The introduction of fresh US sanctions on Iran and the removal of Iranian oil exports from the global market will cost its regime dearly, given the instability of the situation inside the country, with people rioting and protesting over the living conditions almost on a daily basis.
As from this week (Aug 6), companies and governments are banned from using US dollars in transactions with Iran, and all bank transfers in US dollars will be stopped. Moreover, the US is forbidding doing any business in Iranian rials, forbidding banks from lending money to Iran, and forbidding US banks from dealing with Iranian banks.
In addition, purchasing gold, iron, aluminum, and even coal from Iran is now banned, together with importing Iranian carpets and foodstuffs into the United States; and three months from now, US sanctions on Iran will start including petroleum and petrochemical products.
Although these sanctions are unilateral, as they are imposed by the United States but not its allies, who chose to keep the Iran nuclear deal alive, most companies will not be able to continue to do business with Iran. The reason is that the US will impose secondary sanctions to ban governments and firms that deal with Iran from using US products and assets — partially and wholly — in their businesses and trade. The US has also warned companies doing business in Iran that they will be prohibited from using the US dollar, which is the global markets’ main currency, and will be placed on the US blacklist.
Thus, even though these sanctions are imposed only by the US, their severity will make most European, Chinese and Indian companies think twice before daring to do business with Iran. Iran, in the meantime, will have to deal with these companies through intermediary companies, which will prolong the period required for closing a deal and significantly push up costs.
Conversely, when Iran purchases from abroad, it will still need to use a hard currency such as the US dollar
Abdulrahman Al-Rashed
The most painful side of the sanctions, however, lies in preventing Iran and its partners from using US dollars in business dealings, which will leave Iran with only one option: The inadequate barter system. For instance, Iran will have to sell oil to China in exchange for cars or furniture, or it will have to sell oil in yuan, China’s currency. But Iran will still be unable to use the Chinese yuan when doing business with other countries, and the same applies to the Indian rupee.
Conversely, when Iran purchases from abroad, it will still need to use a hard currency such as the US dollar. This is a problem that Iraq faced last month when the Iraqi government tried to pay for its purchases of electricity from Iran in Iranian rial, which is abundant in Iraq; but the Iranians refused, and insisted on being paid in US dollars.
As for the euro, which Iran started using at the beginning of this year, it will not solve the problem for European companies that risk facing US sanctions if they deal with Iran, and European governments cannot force their companies to deal with Iran as they cannot protect them from US sanctions.
Indeed, European governments have begun opening accounts for Iran in their own currencies. For example, banks in Germany and France — and other eurozone countries — have opened euro bank accounts for Iran, while British banks used the pound sterling, and Austria and Sweden have used their local currencies.
Fear inside Iran of economic turmoil has been reflected in its currency’s exchange rate, which slumped horribly to about 120,000 rials to the US dollar. Government assurances have been futile as the country’s general economic situation looks difficult.
Iran will not be able to sell half the amount of oil it used to sell, despite the global market’s need for it, because the US has banned the use of Iranian oil tankers, insurance companies, and transactions in US dollars. Consequently, the revenues of Tehran’s government fell immediately, in addition to what it already suffers under the economic sanctions that have raised the prices of goods and services.
- Abdulrahman Al-Rashed is a veteran columnist. He is the former general manager of Al Arabiya news channel, and former editor-in-chief of Asharq Al-Awsat.