Rings of the Embargo Imposed on the Iranian Economy: Effects, Gaps and Scenarios

EPC | 20 Apr 2020

The US sanctions, placing Iran on the blacklist of the Financial Action Task Force (FATF) and the corona pandemic could be viewed as three separate, but integrated, rings that tighten controls on the Iranian economy and subject it to some kind of comprehensive embargo that isolates Iran from the international economic system. Each one of those rings serves to deepen the impact of the other two, despite the difference in the extent of the impact of each one.

This paper seeks to examine the three rings of the embargo on the Iranian economy and shed light on the gaps created by each of the embargo rings, and shows how the other levels have greatly contributed to bridging those gaps and blocking the outlets through which the Iranian economy used to breathe. Finally, the paper determines the remaining outlets before the Iranian economy until now, and indicates whether those gaps could ensure the resilience of the Iranian economy for a longer period.

How did the nuclear deal open up windows to the world after the UN sanctions had closed them?

Prior to the nuclear deal, the Iranian economy had been under international sanctions imposed on it according to UN resolutions, decisions taken by international organizations, and by several global economies. After the Iranian nuclear file was referred to the Security Council in March 2006, the Council issued four binding resolutions under Chapter VII. Each of those resolutions included a package of binding sanctions for all UN members. While the majority of the sanctions envisaged by the resolutions pertained to people, companies and institutions active in the nuclear and missile programmes, some of them extended to other sectors of the Iranian economy. Security Council Resolution 1803 included sanctions that fell outside the scope of the nuclear and military programmes. These included a ban on important sectors of exports, imports and raw materials, along with oil and the banking sector. Based on UN resolutions, members of the European Union (EU) imposed sanctions on the Iranian economy during the period 2007-2011. These extended to several sectors, including air transport, maritime transport, banking activities, and the oil and gas sector.

Starting from 2006, the US imposed numerous sanctions on the Iranian banking and trade systems, in addition to restrictions on oil sales, to supplement the UN sanctions imposed as a result of the Iranian nuclear programme.

As a result of the entirety of those sanctions, the rate of export of Iranian crude oil declined from 2.85 million barrels in 2005 to 1.46 million barrels in 2014. Iranian oil exports were 1.1 million barrels prior to signing the nuclear deal (see figure 1).

The gross national product (GNP) also declined by 28 percent during the four years that followed Security Council resolution 1803 to 415 billion dollars in 2015, down from 576 billion dollars in 2011. Growth rate declined to -7.7 percent in 2011 due to the sanctions. Meanwhile, the value of the Iranian currency declined by nearly 116 percent in 2011 (the year the Iranian economy came under international sanctions) and nearly 174 percent during the three years that followed the sanctions. Lastly, inflation rates spiked to record levels after the imposition of the sanctions. Annual inflation was 40 percent in 2012, while the monthly inflation rate exceeded 60 percent in August 2013 (towards the transfer of power from Ahmadinejad to Rouhani).

However, the nuclear deal that Iran signed with the 5+1 group of nations (P5+1) in October 2015 reversed the path of the Iranian economy as a result of UN Security Council resolution 2231 which provided for the termination of the implementation of all six previous resolutions which had imposed sanctions on Iran due to its nuclear activities. In extension of the consequences of Security Council resolution 2231, different international quarters, including the US and the EU, lifted many of the sanctions they had imposed on the Iranian economy, particularly those imposed on the air transport, maritime transport and oil sales sectors.

The nuclear deal was reflected on the various indicators of the Iranian economy. Iranian oil exports increased to 2.6 million barrels in 2017 (they had even approached 2.9 million barrels in April of the same year, thus exceeding the oil export rates prior to the UN sanctions). Economic growth recorded high rates, to reach 12.5 percent in 2016, and the inflation rate fell to less than 9 percent in the same year (the lowest inflation rate was 8.6 percent in December 2016), while the value of the Iranian currency was relatively stable (the value of the Iranian currency did not decline to 7.8 percent over three years, representing a record stability in currency value over the last two decades).

First ring of the embargo (US-dominated sanctions)

In May 2018, US president Donald Trump announced US withdrawal from the nuclear deal. He underlined that a new wave of US sanctions would be reimposed on Iran and its associates. The sanctions, which were later described by the US State Department as the strongest in history, came in two instalments. Issued by the US Department of the Treasury in August 2018, the first package of sanctions included the following domains:

1- Ban on dealings in US dollar or the Iranian official attempts to buy and collect US dollars.

