As new US sanctions loom, Iran looking for ways to ‘muddle through’

Given the cool reception for the new sanctions, the US administration is giving up previous hard-line positions.
Sunday 28/10/2018
Iran’s President Hassan Rohani (3rd L) attends a cabinet meeting in Tehran, on  October 24. (Iranian Presidency)
Navigating a crisis. Iran’s President Hassan Rohani (3rd L) attends a cabinet meeting in Tehran, on October 24. (Iranian Presidency)

ISTANBUL - Faced with US sanctions targeting its oil industry, Tehran is preparing for additional pressures on Iran’s economy and hoping that the Trump administration will find it difficult to completely isolate the country.

“They try to figure out how to muddle through the next two years, hoping Trump is a one-termer,” Alex Vatanka, an Iran analyst at the Middle East Institute, said of Iranian government officials and the US presidential election in 2020. “But that is just a hope, there is no strategy.”

Trump pulled the United States out of the international nuclear deal with Iran in May, arguing that the 2015 accord gave Tehran free rein and fresh income to pursue aggressive policies. US sanctions, suspended under the Iran deal, have been reintroduced to force Tehran to agree to a new treaty with stricter provisions. The United States began to reinstate sanctions in August, with actions targeting Iran’s oil sector to take effect November 4.

The sanctions are starting to bite as international companies withdraw from Iran under the threat of punitive US measures for entities doing business with Tehran. Even before the oil sanctions kick in, Iran’s oil exports dropped to 1.6 million barrels per day in September, down from 2.7 million in June, the US government said. Bank of Kunlun, the key Chinese conduit for transactions with Iran, is set to halt handling payments from Iran, Reuters reported.

These blows come as the Iranian economy is reeling from domestic problems, including corruption and mismanagement. Inflation and unemployment are rising and the country’s currency, the rial, is nose-diving.

Iranian President Hassan Rohani recently appointed new ministers for the economy, labour, industry and urban development but observers doubt that the cabinet reshuffle will make much of a difference.

“Rohani faces a dilemma. He cannot improve the economy even if he changes all the relevant ministers because of sanctions, corruption in the country and the mismanagement,” political analyst Hamid Farahvashi was quoted by Reuters as saying.

Trump administration officials say they are determined to push through the new sanctions system. US Treasury Secretary Steven Mnuchin said the aim was to reduce Iran’s oil exports to “zero,” even if this could not be achieved overnight.

When the US imposed sanctions against the Taliban in Afghanistan, it included two men linked to al-Quds Force of the Islamic Revolutionary Guard Corps and accused Tehran of providing military training, financial support and weapons to the Afghan insurgents.

There are some silver linings for Iran, however. A rise in oil prices from less than $60 a barrel last October to more than $80 in September increased revenue even as exports fell. “They are getting more money for less oil,” Vatanka said. An international outcry after the death of Saudi journalist Jamal Khashoggi severely damaged the reputation of Iran’s main regional rival, Saudi Arabia.

In addition, the United States is finding it difficult to convince everyone in the international arena to isolate Iran. In September, the European Union, Russia and China said they supported a mechanism to allow “legitimate” trade with Tehran to continue. Negotiations between Iran and the European Union continue and EU officials said the mechanism to facilitate payments for Iranian exports — a so-called special purpose vehicle — should be operational early next year.

Turkey, which buys 7% of Iran’s oil exports, said it was asking the United States to grant a waiver to enable Ankara to keep buying Iranian crude without being punished by Washington. Speaking to the state-run Anadolu news agency, Turkish Foreign Minister Mevlut Cavusoglu said the United States had unilaterally decided to place sanctions against Iran but was also threatening other international players. “You can take a decision but why do you want to punish other companies and countries?” he asked.

Given that kind of cool reception for the new sanctions, the US administration is giving up previous hard-line positions. “Mnuchin is already softening his language on waivers,” Vatanka said. “Months ago, it was ‘No waivers,’ now he is saying that waivers will not be easy to get.”

Trump and other US officials do not hide the fact that they would like the new sanctions to weaken the Tehran regime or even to topple it but analysts say the Islamic system is unlikely to fall because of US sanctions.

Vatanka said the Trump administration had no strategy to bring about changes in Tehran’s behaviour or full-blown regime change. Also, Tehran would do anything to keep the regime afloat, he added. “Iran will repress its way through a crisis” and move closer to Russia and China.

The economy plays second fiddle when the regime’s very survival is at stake, Vatanka said, comparing the Iranian economy to a car: “If you imagine an economy that can do 200km an hour, they are happy with going only 20km an hour if that keeps the regime in place.”