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Abu Dhabi, UAEThursday 18 October 2018

Reimposed US Iran sanctions also target businesses dealing with Tehran

Iran's rial plummets to record low as US sanctions loom

A wall painting in Tehran, Iran, on 31 July 2018, but the country faces tougher economic times with the arrival of new US sanctions. EPA
A wall painting in Tehran, Iran, on 31 July 2018, but the country faces tougher economic times with the arrival of new US sanctions. EPA

United States banking sanctions due to be reintroduced on Iran next week will not only target government activities but also businesses in Europe and elsewhere that could face “secondary sanctions” if found in violation of US laws.

US officials have confirmed that on Monday, financial sanctions previously relaxed under the Iran nuclear deal in 2015 will be reintroduced following president Donald Trump’s withdrawal from the agreement on May 8.

These will include Iranian government purchases or trade in US banknotes, gold, precious metals, graphite, coal and semi-finished metals, as well as sanctions on large sales of Iranian rials, on issuing Iranian debt and auto sanctions.

The next wave of sanctions to be reimposed on November 4 will target the energy, shipping and insurance sectors, and the central bank of Iran.

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Along with the new sanctions, the US Treasury will enforce “secondary sanctions”, which will target businesses for transactions that go through the US and are in violation of the restrictions. The threat of these measures has already forced many companies and banks to withdraw business from Iran in anticipation of Monday.

Matthew Levitt, the director of counter-terrorism and intelligence programme at the Washington Institute for Near East Policy, told The National that the impact of the sanctions is already being felt in the plunge of the rial, and with the flight of reputable businesses from Iran. The rial hit a new low of 111,000 to the US dollar on Sunday.

“Because of the secondary sanctions, Iran’s ability to plug into the international system will be constrained” Mr Levitt said. While US trade with Iran stood at $258 million (Dh948m) in 2016 according to the US Census Bureau, the European Union alone exported $13 billion to Iran last year.

Mr Levitt, who worked previously at the US Treasury department, is confident that European businesses will avoid risk and avoid any transactions with Iran that could cut their access to the US financial system.

“Iran may not implode but its economy will be on life support” said Mr Levitt, pointing to corruption within Iran that will ultimately get worse without the international cover of the Joint Comprehensive Plan of Action.

Mr Levitt cautioned that “sanctions are not a policy, they are a tool to achieve what [US Secretary of State] Mike Pompeo asked Iran” in his speech in May presenting Iran with 12 demands that would dramatically shift its regional and internal behaviour. It is unclear, he added, if such goal will be achieved.

But Richard Nephew, a non-resident senior fellow at the Brookings Institution and a former Principal Deputy Co-ordinator for Sanctions Policy at the State Department, doubts the impact.

“The impact of those particular sanctions will be minimal, as the transfer of banknotes tends to be something that big institutions have already avoided and small transactions will take place under the radar,” Mr Nephew told The National.

He argued that “much of the impact on the rial, civil air, and the automotive industry is baked in already,” as large businesses have cut ties in the last three months or avoided Iran altogether before the deal was put in place.

Total, Peugeot, General Electric, Boeing, Hyundia, Mazda, IndusInd Bank, and other major companies have left Iran or asked their investors to do so before the return of US sanctions.

Mr Nephew saw the biggest impact of Monday’s sanctions as "putting an end to some wishful thinking in the markets that the withdrawal [from the nuclear deal] decision could be reversed” by the Trump administration.