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Trump's Iran sanctions aren't working as planned

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Trump's Iran sanctions aren't working as planned

Post  GirlBye on Sat Nov 17, 2018 2:33 pm


President Donald Trump displays a presidential memorandum after announcing his intent to withdraw from the JCPOA Iran nuclear agreement in the Diplomatic Room at the White House in Washington, U.S., May 8, 2018. REUTERS/Jonathan Ernst



  • Trump administration's strategy of maximum pressure on Iran hasn't achieved its intended impact.

  • To fight the oil sanctions, Tehran has found workarounds. It now sells its crude on an anonymous Energy Exchange platform to customers whose identity will remain secret.

  • According to the National Security Adviser John Bolton, more sanctions and stricter enforcement are on their way. They are sorely needed.



The Trump administration's strategy of maximum pressure on Iran took full effect on Nov. 5. It included the re-imposition of oil sanctions and designation of more than 700 Iranian entities, individuals, aircraft, and vessels. However, so far, the impact has fallen short of what will be required for true maximum pressure, though the administration is on the right path.
Iran's currency, the rial, has shown surprising resiliency. On Nov. 4, the price of the U.S. dollar in Tehran reached 149,000 rial



One week later, on Nov. 12, the price decreased by 7% to 138,500 rial. Admittedly, Iran's underground forex market is shallow and subject to heavy manipulation by the Central Bank, but the rial appreciation is in line with other signals.

The Tehran Stock Exchange has shown similar signs of life. The Overall Index on Nov. 4 was 182,918. One week later, on Nov. 12, it stood at 182,211 - a drop of only 0.4 percent. And in terms of the dollar value of the index, it actually shows a significant 7 % increase in value.


Meanwhile, Tehran's Energy Exchange celebrated its second crude oil deal this week. To fight the oil sanctions, Tehran found a workaround. It now sells its crude on an anonymous Energy Exchange platform to customers whose identity will remain secret.



 These customers, in turn, sell the oil in the international markets. This is how unknown buyers purchased 700,000 barrels of Iran's crude oil on Nov. 11 for $64.97 per barrel. The cost was roughly 9% below the going rate posted by the National Iranian Oil Company. But it was a victory nevertheless in that sanction busters around the world now see a possible way around U.S. restrictions.





In an even more significant development, the Saudis are now pushing for an output cut. Riyadh had previously pledged to flood the market to ensure that Iran could not cash in on high prices resulting from a restricted market stemming from U.S. sanctions. Higher prices mean more revenue from the oil that Iran does sell.

Furthermore, by issuing waivers for eight countries, the U.S. has not reduced Iran's oil exports to zero, though it has taken offline 1 million barrels per day in six months without spiking oil prices — an impressive achievement. Iranian funds now will be locked up in escrow accounts that can only be accessed for approved humanitarian and limited commercial purposes, further squeezing accessible Iranian foreign exchange reserves. But much more needs to be done to collapse Iranian oil exports and police the escrow accounts to prevent the wide-scale sanctions busting that occurred last time around.


U.S. policy on SWIFT, the ubiquitous electronic banking transfer system, received some long-awaited clarity with the disconnection of the Central Bank of Iran and a number of designated Iranian banks. The administration permitted some Iranian banks to remain on the SWIFT system for humanitarian transactions but, as my colleagues Mark Dubowitz and Annie Fixler argued, the administration will have to redouble its efforts to police this humanitarian channel. Iran has used humanitarian exemptions to U.S. sanctions in the past to run massive sanctions-busting schemes.


Moreover, the U.S. has issued waivers for Iraq and Afghanistan to trade with Iran. Both countries suffer from corruption and lack of transparency, which make them fertile grounds for Tehran's sophisticated sanctions-busting operations. Iraq, in particular, has become a major destination for Iranian goods and services.


Finally, there is the waiver issued for India's Chabahar port in Iran. Delhi was desperate for the exemption to permit a land-based supply route to Afghanistan as a substitute for the one controlled by its archenemy Pakistan. But Washington needs to understand the tradeoff. This port will allow India to grow its trade relationship with Iran. Delhi already is one of Tehran's top trade partners.


According to the National Security Advisor John Bolton, more sanctions and stricter enforcement are on their way. They are sorely needed. The impact of the new sanctions to date is not sufficient to change the Iranian regime's behavior. To ensure maximum pressure, the U.S. sanctions campaign needs to cut Iran oil export to no more than 500,000 barrels per day in the next six months.



 The United States should continue to push countries like China, Turkey, and India to reduce trade, especially oil purchases. Iran's access to the escrow funds should be limited to humanitarian transactions only, with strict oversight to ensure there is no abuse.



From there, Washington should aggressively target Tehran's network of illicit financing and procurement in East Asia, Canada, Europe, Latin America, Turkey, the Caucuses, and Persian Gulf. Additionally, the U.S. needs to drain Tehran's resources by sanctioning and weakening its proxies in the region, especially in Syria and Lebanon, which Tehran sees as strategic strongholds.


Although Iran's economy has shown resiliency in the immediate aftermath of the latest round of sanctions, Tehran is on shaky ground. Its economy is still under strain, and its access to hard currency is shrinking. Meanwhile, discontent among everyday Iranians is on the rise. The Trump administration has a historic chance to force the clerical regime to alter its dangerous course, but such an extraordinary result requires extraordinary measures.


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