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Iran sanctions: their impact at home and abroad

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Iran sanctions: their impact at home and abroad

Iran sanctions: their impact at home and abroad
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Donald Trump has said the US will pull out of a deal that removed most of the economic sanctions against Iran in exchange for Tehran limiting its nuclear ambitions. He has also promised the introduction of new "high level" sanctions.

"These sanctions Trump is reimposing are largely secondary sanctions, meaning they target European and other companies that do business with Iran."

Nahal Toosi Foreign policy correspondent, Politico

Significantly, these sanctions will be extended to cover companies from third party countries that continue to trade with Iran, prompting concerns in Europe.

The US Treasury has stated that it will reimpose previous sanctions after 90- and 180-day "wind-down periods", when they will come into full effect.

Which sanctions will come back into effect?

After a 90-day wind-down period, the following sanctions will come back into effect:

  • on the purchase or acquisition of US dollar banknotes by the Government of Iran;

  • on Iran's trade in gold and precious metals;

  • on direct and indirect trade with Iran on graphite and various metals and minerals;

  • on significant transactions in Iranian currency (the rial);
  • on trades in Iran's sovereign debt;
  • on Iran's automotive sector;
  • on trade in Iranian-origin carpets and foodstuffs;
  • on licensing of exports to Iran of commercial passenger aircraft and related parts and services; and
  • on certain contracts.

After a 180-day wind-down period, the following sanctions will come back into effect:

  • on Iran's port operators, shipping and shipbuilding sectors,

  • on petrol-related transactions;

  • on transactions by foreign financial institutions with the Central Bank of Iran;

  • on the provision of financial messaging services to the Central Bank of Iran;
  • on underwriting services, insurance, and reinsurance; and
  • on Iran's energy sector.

The US Treasury has published details about these sanctions on its website.

Will oil sanctions work?

One of the most significant sanctions is that imposed on Iranian oil exports, which could mean a reduction of 20%, or up to half a million barrels per day. This proved to be an effective tool under former US President Barack Obama. However, for the moment at least, Asia and Europe are not willing to join the US in imposing sanctions, and that could limit the impact felt in Iran.

What about the Iranian people?

Iranian President Hassan Rouhani says that Iran is well prepared to face the reintroduction of sanctions against it by the US and that the Iranian people are strong. The truth is that we don't really know what impact these new sanctions will have on ordinary Iranians.

However, under previous sanctions regimes there was widespread concern about the humanitarian cost, particularly through damage to the economy, increases in unemployment, and widespread shortages of essential items, such as medicines.

Impact on European businesses

Whilst European governments have not abandoned the nuclear deal, there is a risk that the US sanctions will have a significantly negative impact on European businesses trading with Iran, who are specifically within Donald Trump's crosshairs.

For example, French oil giant Total, will be hoping to maintain its 8.4 billion euro deal with Iran to develop an offshore gas field. Chief Executive Patrick Pouyanne had previously said that the company would be likely to seek a waiver allowing it to continue working in Iran if the US reimposed sanctions.

Other big European companies that have recently signed deals with Iran include Renault and Airbus.

The US Ambassador to Germany, Richard Grenell, tweeted out a warning to German companies doing business with Iran.

Donald Trump clearly wants European companies to stop trading with Iran. If his strategy of secondary sanctions works, it will leave Iran with little incentive to remain in the nuclear deal because European countries will be unable to stick to their side of the bargain, however much they might want to.

Will it work?

Introducing sanctions is unlikely to resolve the problem of Iranian nuclear proliferation. Indeed, as noted above, in the absence of any trade incentives, it might increase the likelihood that Iran returns to full scale uranium enrichment.