Return of US Sanctions; Two Waves and Their Consequences

Ninety days after the announcement of the United States' withdrawal from the JCPOA, the first wave of the return of sanctions against Iran will be implemented as scheduled on Monday, August 6. In the current atmosphere in Iran and considering what is happening within society and its ruling system, the consequences of the country being caught again in the heavy chains of sanctions crafted by the world's most powerful country are likely not limited to the economic sphere. In other words, the way economic sanctions and related developments impact could change Iranian society, politics, and its foreign relations on both regional and even global levels in either positive or negative ways. The First Wave The first wave of sanctions returning on August 6 includes the following areas: the buying and selling of dollar banknotes or dollar-backed documents by the Iranian government; trading in gold or other precious metals by Iran; the direct or indirect buying and selling of graphite, raw or semi-finished metals such as aluminum and steel, as well as coal and software used in industrial processes by Iran; significant transactions of Iranian rials abroad, and opening accounts or holding significant amounts of rials outside Iran; access to foreign financial facilities by the Iranian government; the Iranian automotive sector; trading in commercial aircraft and their parts and services; and the import of Iranian carpets and food products (pistachios) to the United States. We see that the first wave of sanctions covers a very broad and diverse range of areas and, in addition to prohibiting any transactions between American companies and Iran, also ties the hands of non-American companies willing to trade with the Islamic Republic. Given the extent of the sanctions and the complexities governing the interpretation and implementation of the legal provisions related to them, a European or Asian company wishing to trade with or invest in Iran will have to tread very carefully to avoid the extraterritorial sanctions of the United States and will have to allocate a very heavy cost to legal consultations. Considering the number of unavoidable troubles in trading with Iran, major non-American companies will have to abandon their dealings with the Islamic Republic to continue operating in the U.S. market. It is no coincidence that after the announcement of the U.S. withdrawal from the JCPOA, a significant number of European companies that had signed important contracts with the Islamic Republic withdrew from trading with Iran; Airbus, Total, MSC, Danieli, Siemens, Lloyd's, Eni, NG, Peugeot, Alstom, Renault... and this list can go on. The refusal of so many prestigious companies to cooperate with Iran is a real economic disaster for the country. The disruption of foreign investment plans deprives Iran of billions of dollars in currency and a plethora of foreign technologies. Additionally, thousands of job opportunities that such giants could have created, especially for university graduates, are lost. On the other hand, the use of the dollar in Iran's international transactions is under more scrutiny by the Americans than ever before, and gold and other precious metals can no longer be used. Furthermore, considering the first wave of the return of U.S. sanctions, only a very small portion of the high-profile contracts Iran signed with Airbus, Boeing, and ATR has been realized, and in the very chaotic state of Iran's aging air fleet, there has not been a truly significant difference. The Iranian automotive industry, which is the second most important industry in Iran after oil and gas, is the biggest victim of the first wave of sanctions returning. A major company like Peugeot, Iran's long-time automotive partner, immediately withdrew after the U.S. withdrawal from the JCPOA was confirmed, and Renault, the second foreign automaker present in Iran, despite its initial positions regarding its continued presence in Iran, even symbolically, is very likely to leave the country. Thus, the Iranian automotive industry, which was supposed to conquer Middle Eastern markets with the help of its foreign partners, is left alone with all its problems and has no prospects other than relying on third and fourth-tier Asian companies. The Second Wave On November 4, Iran will face the second wave of U.S. sanctions returning, which pertains to the following areas: activities related to Iranian ports, sectors related to maritime transport and shipbuilding (including the Islamic Republic of Iran Shipping Lines, Southern Shipping, and related companies); oil-related transactions including the purchase of oil, petroleum products, and petrochemical products from Iran; financial transactions with Iran's Central Bank and other Iranian financial institutions through foreign financial institutions; Iran's energy sector; and the provision of insurance and reinsurance services for transactions with Iran. We see that the second wave of U.S. sanctions carries heavier consequences, especially in targeting the driving force or the beating heart of Iran's economy, which is the oil industry. Iran currently exports between 2.3 to 2.4 million barrels of oil. The United States speaks of reducing Iran's oil exports to zero. For a country that has 15 land and sea borders and has a long experience in circumventing sanctions, this threat is not practical. International oil circles are not unanimous regarding the quantity of the fall in Iran's oil exports. Overall, and according to prevailing assessments, a halving of Iran's current oil exports and a drop to the level of 1.2 million barrels per day seems probable. Will the exit of 1.2 million barrels from the global oil supply not drive up the price of this commodity and allow Iran to compensate for its reduced oil exports by relying on the increase in the price of 'black gold'? It seems that the United States wants to prevent the increase in the price of this commodity by relying on the additional oil production from Saudi Arabia. There is even evidence that suggests Russia will also participate in the potential increase in supply. In the current situation, the most likely scenario is that the Islamic Republic's government will face much heavier difficulties than before due to both the decrease in foreign currency revenues from oil and the increased difficulty of transferring money from abroad to inside. Such dark prospects have posed new challenges to Iran's macroeconomic environment, which previously had no definition. The collapse of the national currency, further escalation of inflationary tensions, the risk of the economy sinking into negative growth (similar to the last years of Ahmadinejad's administration), a significant increase in the unemployment rate (the Minister of Labor and Social Affairs speaks of the possibility of adding one million people to the current number of unemployed), the expansion of workers' demand movements, and unprecedented concerns among the middle classes all herald the beginning of a very difficult season for Iran's economy. The government of Hassan Rouhani has lost both its will and ability to manage Iran's economy and, in utter helplessness, under relentless attacks from its rivals, has taken on the role of a firefighter, one who does not know which of the flames ignited here and there to address. Its only maneuvering scope is to negotiate with the European Union and request this body to exert pressure on the United States to lighten the heavy burden of sanctions. The Europeans have been unable to counter the first wave of U.S. sanctions against the Islamic Republic. Nevertheless, Jean-Yves Le Drian, the French Foreign Minister, has promised that his country, along with other EU members, will try to reduce the intensity and extent of the second wave of sanctions before November 4. Until then, Iran will go through hot days and weeks.