a special effort to get the Europe’s support for anti-Iran moves.
The Office of Foreign Assets Control (OFAC), which operates under the US Treasury Department, is responsible for enforcing sanctions in the US. In 2006, the year that the first international sanctions were put into effect, the OFAC officials, who went to many countries in the world held meetings with senior officials of the banks and warned that the banks that brokered financial transactions with Iran would be punished. It is expected that this institution will again be more active in the coming period. In this context, it is assessed that in a similar way to the period between 2006 and 2010, secondary sanctions will be implemented again soon.
By expanding sanctions, the US is believed to be able to take the following steps against Iran:
- Iran’s access to the global financial system will become more difficult:
Iran has an international money transfer problem. Trading in US dollars automatically implies the use of the US financial system, where the US severely punishes the financial institutions that act as intermediaries in such transactions.
- The SDN list (blacklist) may be extended:
The SDN list (the list of those who help terrorists), managed by the US Department of Treasury OFAC unit, can be extended with a number of new Iranian individuals and institutions. According to the current legislation of the US, it is forbidden not only for the US citizens but also for the third-country nationals to establish commercial relations with persons and institutions on the SDN list.
- Foreign investment may be further reduced:
Iran needs 60-80 billion dollars annually to surmount problems like unemployment and low economic performance. Unless a great deal of foreign investment takes place, unemployment and many other socio-economic problems could worsen and, possibly within a few years, reach a dimension that would not be able to be overcome by the regime.
It is also seen that President Ruhani, who has hailed the JCPOA as a historical success with the reason that a deep economic crisis was prevented, and who was elected as the President of Iran in a second time with this wind, has fallen into a difficult position in domestic politics, since he has having trouble to explain current situation to the Iranian people.
Even after the withdrawal of the United States from the JCPOA, Iran is expected to continue to negotiate with European countries, China and Russia. Claims that Iranian economy will go bankrupt in a few months in case of its withdrawal from the nuclear deal or losing the support of countries other than US is becoming increasingly a strong possibility in the face of current data.
It is possible that in Iran, actors with different political positions may meet on the common ground, leaving their political disagreements in the event of an external threat to the existence of the regime. If the pressure of the US comes to an unbearable point, Iran could even react by leaving the JCPOA and restarting its nuclear program.
If sanctions expand in the upcoming period as expected, significant developments may directly affect the economic and sociological situation of Iran. As a matter of fact, in recent days, the increasing street protests in Iran have reached the level where the protestors clash with the police from time to time. Along with the crippled economy, the current regime has also been criticized in these protests.
In short, with the current political structure, the Iranian regime, which has not taken the necessary steps in individual freedoms, ethnic as well as sectarian demands and political opening, faces periodical social reactions. When it is thought that even many strikes and demonstrations have already been organized in many regions of Iran before Iran signed JCPOA, it is very difficult for the Iranian economy to overcome a new and bigger shock ahead. That’s why this time, a full US sanction could deliver a mortal blow to the Iranian regime where, contrary to the previous sanctions, it might not able to cope with so easily.