2- Ban on trade with Iran in gold, silver and platinum.

3- Sanctions on the trade of graphite, metals, including aluminium and steel, and the software for their production.

4- Sanctions on trade in Iranian rials and any other operation to offer loans to Iran by international monetary institutions.

5- Sanctions on the automotive sector.

6- Sanctions on the sale of aircraft and their parts to Iran.

In November 2018, the second package of sanctions was imposed, covering the following sectors:

7- The shipbuilding sector, maritime transport, Iranian ports and those cooperating with them.

8- The Iranian oil sector, in the form of cooperation with the Iranian Oil Company and the National Iranian Tanker Company.

9- The financial institutions sector and banks, including the Iranian Central Bank.

10- The insurance sector.

11- The energy sector.

Based on what could subsequently be observed in its performance, the Iranian economy was indeed severely affected by the US sanctions imposed by the Trump administration after its withdrawal from the nuclear deal. On the economic growth front, after a rate of 12.5 percent in 2016, growth was reversed to -4.8 percent in 2018 and -9.5 percent in 2019. After declining to 8.6 percent in the aftermath of the nuclear deal, inflation rose once again to 30 percent in 2018 and 36 percent in 2019. Monthly inflation in 2019 stood at 51.4 percent, which is one of three record figures in Iran over four decades. Oil sales declined to nearly 120 thousand barrels only by the end of 2019, after nearing 2.9 million barrels in April 2018.

After rising by nearly 4.1 percent in the first two years of the start of the tenure of the Rouhani government, to 431.9 billion dollars, GNP fell to 418.9 billion dollars in 2018 and then to 382.5 billion dollars in 2019 (thereby recording a total contraction of 11.5 percent during the two years since the US withdrawal from the nuclear deal).

In terms of other indicators, the value of the Iranian currency shrank by 260 percent against international currencies, to 15,500 tomans per one dollar at the end of 2019, after it was 4,300 tomans per one dollar prior to US withdrawal. The automotive sector shrank sharply after the implementation of the sanctions to record a negative growth of nearly 39 percent in 2018 compared to 2017. The contraction continued in 2019 where the number of cars produced recorded a negative growth of 8 percent compared to the previous year.

These figures, in addition to others such as those for liquidity, public budget deficit, bankruptcies and poverty line, indicate the significant impact of US sanctions which extended to sectors such as industry, oil and finance, over the last two years. Nevertheless, they did not destroy the Iranian economy which remained active, albeit at lower levels, but still sufficiently to prevent its collapse under the pressure of sanctions.

One of the main fields that ensured the viability of the Iranian economy is foreign trade which declined by only 11 percent in 2018 compared to 2017, to 87 billion dollars (as opposed to 98 billion dollars in 2017) and 5.8 percent in 2019 compared to 2018, to 81 billion dollars. This indicates that there are gaps in the US sanctions regime that the Iranian economy managed to utilize to ensure its survival and circumvent the sanctions regime which appeared stringent at first sight.

Exemptions and gaps in the US sanctions regime

1- Exemptions: the main gap in the sanctions wall was a regime of exemptions endorsed by the US administration. Foremost were the exemption of eight countries from the sanctions imposed on the oil sector. This enabled Iran to sell nearly 1.34 million barrels of oil per day during the first five months of 2019 (Iran’s total revenues for the first five months of 2019 amounted to nearly 12.1 billion dollars). Iraq was also exempted from some of the main sanctions imposed on the energy sector. While the exemptions for the eight countries from the sanctions imposed on the oil sector have ended in May 2019, which contributed to the decline in oil exports at the final stage to less than 200 thousand barrels, Iraq continues to be exempted until now which constitutes a gap through which the Iranian economy breathes through exports of no less than 2.8 billion dollars of energy and gas to Iraq.

