Caught in the Spiral of Sanctions

rtxnnjh.jpgWhat happened?

On Tuesday a new set of US sanctions was imposed on Iran. This comes three months after President Donald Trump announced the US’ withdrawal from the JCPOA (‘Joint Comprehensive Plan of Action’). The new sanctions limit Iran’s access to foreign currencies. More specifically, it bans Iran’s ability to purchase US Dollar banknotes. In addition, they target critical industries for Iran, such as carpets and pistachios. The country’s energy sector has been exempted for now, yet sanctions will become effective in November.

Why does it matter?

Unlike the other spats of the Trump administration, such as with the EU or North Korea, there is no plausible way out. With the US administration being keen on regime change, Trump won’t make any concessions to the Iranian regime. Instead he is more likely to double down with the US’ economic might. The US possess exorbitant sanctions power for two reasons:

  1. The US Dollar is the world’s reserve currency
  2. The US Dollar underpins international trade

What’s next?

Iran’s economic situation will deteriorate sharply within the next few weeks. By November (when the oil sanctions snatch), the Iranian regime will have little options but to get back to the negotiating table with the US. It will be interesting to see how other JCPOA signatories (especially China and Russia) respond.

While they have pledged their adherence to the nuclear deal and trade, it is doubtful that they will risk being hit by secondary sanctions. Several European companies, such as Daimler, have already abandoned their Iranian operations.

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