Monday’s sanctions cover Iranian transactions with U.S. dollars, its trade in gold and other precious metals, and some industrial equipment. More significantly, they will also target transactions involving the Iranian rial and the issuance of Iranian sovereign debt, further destabilizing the rial, which has lost more than half its value against the U.S. dollar in recent months. Iran’s multibillion dollar agreements with Boeing and Airbus to buy aircraft for its national airline’s aging fleet will have to be completed by Monday or face sanctions. Both companies say they will comply.
But it is Iran’s automobile sector that will be most affected by Monday’s sanctions. Richard Nephew, the former deputy coordinator for sanctions policy at the U.S. State Department who was on the U.S. team that negotiated the deal, said in a conference call that “the automotive sector is one of Iran’s larger manufacturing sectors and one that they had ambitions would become a significant export sector for the Iranian economy.” European carmakers such as Renault that operate in Iran say they are are looking at other alternatives to “offset the missed opportunities in Iran.”
Nephew said Monday’s sanctions “will serve as a clearer demonstration to market actors, to the Iranian economy, to Europe, and others that this administration is intending to go through with the … decision” to withdraw from the Joint Comprehensive Plan of Action, or JCPOA, as the Iran deal is formally known.
“One of the things I’ve heard an awful lot of over the course of the last couple of months is whether or not this is still all a feint, and all intended to rejuvenate the diplomatic process that had otherwise been stalled,” he said. “I think that come Monday, a lot of that speculation, a lot of that wishful thinking will have been put to rest when those sanctions are back in place.”
And when those sanctions are back in place, the impact on Iran’s economy, and on the bottom line of any international company that defies the sanctions, will be palpable. This is not to say the Islamic Republic’s economy was flying high until now—far from it. Its economic troubles have been compounded by the loss in value of its currency, the rial. It is now trading at about 110,000 rials to the dollar on the unofficial market. When I wrote in June about Iran’s economy, the rial was trading at about 85,000 to the dollar. In late 2017, $1 was worth about 43,000 rials.
Iran’s people keep getting poorer
Iran’s central bank blamed “a conspiracy by enemies with the aim of exacerbating economic problems and causing public anxiety” for its problems. But the troubles are hardly the fault of outside actors. Iran’s own actions since the JCPOA was signed in July 2015 haven’t helped: It is engaged in an expensive war in Syria, a proxy war in Yemen, and arms and funds Hezbollah, the Lebanese Shia militia group, as well as Hamas and other militant groups across the Middle East. Such activity does not come cheap. Iran is estimated to have spent tens of billions of dollars on these efforts—an expenditure that has led anti-government protesters to recently chant: “Not Gaza, not Lebanon, my life for Iran.”