Diplomatic Cutting off from Iran

Iranian President Hassan Rouhani has vowed to resist any pressure, saying Iran would break the 'illegal and unfair' sanctions and continue to sell its oil

Diplomatic Cutting off from Iran
Diplomatic Cutting off from Iran

The US reimposed the “toughest economic sanctions ever” on Iran on November 5. US President Donald Trump had withdrawn from the nuclear deal that his predecessor, Barack Obama had concluded with Iran together with five other countries in 2015.

Iran termed the renewed sanctions as “economic war”, while Turkey has said that it would not accept the US sanctions that would “unbalance the world”. Other major importers of Iranian oil like China have shown little inclination to cut off from Iran. The five other signatories of the nuclear deal with Iran are not in favour of the sanctions and are looking at ways to circumvent the restrictions. In a joint statement, the European Union, France, Germany and Britain said that they would seek to protect their companies that were carrying out legitimate business with Iran. Iranian President Hassan Rouhani has vowed to resist any pressure and Iran would break the “illegal and unfair” sanctions and continue to sell its oil.

The US gave a waiver on the sanctions for eight countries -- India, China, Italy, Greece, Japan, South Korea, Taiwan and Turkey on the grounds that they had shown a significant reduction in oil purchases from Iran. Imposition of a complete ban on sale of Iranian oil would have played havoc with international prices of crude oil at a time when oil prices were rising. The US would not have been able to control international oil prices even with the support of a compliant Saudi Arabia, which was facing global heat over the ghastly killing of Saudi journalist, Jamal Kashoggi in Istanbul.

Trump considers himself a master negotiator and expects to pressure Iran to make further concessions for a new nuclear deal; Washington also wants to contain Iran’s growing influence in the conflict areas of Syria, Yemen, Lebanon and the rest of the West Asian region. Iran is in no mood to talk to the US; there is no confidence in the US and Iranians consider Trump to be an unreliable negotiator. The 2015 agreement was a tough negotiation and Rouhani had to work hard to persuade the Iranian establishment to accept it. The sanctions are likely to result in the hardliners gaining ground in Teheran with the ruling moderates losing their influence. Washington’s friends in the region, including Israel and Saudi Arabia would have cause for greater concern at the rise of the hardliners.

The Iranian Guardian Council recently rejected a bill strongly backed by Rouhani that would have allowed Iran to join the United Nations Terrorism Financing Convention, a major criticism levelled by Washington. Acceding to the Convention would have helped the European countries develop a financial mechanism for Iran bypassing the sanctions. The expanded American blacklist of Iranian entities include institutions that had not figured in the earlier sanctions such as the Parsian Bank which handles transactions on food, medicines and other essential commodities.

Iran has the capacity to ride out Trump’s sanctions. Iran’s economy will suffer as oil sales decline; it would impact ordinary Iranians as prices of essential commodities would go up but anti-Americanism would increase.  Washington will find it difficult to isolate Iran as it did before without the support of the European allies and other major economic powers.

The European countries are looking at creating a clearing house or a special purpose vehicle that would allow European companies to develop payment mechanisms that would circumvent the sanctions. Though heavily delayed, the special vehicle is likely to be established in France or GermanyIn the past years, efforts have been made to diversify global trade to other mechanisms and other currencies. India would be in a position to strengthen the currency swap that it had used to buy Iranian oil during the earlier sanctions. India has also received an exception for the development of the Chabahar port and the construction of a railway line to Afghanistan. But New Delhi has little to cheer about; the problem of economic sanctions will rear its head again. Washington pressure will increase as it will have fewer governments to work on to cut back on Iranian oil imports in the next round.

India has American US sanctions on Iran oil earlier as well. The Trump administration will continue to loudly urge India to reduce its oil imports, but falling in line with the US will not save New Delhi from Washington’s continuing demands.

Trump, who is not known for the veracity of his claims, has claimed that the US pressure was “working”, and that Iran which wanted to take over the whole Middle East was now just looking to survive. But Trump is likely to change tack if he finds that his tactics are not working. He has called for talks but the Iranians are not responding. Rouhani has ruled out negotiations as Trump was not a trustworthy partner for talks.