US sanctions risk triggering a new “economic war”

Wednesday, 2018-08-15 12:48:21
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Iran's Supreme Leader Ayatollah Ali Khamenei said there would be no war or negotiations with the US. (Photo: Reuters)
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NDO – An “economic war” could possibly take shape after US President Donald Trump banned companies who do business with Iran. A number of large foreign companies have recently fled Iran in order to avoid punishment from the US. However, both Iran and some of its partners, including Europe, remain determined to uphold the Iranian nuclear deal and use technical barriers to safeguard their economic interests from the threat of US sanctions.

Several analysts hypothesised a “hot war” between Iran and the US as tensions in their bilateral relations have continuously escalated. However, Iranian Supreme Leader, Ayatollah Ali Khamenei, said there would be no war or negotiations with the US. This is a tough stance from the Iranian side after Washington re-imposed sanctions on the Islamic nation. Khamenei affirmed that the US sanctions have no influence on the current problems in Iran. Nevertheless, in fact, US sanctions have significantly affected Iran’s economy since the nuclear agreement that Iran signed with the P5+1 powers in 2015, officially named the Joint Comprehensive Plan of Action (JCPOA), took effect. The public have voiced special concern over the outlook of the rial, Iran’s domestic currency, which has lost roughly 50% of its value since April.

In a move to put optimal economic pressure on Iran, the first sanction package of the Trump administration was aimed at Iran’s US dollar purchase transactions, precious metals and export commodities. The second sanction package, scheduled to take effect this November, aims to neutralise the Middle East nation’s revenues from oil. Iran’s economy is suffering numerous difficulties, such as declining exchange rates, a troubling financial market, and rising prices. In the face of a financial crisis, Iran has promptly put forward a bailout bill to prevent the rial from a continuous plunge. Iran has banned the exports of more than 10 types of agricultural products, to ensure the supply for the domestic market. A number of analysts said that “in the eyes of foreign investors, Iran has started a wartime economic model.” Recently, Iran received five new aircrafts from the ATR, a joint venture between France and Italy in manufacturing aircrafts.

Under US pressure, there are many rumours over the possibility of Iran being forced back to the negotiating table after the US withdrew from the JCPOA and re-imposed sanctions on Tehran. However, Iranian officials have repeatedly denied the possibility of conducting such talks, saying that the US was no longer credible after they violated their commitments under the nuclear deal. To prove their readiness for any circumstances, Iran’s Islamic Revolutionary Guard Corps (IRGC) regularly conducted military exercises in the Gulf to deal with potential threats. Although the missile programme is the main cause of tensions between the US and Iran, the Islamic nation recently announced its new-generation of short-range ballistic missile, Fateh Mobin, which is manufactured domestically. Through such a move, Iran wants to emphasise that the greater the pressure and the psychological war on Iran is, the more determined they are to strengthen their defence power in all aspects.

Europe has also been pushed into confrontation with the US regarding the Iranian nuclear deal. Federica Mogherini, High Representative of the European Union (EU) for Foreign Affairs and Security Policy, stated that Europe continues to encourage small and medium-sized enterprises (SMEs) to strengthen their business with Iran. The German government has voiced its opposition to the US sanctions on Iran, saying the move violated international law. Germany warned that the US President’s decision could increase instability in the Middle East and facilitate extremist forces in the region. Meanwhile, European companies risk losing tens of billions of euros in deals with Iran. Although the EU has guaranteed the activation of the “Blocking Regulation” to protect European companies from the US sanctions, many large companies have hastily withdrawn from Iran because they do not want to be fall into controversy with the US.

Many European nations, as well as Russia, China and Turkey, are opposed to US sanctions against Iran, saying that the US’s policy towards the Islamic nation will have a negative impact on the regional and international security situation, while directly affecting the economic interests of these countries. Iran is also ready for an economic war, predicted to be extremely fierce, with the US.