2- Petrochemicals, energy and fuel: a close scrutiny of the sanctions regime unveils the existence of another gap, namely the exports of petrochemicals and gas, in addition to failure by the sanctions regime to notice Iran’s attempts to seek to export fuel to compensate for the decline in oil exports. While the US sanctions regime extended to aspects of the petrochemical sector, this was only transient as it simply imposed sanctions on a number of companies in the petrochemical sector, such as the Persian Gulf Company which, despite its importance, was not the only one on this front. This left the door open to exporting chemicals and petrochemicals. This situation was utilized by Iran which exported petrochemicals worth 12 billion dollars in 2018 and nearly 5.7 dollars in the first half 2019. As for the gas sector which was overlooked by the sanctions regime, Iran exported the total of 4.4 billion dollars to Iraq and Turkey, in addition to gas exports to other countries. Lastly, within its public budget for next year, the Iranian government plans to collect nearly 4 billion dollars from exporting nearly 20 million litres of automobile fuel per day. The petrochemicals and fuel gap is the most important in the sanctions regime. This prompted Iranian analysts to speak of the development of Iran into a country that depends for its revenues on gas and petrochemicals rather than oil.

3- International mechanisms to resist sanctions: the Instrument in Support of Trade Exchanges (INSTEX) and the like: the European Union (EU) attempted to resist US sanctions and penetrate them through several steps, mainly: “activation of the Blocking Statute to support EU companies”,“attempt to establish linkage through central banks”, and the monetary exchange mechanism “INSTEX”.  While all three attempts have not had, as yet, a noticeable effect, they represent a tendency not to abide by the sanctions imposed on Iran (as opposed to the experience of earlier sanctions which were characterized by a significant US-EU harmony). In itself, this represents an important political and economic opportunity for the Iranian side to resist the sanctions. Iran has also attempted to delink from the dollar by signing bilateral contracts for dealings in local currencies with some countries, including Turkey, China and India. Furthermore, it has sought to join the Russian system that constitutes an alternative to the SWIFT payment system and use it for trade cooperation with Russia and the Eurasian Union (this led to a partial, albeit noticeable, activation of trade between Iran and those countries). Regardless of the extent of their success and impact, those attempts demonstrate a strong desire by Iran and its partners to benefit from the gaps available in the sanctions regime.

4- Exchange mechanisms outside the scope of the sanctions: the Iranian economy has benefited from a wide network of institutions and mechanisms that ensure its continuous monetary exchange and trade cooperation with the world, including a group of small banks, exchange companies and the barter mechanism, including:

a- Cooperation with financial institutions and small and local banks: while large and medium banks in different countries of the world have avoided financial cooperation with the Iranian economy to avoid being subjected to US sanctions, according to its officials, the Iranian regime has tended to cooperate with small and local banks and financial institutions that do not have links with the US economy. Reports indicate the development of monetary exchange with such institutions, not just in China, Russia and Iraq but also in the EU. This has enabled Iran to continue its trade in spite of all the restrictions imposed and the additional cost. In addition, cooperation is maintained with banks and financial institutions established by Iranians or sympathizers with Iran in some of those countries to serve as a corridor for monetary exchange with the world.

b- Experience has shown that Iran relies on a wide network of exchange companies (not clearly covered by the sanctions regime despite their importance and ease of establishment) to ensure the continued monetary exchange with the world, despite the high cost of transferring money via this network compared to the banking system.

c- Iran has attempted to revive the barter system to ensure continued trading with the world. While Iran has used the barter system which completely avoids monetary exchange in its trading with most of its partners, its effectiveness has been demonstrated in the trade exchanges with Iran’s neighbouring countries. It has been the main reason for the promotion of Iraq to the forefront of Iran’s trading partners, and for the continued trading with Turkey and Afghanistan despite the sanctions.

General conclusions with regard to the first ring of the embargo (US sanctions)

1- US and not UN sanctions: unlike the earlier round of sanctions imposed on the Iranian economy in 2011, this round of sanctions was not characterized by an international harmony and discipline on the part of countries of the world in terms of adhering to them (while not amounting to their ineffectiveness). Consequently, this time, the sanctions regime has been characterized by several gaps from which the Iranian regime benefited to ensure its survival and resist the pressure. It can be said that the main gap in the US sanctions regime stems from the fact that they are US rather than UN sanctions (as was the case with previous sanctions that were based on Security Council resolutions). This has led to several results, as follows:

a- Some countries, mainly Iran’s strategic partners such as China and Russia in addition to countries such as Turkey and India, have tended to resist those sanctions (unlike the previous UN sanctions which had been characterized by a large-scale international discipline in adhering to them).

