Why Iran’s economy is immune to new sanctions

New sanctions imposed by the US and its allies on Iran last month are psychological grandstanding, analysts say, since it is practically impossible to impose further restrictions on the country.

The push by some Western countries, especially the US and the UK, to impose new sanctions began after Iran’s overwhelming drone and missile response to Israel’s bombing of Iran’s consular sector in Damascus.

UK’s Financial Times first reported that the US and the EU sought to build up pressure on Tehran following its missile and drone attack on Israel, preparing new sanctions on the Islamic Republic, in part to dissuade Israel from escalating the conflict with Tehran.

White House national security adviser Jake Sullivan said then the US would impose new sanctions on Iran's missile and drone program after the country's unprecedented punishment of Israel. The new sanctions, he said, would target entities supporting the Islamic Revolution Guards Corps (IRGC) and Iran's Defense Ministry.

Western analysts, however, were circumspect. Cited by the Financial Times, they indicated that Washington was disinclined to strictly enforce the “maximum pressure” sanctions regime introduced in 2018 by then-president Donald Trump. They cited reluctance by President Joe Biden’s administration to introduce an inflationary choke on global oil supply in a US election year.

In Tehran, meanwhile, Tasnim news agency said the country’s oil industry had found ways to get around sanctions, noting that, since its main customer was China, it was largely shielded from Western pressure.

According to data company Vortexa, Iran is exporting more oil than at any time for the past six years, giving its economy a $35 billion-a-year boost.

Tehran sold an average of 1.56 million barrels a day during the first three months of the year, almost all of it to China and its highest level since the third quarter of 2018, it added.

Iran’s success in exporting its crude underscores the difficulties facing the US and the EU to pressure the country, the FT said.

To be more precise, the severity of sanctions imposed in recent years has been at its highest, forcing Iran's economy to learn how to be resilient and circumvent them.

Moreover, the spike in oil prices in the wake of the coronavirus pandemic and the need for Iranian oil by China to keep its growth apace binds the hands of the Americans to shrink the country’s oil exports.

“Sanctions are not a new phenomenon for Iran's economy. They have been around for 40 years where the country has been grappling with various forms of embargoes,” Yahya Ale Ishaq, head of the Iran-Iraq Joint Chamber of Commerce, says.

“For the sanctions to be effective, the sanctioning party and the sanctioned parties should have certain requirements. The US currently is not in a position to impose effective sanctions against Iran, nor Iran’s hands are tied to bypass the sanctions. Even though the embargoes increase our costs, they are unable to paralyze our economy,” he added.

Ale Ishaq agrees that the talk of intensified sanctions is more a psychological ruse than a practical punitive measure.

Majid Shakri, an economist, has touched on China's need for Iranian oil, saying the Americans are unlikely to be able to arm-twist the Chinese into reducing imports from Iran.

“The point here is that if the Chinese choose to reduce their dependence on Iranian oil, they will have to source it from other exporters, foremost the Russians.

“However, the Russians are seen a big risk as the power configuration may change in the upcoming presidential elections in the US and as a result the relations between the Americans and the Russians might undergo a shift,” he said.

Nevertheless, the Americans might be able to disrupt Iran’s currency exchanges by putting pressure on dirham payment systems in the UAE, but this would not affect Iran’s oil exports in any meaningful way, according to Shakeri.

Masoud Barati, also an economist, points to saturation in the capacity to impose more sanctions on Iran's economy, saying the US and its allies are empty-handed in using the old weapon.

“There are two main reasons for the Americans' failure to impose restrictions on the sale of Iranian oil. The first reason is the geopolitical changes in the world and the behavior of big players such as China based on the maximum lack of cooperation with the Americans and the high-level political interactions between Iran and China in recent years. Another reason is the high resilience of Iran's mechanisms for selling oil compared to the American sanctions.”

According to Barati, Iran’s mechanisms for oil sales to China, including the types of exports and transfer and settlement methods are such that the Americans cannot practically limit them.

“There is only one way left to exert pressure on Iran to reduce it oil sales: the seizure of oil tankers. This is a method the Americans and its allies are unlikely to follow given that Iran’s tit-for-tat seizure of the other side's ships would be certain.”

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