News : Economy
- Published: Sunday, 23 September 2018
By Edward Carney
A report published by Bloomberg on Thursday suggested that the Trump administration’s pressure-based strategy for dealing with the Islamic Republic of Iran has been at least partly vindicated in the face of criticisms from those who expected it to have only limited effects, whether on the Iranian economy itself or on the subsequent response by the Iranian regime.
The report notes that the latest figures undermine the notion that the economy would be protected to any significant degree by the refusal of European and other governments to go along with the unilateral American policies that were put into place when President Trump withdrew from the seven-party Iran nuclear agreement in May.
The Trump administration has repeatedly indicated that the goals underlying the re-imposition of nuclear-related sanctions, along with other types of economic and political pressure, are first to bring Iranian oil exports to zero and then to compel a comprehensive change of behavior in the clerical regime. Although the actually nullification of all Iranian oil exports is almost certainly a unattainable benchmark, it speaks to the vast scale encompassed by the White House strategy. And as Bloomberg notes, that strategy has already contributed to a 35 percent reduction in Iranian oil exports since April.
The article characterizes this outcome as effectively “crushing” the industry on which the Iranian government relies for approximately 80 percent of its tax revenue. Over the long term, this can certainly be expected to deepen the economic crisis that has already helped to fuel nine months of anti-government protests among the citizens of cities and towns throughout the country. This is especially true in light of the fact that the latest figures only represent the early effects of the high-pressure strategy, preceding the actual enactment of sanctions on the Iranian petroleum industry and the international companies doing business with it.
A different package of sanctions was put into place in August, and the follow-up will take place on November 4, by which time it appears the majority of the would-be targets will have already halted their dealings with the Islamic Republic. Many have already done so in spite of statements by the governments to which they are subject, or by the companies themselves, expressing support for the 2015 nuclear deal or even pledging defiance of the US sanctions regime.
A prime example of this phenomenon is the government of India, which Bloomberg highlighted as presenting initial resistance to the White House sanctions plan. This resistance evidently contributed to the low expectations among some international observers with regard to the long-term impact of those sanctions. Yet Indian companies have been steadily moving toward compliance, and on Thursday Reuters reported that Chennai Petroleum announced that its refineries would be among the latest to stop processing Iranian oil altogether. This move involved the cancellation of a one million barrel order that was already in place for the month of October.
Chennai’s decision was reportedly influenced by earlier compliance decisions by the company’s insurers. This is a testament to the interconnected nature of the sanctions regime and the economy that it is seeking to influence, which makes it increasingly likely that the remaining non-compliant holdouts will fall into line after they recognize a growing assortment of potential consequences for their defiant commitments.
Of course, this remains to be seen, and there are even more open questions regarding the effect that broader compliance might have upon Iran’s own defiance. So far, however, the regime’s tone in communication with the US and its allies has been largely consistent. A separate report by Reuters pointed to this phenomenon on Thursday and specifically highlighted remarks that had been posted online by Iranian Foreign Minister Javad Zarif, condemning the US for breaking an international agreement via Trump’s withdrawal and insisting that the Islamic Republic will not entertain the White House’s newly declared plan to formulate a treaty with Iran limiting its missile program and regional activities, along with its nuclear program.
One question that arises from reports indicating a greater-than-anticipated effect of recently-imposed sanctions is whether Tehran’s rejection of Western outreach will continue in the event that there is broader agreement among Western nations regarding a pressure-based strategy and associated policy goals. This question is essential because India is not alone in backing away from previous defiance. And although the European Union remains largely committed to upholding the nuclear deal – even offering 20 million dollars’ worth of aid to Iran in service of that end – a growing number of cracks are showing in that commitment.
Not least among these is the systematically alignment of Europe-based businesses with the US sanctions regime. Newsweek reported on Thursday that Volkswagen had become the latest such company, having pledged to extricate itself from the Islamic Republic following negotiations with the Trump administration that wrapped up on Tuesday. Meanwhile, Agence France Presse provided relevant context for that decision, noting that German officials and business leaders have been facing “daily” pressure to comply with the sanctions.
Furthermore, from remarks attributed to American figures such as US Ambassador to Germany Richard Grenell, it appears that this pressure consists not only of threats regarding American enforcement mechanisms, but also reminders of the potential consequences of inappropriate European policies, in terms of an expansion in the danger posed by Iranian ballistic missiles and terrorist proxies of the Islamic Republic. In commenting upon the Volkswagen compliance decision, Grenell said the Trump administration is “pleased with this decision because Iran diverts its economic resources away from its people to spread violence and instability across the globe.”
A day earlier, in a speech to the Hudson Institute, US special envoy for Iran Brian Hook spoke in somewhat more provocative terms, saying that United Nations member states have been ignoring Iran’s continued ballistic missile development, and that they have been doing so “at their peril.” The Washington Free Beacon pointed to these remarks as examples of the efforts by Hook and his colleagues to underscore the Iranian threat and urge greater European commitment to addressing it ahead of the UN General Assembly, which gets fully under way in the coming week.
On Wednesday, the US will also chair a meeting of the UN Security Council, which is now set to focus on nonproliferation, though President Trump had previously expressed his intention to focus entirely on issues related to Iran. Despite this change, it is expected that much of the American delegates’ attention will remain squarely on Iran. And in the wake of recent developments both in the private sector and in foreign policy circles, the ensuing discussions may very well test the limits of international defiance of the administration’s strategy for “changing the behavior” of the Iranian government.