b- Iran and its partners have tended to trade outside the dollar umbrella by signing exchange contracts in local currencies. Despite the narrow scope of this mechanism, if the desire exists on the part of Iran and some of its partners such as Russia, China, India and Turkey to resort to such contracts (and it does exist in some cases), this would constitute a suitable ground for developing this area in case the sanctions persist.

c- The most important result of the US nature of the sanctions is that they only cover institutions and companies that have trade relations with the US economy (so that they would have to choose between losing their trade with the US or Iran). Institutions that do not maintain direct trade relations with the US economy will not be bound by those sanctions. The Iranian experience has shown that Iran has greatly benefited from this aspect. According to what has been underlined by the governor of Iran’s central bank and members of the Iranian parliament, Iran has sought to build trade relations with small companies and banks and exchange companies that do not maintain trade relations with the US.

2- US attempts to overcome obstacles: over the last two years, the US administration has made some attempts to supplement the sanctions regime imposed on Iran to increase its effectiveness. These attempts can be divided into two patterns:

a- Updatings: over the last two years, the US administration has introduced numerous updatings to the US sanctions in order to bridge the substantive gaps that have weakened the impact of those sanctions. Those updatings included the addition of names of companies, economic institutions and people associated with the Iranian economic regime, supplementing the rings by imposing sanctions on Iranian petrochemical companies (such as the Persian Gulf Petrochemical Holding Company), and imposing additional rings of sanctions on institutions that had been placed on the sanctions list for different reasons (such as imposing sanctions because of supporting terrorism on the Iranian central bank which was on the list of sanctions for other reasons), and on areas that had been included in the list of sanctions (such as imposing new sanctions on the area of steel which had been included in the list of sanctions).

b- Internationalization attempts: the US administration has sought to internationalize the sanctions on Iran by seeking to win over international quarters to this regime, out of awareness that the main gap in the sanctions regime, despite its effectiveness, is that the sanctions were not UN-endorsed. Consequently, and to render the sanctions regime more than just US sanctions, the US has made several efforts, mainly:

  • Internationalizing the sanctions by holding conferences to internationalize the alliance against the Iranian regime. What the US administration did during the Warsaw conference in February 2019 and the US-Gulf sanctions on Iranian institutions in October 2019 could be considered as steps to transform the sanctions on Iran into an international regime (it is noteworthy in this context that the US administration has not managed through holding international conferences to internationalize the sanctions regime, although it has managed to adjust the timing of the commitment by countries to the sanctions and to prevent those countries from violating the sanctions).
  • Putting pressure on the EU trio participating in the nuclear deal to withdraw from the deal and activating the dispute settlement mechanism whereby the Iranian nuclear file is referred to the Security Council in preparation for the resumption of UN sanctions and the re-activation of Security Council resolutions that have been cancelled by resolution 2231. The US has made remarkable efforts in this respect and has been partially successful in activating the file (the EU trio has announced its decision to activate the mechanism after a US threat of economic pressures). Yet it has not been completely successful as the EU gave up its decision under pressure from the EU administration and the German government.
  • Putting pressure on the FATF to place Iran once again on the blacklist. Sources have indicated that competition took place within FATF between pro-Iranian lobbies that attempted to convince the FATF to give up its decision of placing Iran on the blacklist and pro-US lobbies that advocated taking that decision which had a substantive impact on the nature of the sanctions even if it did not have a clear effect on the Iranian economy that faces multiple crises.

Second ring of the embargo (the FATF blacklist)

The decision by the FATF to place Iran on the FATF blacklist in February 2020 came after several instances of deferral. While the decision did not have a noticeable impact on the Iranian economy as reflected in the economic indicators after the decision, it represented, however, a step towards enhancing the sanctions regime and bridging many of its gaps. The effects of the decision, which includes warnings against bank dealings with Iranian banks, can be summarized in the following points:

1- The decision clearly serves to internationalize US sanctions on the Iranian banking system. Thus, it can be considered as a shift in the sanctions from US-based to UN-based sanctions that different countries of the world will seek to adhere to. While the Iranian economy could, before the decision, maintain links with a part of the global banking system through the use of small banks in some countries (including European ones) and banks that do not have links with the US economy, albeit a deficient and costly link, the recent decision by the FATF to place Iran on its blacklist constitutes a significant obstacle to that link. It constitutes a step in the direction of eliminating the banking link between Iran and the world. Such an awareness of the potential to terminate the banking link between Iran and the world could be seen through the positions of the Iranian government (Rouhani has underlined that failure to enact the laws demanded by the FATF amounts to the development of the sanctions into an international phenomenon, while his assistant stressed that placing Iran on the blacklist lends an international legitimacy to US sanctions), and through the debate within the Expediency Discernment Council of the System that is mandated with the endorsement of the laws assumed by the FATF.

