Iranian Economy Shows Signs of Strain as U.S. Imposes First Round of Sanctions

The United States reinstated on Tuesday, August 7, one of two rounds of sanctions on Tehran that had been lifted under the U.S.-Iran nuclear deal.

The United States reinstated on Tuesday, August 7, one of two rounds of sanctions on Tehran that had been lifted under the U.S.-Iran nuclear deal.

The reimposed sanctions will restrict Iran’s ability to buy U.S. currency, reduce trade on many industrial goods, such as aluminum, steel, coal, and automobiles, and limit Tehran’s ability to issue sovereign debt. The U.S. has required a number of foreign companies to sever business ties with Iran, and it has threatened two countries with U.S. sanctions if they do not cease importing Iranian oil by the time the next round of sanctions goes into effect in November.

The Trump administration intends the sanctions to cause further harm to the Iranian economy, forcing it to make concessions on its nuclear policy as well as other policies. U.S. President Donald Trump tweeted on August 7, “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 second round of sanctions is scheduled for November 4, and is expected to target Iran’s central bank and oil sector.

Sanctions on Iran were previously lifted under the 2015 Iran-U.S. nuclear deal. The Trump administration argues that the decision to withdraw from the deal will make the U.S. “much safer,” by forcing Iran to sign a more restrictive deal in the near future. However, most world leaders and analysts assert that the move is a serious tactical and strategic error that will obstruct current monitoring efforts and prompt Iran to resume its program to enrich industrial grade uranium, with the objective of building a nuclear weapon.

The sanctions have been imposed amidst a collapsing Iranian economy. The Iranian currency, the rial, reached a record low at the end of July, falling from 35,186 rials to the U.S. dollar on January 1, to 112,000 rial to the U.S. dollar on July 29 of this year, as reported by The National.

In an attempt to counteract this, the Iranian government agreed to loosen restrictions on foreign currency exchange on August 5. The new regulations will remove currency controls that were introduced by Iran’s central bank in April of this year, when Tehran refused to allow the rial to be traded for less than 42,000 rials to the U.S. dollar. Following the rial’s slump, however, the Iranian cabinet agreed to allow the currency to float — meaning that the global market will determine its foreign exchange rate based on supply and demand — except with regard to imports of essential goods.

The currency’s most recent plummet began in May after President Trump announced that the U.S. would withdraw from the 2015 Iranian nuclear deal, known as the Joint Comprehensive Plan of Action, negotiated in 2015 between Iran and the P5+1 countries (US, UK, France, Germany, China, and Russia) and reimpose sanctions on the Middle Eastern nation.

Aside from collapsing the Iranian currency, U.S. sanctions are likely to have other harmful effects on the Iranian economy and people. Iran is already struggling with high levels of unemployment that seem on course to continue, and debt in the banking system has also risen. Economic uncertainty has fueled protests across the country against rising prices, inflation, corruption, unemployment, and other grievances. The protests appear, however, to be morphing into more direct disdain for the regime. Mark Dubowitz, the chief executive of the D.C. think tank Foundation for Defense of Democracies, explained that, “[W]hat started out as economic protests have transformed into a broad, social and political challenge to the regime.”

“You’re hearing, ‘Death to Khamenei,’ ‘Death to Rouhani,’ ‘Death to the regime.’ We haven’t seen this kind of direct challenge to the regime since 1979 and the Islamic Revolution,” he added, as reported by Foreign Policy.

Others, however, think U.S. sanctions could backfire. Foreign Policy also quoted Economist Steve Hanke as saying, “Sanctions tend to entrench whatever the target regime is, and that’s what is going to happen in Iran. Realistically, [sanctions] will just spawn nefarious activity and more criminality.”

Even if sanctions erode the Iranian people’s support for their own regime, they are not likely to improve Iran’s opinion of, or desire to cooperate with, the U.S. In fact, Iranian President Hassan Rouhani has threatened to close the Strait of Hormuz, a major transit point for global oil supplies, which could have serious consequences for the U.S.and global economy. Rouhani has also accused the U.S. of turning its back on diplomacy and launching “psychological warfare against the Iranian nation,” according to the BBC.

The new head of the Iranian central bank, Abdolnaser Hemmati, called American tactics “economic warfare,” as reported by The New York Times. Unfortunately, the real burden of the sanctions will be imposed on the Iranian people, who will now have to endure significant economic hardship. Iranians’ resentment for their own government may grow, but that resentment could equally be targeted at the U.S., rendering the future of diplomacy between the two countries bleak for the foreseeable future.