Sanctions levied against the Iranian government by the Trump Administration took effect Tuesday, with another round of more stiff round of sanctions to come in the near future. The Trump Administration has hopes that these sanctions will help cripple the Iranian economy and force concessions from the capital of Tehran. In fact, the announcement of sanctions has already begun to take an effect on Iran’s economy.
Iran’s currency, the rial, has lost nearly half of its value since April, creating massive inflation that has ballooned to over 13% as of June. According to BBC Persia reporter Amir Paivar, this will have grave consequences for the Iranian economy, “That in turn probably will trigger a recession because of fluctuating exchange rates, lack of financing means Iran cannot import machinery and technology, and manufacturing will suffer”. Trump took to Twitter on Tuesday to confirm the new sanctions, stating: “The Iran sanctions have officially been cast. These are the most biting sanctions ever imposed, and in November they ratchet up to yet another level.
Anyone doing business with Iran will NOT be doing business with the United States. I am asking for WORLD PEACE, nothing less!”. The sanctions posed by the Trump Administration come in stark contrast with Obama’s Iran Deal, the Joint Comprehensive Plan of Action, which Trump has recently pulled out of. In order to delay Iran’s development of nuclear weapons and deter its ties to terrorism, Obama granted Iran access to billions in frozen assets, as long as Iran would adhere to regular and stringent checks on its nuclear program. Despite Iran already being granted access to these frozen assets, Trump decided to take a hard line approach and attempt to put a major economic squeeze on Iran in order to control the rogue state’s behavior.
These sanctions will aim to cripple a number of Iranian industries, including transportation sectors such as the automotive and airline industries. This will, in turn, affect U.S and European companies as well, such as Boeing and Airbus. These companies will lose contracts estimated at about $39 billion that were meant to help refurbish and modernize Iranian commercial airliners, according to U.S. Treasury Secretary Steven Mnuchin. Additionally, these sanctions will suppress Iran’s ability to buy U.S currency and trade within the industries of aluminum and steel.
These sanctions will also severely limit Iran’s ability to export goods, such as Persian rugs. The loss of European companies dealing both in and with Iran may be the greatest threat to its economy. Corporations will be forced to end any type of relationships they possess with Iran in fear of U.S retaliation. These sanctions are deeply troubling in the eyes of European Union officials, who claim that they will provide European businesses with a legal shield to protect their dealings with Iran. This is paramount for both the EU and Iran, as trade between the two entities is valued at an estimated $23 billion, about 75% of which is related to the energy industry.
However, the threat of alienation from the U.S trade system has been enough to deter many businesses from Iran, as outlined by Amir Paivar: “If you are a big multi-national with a massive exposure to U.S. market, and at the same time you have a small business in Iran, it’s not a difficult choice to make quite frankly… At the end of the day, it’s a risk and reward calculation. They are more accountable to their shareholders and boards rather than being accountable to what the politicians in Brussels decide.” Iran’s economy is expected to plummet even more aggressively once the second round of sanctions have been imposed. With Iran’s oil exports at an estimated $36 billion in 2016, this number could drop by 67% following these sanctions, according to the Council on Foreign Relations. While it is possible countries such as India and China may attempt to find ways around the U.S-imposed sanctions, there is no guarantee and the loss of revenue on oil exports is practically inevitable.