2- The decision has put an end to the hopes that Iran had attached to some EU mechanisms in support of trade engagement, mainly the Instrument in Support of Trade Exchanges (INSTEX) for monetary exchange, as it is a decision that would transform banking sanctions from US into international sanctions, and based on the commitment of EU banks, and even central banks that have sought to resist US sanctions by FATF decisions. Even if the INSTEX mechanism for monetary exchange is not practically feasible to enhance trade with Iran, the termination thereof constitutes a symbolic end to all EU banking attempts to trade with Iran.

3- Likewise, while Iran attaches great hopes to dealing in local currency with some countries such as India, China, Russia, Turkey and Iraq, and attaches hopes also to monetary exchange with some banks via the Russian system that constitutes an alternative to SWIFT (which are realistic hopes as opposed to the hopes of activating the monetary exchange mechanism with the EU), the recent FATF decision of placing Iran on the blacklist largely puts an end to those hopes considering the commitment by all those banks to the FATF decisions. Fear could be noticed from the impact of this decision on Iran’s trade dealings with its partners based on local currency and via alternative banking systems in the positions of both the Russians and Chinese who called on Iranian institutions to implement the relevant decisions to avoid being placed on the blacklist which would clearly complicate monetary and trade dealings with Iran.

In addition, the FATF decision is clearly different from the US sanctions imposed on the banking system. While the US sanctions can be terminated through a presidential decision that could be taken by the US administration once an agreement has been reached with Iran, annulling FATF decisions and removing Iran from the blacklist need a longer time, perhaps as long as three years. This poses another challenge to the Iranian banking and economic system.

The US insistence on placing Iran on the blacklist and combating efforts to defer the decision and grant Iran a new grace period can be considered as evidence of the awareness by the US administration of the impact of such a decision and its effectiveness in deepening the impact of the sanctions and bridging their gaps by transforming them from being US sanctions to what resembles UN sanctions.

Despite its importance in bridging the gaps and adding a layer to the sanctions imposed on Iran, and while it constitutes an obstacle to monetary and trade exchange between Iran and the world, the recent decision by FATF does not bridge all gaps affecting the US sanctions regime, neither does it terminate the means of trade between Iran and its partners as it is devoid of mechanisms to close the following outlets:

1- The exemptions enjoyed by some countries such as Iraq and Afghanistan in some areas such as energy, ports and exports of gas and petrochemicals all remain outside the scope of those decisions. Iran can rely on the revenues therefrom provided that alternative methods are found to collect the amounts due to it of more than 15 billion dollars.

2- The system of exchange networks represents one of those alternative methods, being a system that falls outside the scope of sanctions despite the recent FATF decision which does not necessarily cover them. Market developments on this front do not indicate that activities of the exchange companies have been adversely affected by the recent FATF decisions as is the case with the US sanctions.

3- Most importantly, the barter system used by Iran for trade exchange with its partners, particularly its neighbours, was not greatly affected by the recent FATF decision as it is a system that avoids monetary exchange. Based on the orientations of the Iranian government (such as efforts to promote trade with Iraq to the level of 20 billion dollars within one year), it is clear that the government plans to extend the coverage of barter and increase its share of total Iranian monetary exchange to avoid passing through the banking system and other monetary transfer mechanisms.

