Iran Country Report Apr19 - April, 2019

April 1, 2019

US State Department officials have warned that more sanctions targeted at Iran are on the way. The officials addressed a meeting on “Sanctions: A Key Foreign Policy Tool” held at the department in Washington, DC on March 13.

David Peyman, deputy assistant secretary of state for counter threat finance and sanctions, told audience members that the sanctions imposed on Iran since last year after the US unilaterally withdrew from the Iran nuclear deal—amounting to the largest sanctions package any country has used against another in modern-day history and covering 850 individuals and entities as well as entire sectors of the Iranian economy—were only the beginning.

Iranian President Hassan Rouhani declared in a March 18 speech that Tehran is preparing a lawsuit to be lodged “in a competent court inside Iran” against US individuals involved in imposing sanctions against the Islamic Republic. Iran has accused the US of creating a “war” situation with its reintroduction of heavy sanctions on November 5 designed to force the Iranians to the table to renegotiate their Middle East policies and activities. The second-phase sanctions target Iran’s oil, gas, petrochemical, shipping and banking industries, dealing a potentially crippling blow to an economy already plunged into recession and crisis by the first-phase sanctions that took effect on August 7.

The sanctions bring to an end all the economic benefits the Barack Obama administration granted Tehran after the US and five other major powers, along with Iran, signed the nuclear deal in late 2015. The accord is supposed to shield Iran from crippling sanctions in return for the Iranians limiting their enrichment of uranium to close off their potential road to the development of a nuclear weapon. But, despite the strong protests of all the other signatories—Iran, the UK, France, Germany, Russia and China—and with the vocal backing of Israel, Donald Trump unilaterally withdrew the US from the multilateral pact in May, determined to force further concessions on Iran’s role and activities in the Middle East.

The US initially pushed hard to rapidly bring crude shipments down to zero, but on November 5, the US confirmed that 180-day exemptions allowing for the continued importing of Iranian oil had been granted to eight countries—China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey. However, the waivers have been granted on the condition that the countries endeavour to gradually end the purchasing of crude from Iran.

Some internationally renowned economists, such as Steve Hanke at Johns Hopkins University in Baltimore, have estimated that Iran’s annual inflation rate is running at more than 270% compared to the official claim of just 13.5%.

The IMF predicted on November 13 that inflation in Iran would grow to more than 40% at the end of 2018. In a report on Middle Eastern economies, the Fund also repeated a previous forecast released in its latest World Economic Outlook on October 8 that the ultra-aggressive US sanctions regime would push Iran's economic output down by 1.5% in 2018 and 3.6% in 2019.

Pressure from the sanctions has also led to the collapse of the rial in 2018, but towards the end of the year it made a remarkable half-recovery as the Iranian central bank made interventions and the markets realised Trump’s plan to strangle Iran’s economy was not yet in top gear. By the market close on February 17, 2019, reported that a dollar was selling at IRR130,000 on the free market and in mid-December there were even anecdotal reports of trades just below the IRR100,000 threshold. Those rates starkly contrast with the situation in late September when the rial to the dollar rate approached 200,000. At the start of 2018, the rial stood at around 30,000 to the USD.

January 31 brought some good news in the fight to fend off the Trump administration’s attempts to throttle the Iranian economy – Europe finally announced the registration of a special purpose vehicle it intends to use to help build up sanctions-shielded trade between Iran and EU member states. However, the mechanism—named Instex (Instrument In Support Of Trade Exchanges)—will start off with very modest targets and opinion is divided on how far it can progress.

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