InternationalVolume 13 Issue # 21

Can Iran withstand US sanctions?

The US appears to be serious about implementing threats of stringent sanctions on Iran after pulling out of a nuclear deal last month but ground realities are different for both countries. It appears US President Donald Trump will decide against threatening allies to force them to abide by restrictions on trade as he knows Iran has the ability to resist them and limit their impact. Iran, on the other hand, may also agree to reopen negotiations to give the US a better deal rather than endure heightened sanctions.


According to analysts, hardliners in both Iran and the US will do their best to sink both possibilities. Iran’s ability to resist US sanctions, the world’s ability to ignore them, and Washington’s ability to enforce them anyway will each play a key role in the calculations of international leaders over the coming months. However, Iran is no stranger to intense economic pressure. It has weathered US sanctions for nearly four decades, and survived the brutal UN sanctions imposed over its nuclear program from 2010 to 2015. It has learned how to avoid sanctions to sell its oil and acquire the products and raw materials it needed to sustain its economy. However, the United States has also become more adept at cracking down. “Fifteen years ago, some guy would set up a company in Dubai’s Jebel Ali port and load stuff from wherever and ship it to Iran and no one would notice. Now the detection systems and knowledge are leaps and bounds ahead,” Farhad Alavi, a sanctions-compliance attorney at the Akrivis Law Group in Washington, told the US media.


However, Iran has developed ways and means to avoid US sanctions and continue trade with the world. According to the U.S. Treasury Department, 16 companies registered to the 15th-floor office-tower suite of a building in Hong Kong appear indistinguishable from the thousands of humdrum firms operating within the glass-and-steel high-rises of the city, but all the firms, with names like True Honour Holdings and Alpha Effort Limited, are front companies for the Islamic Republic—creative attempts by Iran to evade sanctions on the purchase of military equipment, which were imposed on the country over its missile program back in 2011. On May 8, President Donald Trump withdrew from the nuclear deal negotiated by Iran, the United States, and five other nations. The decision set off a scramble by Tehran to stave off the sanctions that would snap back into effect, as the United States began moving to reimpose them and bring other governments to heel. US Secretary of State Mike Pompeo warned that the United States would apply “unprecedented financial pressure” through sanctions if Iran failed to curb its nuclear and weapons programs and rein in its alleged regional meddling.


There is also high probability that US allies ignore Trump’s diktats. Rifts between Washington and its European allies over trade and Middle East policy will likely boost powerful voices to ignore Trump’s instructions. China and Russia already appear ready to ignore US sanctions as much as possible so long as Tehran manages to keep up its end of the nuclear deal. The Bank of Kunlun in China’s semiautonomous Xinjiang region is just one financial instrument used by Iran to sidestep sanctions. Iran has the potential to buy a lot of goods using Kunlun, because it is already sanctioned and operates outside the U.S. financial system. A few countries like the UAE, which opposed the nuclear deal, may agree to crack down on Iranian financial networks, but others will require more costly sweeteners from the United States. China may demand an easing of trade rules, undermining Trump’s other policies. Russia may press for an easing of sanctions over its invasion of eastern Ukraine and meddling in U.S. affairs. Turkey may require a return of the self-exiled scholar Fethullah Gulen, the spiritual leader now living in Pennsylvania and accused of backing a 2016 coup attempt, as well as an end to US backing for Syrian Kurdish militias deemed a threat by Ankara. Iran could also turn to Iraq, Lebanon, Afghanistan, or Syria, where it has local allies. From a Middle East point of view, the US gave them ISIS and Iran defeated it. Even some Iraqi Sunnis feel this way. Iran’s clout is clearly rising in the region.


Experts believe Iranian traders will manage to make small deals, like purchasing food products from neighbouring Turkey despite Washington’s dominance in the global financial system and fine-tuned ability to detect suspicious transactions. But big firms will have a tough time purchasing specialized industrial products from Europe, like machinery to manufacture automobiles, or the ingredients to produce pharmaceuticals. Banks around the world, many of which are connected via a European-based system that allows them to move money, will be reluctant to finance or provide letters of credit for any dealings with Iran if it means they will be cut off from the United States. The restrictions also make it difficult to insure a deal or a shipment. However, Turkey, a NATO member whose relations with the United States have become strained, occupies a curious space. While it relies on Iran for energy, its robust banking sector can’t afford to lose access to the US financial sector.


It appears Iran is prepared to face US sanctions, rather than give a desired deal to US President Donald Trump. It feels it can weather US sanctions when its allies side with it. Iran was forced to the negotiating table when China, India, South Korea, Japan, Taiwan, and Turkey had agreed to scale back their purchases of Iranian oil. Analysts believe herding Iran back into such a corner is not possible now. The sanctions had come into force after years of careful diplomacy by US officials, which could be tough to replicate now. There is also all likelihood that China and Russia will not back a US move for new UN sanctions on Iran. The situation favours Iran and it appears US attempts to force it to the negotiation table for a choice deal will backfire and further erode its position as a world leader.