Third ring of the embargo (the coronavirus pandemic)

There is no doubt that the coronavirus pandemic should have been viewed as a natural crisis and not within the framework of the rings of the embargo on Iran. However, the economic effects of the spread of the epidemic in the region, and in Iran which is particularly considered the regional epicentre of the virus, have indeed added a new ring to the rings of the embargo experienced by the Iranian economy whose effect has exceeded (on the short term) the US sanctions. It can be said to have fully supplemented the rings of the embargo on Iran and extended to areas that had managed to survive the effects of the US sanctions and the effect of placing Iran on the FATF blacklist, as follows:

1- Cross-border trade had survived the effects of the previous two rings (the sanctions and placing Iran on the FATF blacklist). This has drived Iran to rely on it for showing resilience and the continuation of economic activity. However, the spread of coronavirus has led to a significant imbalance in Iranian trade with countries of the world in general and in cross-border trade with neighbouring countries in particular. In light of clearly conflicting news, it can be said that the majority of countries neighbouring Iran, including Iraq and Turkey, have announced the closure of their border crossings with Iran. As a result, Iran’s foreign trade has declined in the last month of the Iranian year (20 February-20 March 2020) to less than 2 billion dollars after it was expected to reach 7 billion dollars.

2- The suspension of the barter system (which was used by the Iranian economy as an alternative trade corridor to the banking system which is subject to doubled sanctions) has had a noticeable effect on the decline of Iran’s trade with the world. Due to the corona crisis, it is now possible to state that the barter system will exit the list of alternatives available to Iran in the short run. While there is no clear perception as to the trade volume via the barter system, a decline of more than three quarters could be perceived in this respect given the trading halt with Iraq, the UAE and Turkey.

3- The Iranian tourism sector, which falls outside the scope of the sanctions, has experienced a major setback due to the corona crisis. The Iranian regime has been relying greatly on this sector to stir domestic economic activity. According to the Iranian tourism ministry, the amount of losses in international tourism is estimated between 3 and 4 billion dollars within the two months of the corona spread. The cessation of international travel had another negative effect on the so-called “passenger currency” or “suitcase currency” which is remarkably relied upon by the Iranian economy to provide liquidity and access the dues of its exports.

4- The closure of border crossings with neighbouring countries has had a noticeable effect on petrochemical exports, a significant proportion of which is exported via the land transport system to neighbouring countries.

On the whole, it can be said that the spread of the coronavirus could be considered a supplementary ring to the embargo rings that affected the Iranian economy over the last two years. Corona has targeted the aspects of the Iranian economy not reached by the sanction regimes (that is the barter system, border trade and tourism). It can be said that the epidemic has deepened the wounds resulting from the sanctions regime.

Nevertheless, Iranian economy has continued to use some remaining alternatives to establish links with the world and show resilience in the face of the sanctions, including the exchange system (which can currently be considered the only alternative to establish a monetary link with the world amidst US, and subsequently international, sanctions on the banking system and in light of the halt of flows of passenger currency as a result of the sanctions), and the energy and gas exemptions (which have not been seriously shaken after all those rings) and petrochemical exports (whose recent figures show that they have not been greatly negatively affected pending the effect of the decline in world oil prices).

General conclusions

A close look into developments in terms of the sanctions imposed on the Iranian economy this time could reveal the following conclusions:

1- The US sanctions imposed after the withdrawal of the Trump administration from the nuclear deal are characterized by several gaps that did not exist in the UN sanctions imposed on Iran in 2011, despite the serious effect of the recent US sanctions on the Iranian economy which is apparent in the basic figures within the economic domain. Based on those gaps, the Iranian regime has sought to launch an international campaign to mobilize public opinion against those sanctions. It has become clear that the gaps affecting the sanctions stem from their being US rather than international sanctions. Also clear is the awareness by the US administration of this point. It has sought through several channels to develop the US sanctions into international ones.

2- Placing Iran on the FATF blacklist served as the most important successful step amongst all efforts made by the US administration to internationalize the sanctions. This has lent international legitimacy to banning one of the most important sectors subject to sanctions by the Trump administration, namely the Iranian banking sector. Thus, placing Iran on the FATF blacklist is important, although it did not have a clear impact on the Iranian economy. Therefore, it can be said that this placement had a symbolic rather than an economic impact that is reflected on the figures.

3- Over the last two years, Iran has achieved remarkable successes in the attempt to adapt the Iranian economy to the embargo through searching for alternative methods for monetary contact with the world, relying on trading systems that fall outside the scope of global traditional regimes, and exhausting the full potential of areas outside the scope of the sanctions. Within this framework, the Iranian economy has been transformed from a system linked to banking institutions to a system linked to exchange companies, and from an oil system to a petrochemical system (the share of oil revenues in the public budget has declined in favour of petrochemical revenues and oil products outside the scope of the sanctions regime). The Iranian economy has also developed from the global to the regional trading system (a qualitative development has taken place in the map of Iran’s major partners), in addition to the re-creation of the barter mechanism and relying heavily on it.

4- While it is true that the spread of coronavirus has largely served to supplement the sanction rings, by bridging the rings that could not be reached by the sanctions, continuing to bridge those gaps after the corona spread comes to an end will be impossible under the current sanctions regime. Developments and official positions show that Iran will return to those methods and attempt to enhance its capacity within the framework of a plan to restructure the economy and adapt to the embargo. Neighbouring countries will play an important role in the plan to restructure the Iranian economy away from the limits of the impact of sanctions. This means that the sanctions regime will need to be rationalized and developed to extend to those aspects if it were to succeed and break Iran’s resilience in the face of pressures by the sanctions.

5- Among all areas that it can rely on to ensure its survival, the Iranian economy has a few remaining breathing channels, mainly: petrochemical exports which remained outside the scope of the embargo rings, energy and gas exemptions, and the exchange company network that ensures the continued monetary exchange under the sanctions imposed on the banking sector. In addition to those three channels, the country’s economy relies on domestic sales of oil and fuel (in turn subject to shakes due to the fall in global oil prices) and taxes. This makes the resilience of the Iranian economy extremely difficult.


First scenario: Iran’s submission to dialogue over its regional activity: this scenario assumes that the aforementioned three rings (the US sanctions, the international ban as a result of placing Iran on the FATF blacklist, and the pressures resulting from the economic isolation imposed on Iran due to the spread of coronavirus) will serve to break the last of the fortifications of the Iranian economic system and convince Iran to resign to taking part in an international dialogue over the limits of its regional activity. This scenario seems quite plausible amidst pressure as a result of the corona spread, particularly if the epidemic drags for several months, and especially amidst the continued complications stemming from the fall in oil prices and the impact this would have on drying up vital revenues that the Iranian economy relies on to show resilience. Despite the clear effect of those pressures on the Iranian economy and their recent reflection on the positions and statements of some Iranian government officials, the positions were different in revolutionary circles where the sovereign institutions most influential in decision-making have expressed complete rejection of giving up earlier positions. In addition, it is not clear whether the pressures resulting from corona will last for more than one month and whether Iran will be able to reopen vital outlets for its economy.

Second scenario: success by the US administration to bridge the sanction gaps and force Iran to take part in a comprehensive dialogue: this scenario assumes that the US administration will continue to act out of its awareness of the gaps in the current sanctions regime and intensify pressure attempts on the international community and Washington’s partners to take new steps against the Iranian regime that would deepen the impact of sanctions. The US determination in this respect is quite clear. Lately, US officials have repeatedly underlined that they intend to fully implement the plan of “maximum pressure” strategy by demanding their EU partners to withdraw from the nuclear deal and activate the dispute settlement mechanism. This would serve to refer the Iranian nuclear file back to the Security Council, reactivate UN resolutions and internationalize the sanctions. The scenario assumes that the US will manage to re-internationalize the sanctions, which would force Iran to resign to comprehensive negotiations and accept US demands that could be said to have become international demands. Yet the main challenge ahead of this scenario and its success lies in the short period before the Trump administration ahead of the presidential elections in November. Otherwise, it will remain contingent on the possible re-election of president Trump for a second term.

Third scenario: resilience of the Iranian regime in the face of accumulating pressures: this scenario assumes that the sanctions regime will remain as it is currently where US sanctions are in force, to which a state of ban has been added as a result of the FATF decision. This would add up to a significant pressure on the Iranian economy. Yet it is not a pressure that would drive the Iranian economy towards rapid collapse or submission to the demands of the US administration. While the spread of corona also places a great pressure on the Iranian economy, the scenario assumes that this pressure would be over within two months at most without leaving a substantive impact on the Iranian economy. It also assumes that the US administration would not manage to add new rings to the sanctions that would have a substantive and deep impact on them. Thus, the scenario envisages that the Iranian economy will remain weak but will not collapse. Despite the weak aspects of the scenario, it remains plausible in light of developments on the international front, particularly at the EU level, and the approach of the date of US elections.

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