President Trump issued new sanctions against Iran, which awkwardly were announced just before presidential elections in May of this year, focusing on individuals and (Chinese) companies that allegedly “supplied missile-applicable items to a key Iranian defense entity”. Trump’s action was reckless but, fortunately, Hassan Rouhani, the most palatable candidate, was re-elected as president of the Islamic Republic (not to be confused with Islamic State) instead of hardliner Ebrahim Raisi. The new sanctions came on the heels of a State Department decision to impose sanctions on Iran, for the first time, over human rights violations. Trump has been very critical of the nuclear deal that was reached in 2015 and has repeatedly threatened to pull out of the international accord. On his first foreign visit, to Saudi Arabia of all places, he blamed Iran for terrorism before signing an USD 110 billion arms deal with his host.

Slicing and dicing…

The U.S. first imposed sanctions on Iran in 1979 as a response to Iran’s action to hold Americans inside the U.S. embassy as hostage. The U.S. prohibited oil imports from the newly formed Islamic Republic and froze assets stored in U.S. banks. Sanctions were ratcheted up over time after Iran was labeled a sponsor of terrorism. In the 90s the U.S. went a step further and introduced the Iran Sanctions Act, the first extraterritorial sanction imposed on Iran. After 9/11 and the discovery of nuclear enrichment operations by the IAEA a year later, the objective of the sanctions became to prevent nuclear proliferation (in his 2012 State of the Union, George W. famously labeled Iran as being part of an “axis of evil”). The EU (France, Germany and the UK) had opted for diplomatic efforts, negotiating with Hassan Rouhani to end the uranium enrichment activities. Obviously, America’s unilateral actions frustrated these attempts. The EU joined sanctions only in 2006 after the IAEA referred its case to the UN Security Council and a first resolution was adopted. The UN went further and issued resolution 1929 in 2010, which sanctioned the oil and financial sector with the aim to halt development of nuclear weapons by Iran. In 2012, the Obama administration went even further and isolated Iran’s banking system by making SWIFT payments illegal, punishing any U.S. or foreign person or entity who would not comply (BNP Paribas, a French bank, was fined USD 8.9 billion in 2014 over an alleged breach of sanctions). After Hassan Rouhani was elected as president of Iran, he restarted negotiations to end sanctions in exchange for giving up the country’s nuclear ambitions. Parties reached a deal in 2015 and nuclear sanctions were lifted by the P5+1, ratified by the UN, in January 2016, allowing Iran to export oil and Iranian banks to reconnect to SWIFT.

There is no doubt that the Iranian economy has been hurt by the imposition of sanctions. Economic growth in 2012 contracted by 6.6% after Iranian banks were cut off from SWIFT and 2013 saw another contraction of 1.9% (economic mismanagement by then-president Mahmoud Ahmadinejad did not help). Unemployment reached 12% in those years. The economy only grew again after Rouhani became president and reached the accord, although hesitation by foreign banks to re-establish lending has held back the economy, afraid of being caught out by U.S. anti money laundering and combating financing of terrorism rules. U.S. primary sanctions also remained in place, for example, restricting dollar clearing. Nonetheless, economic growth rebounded by +6.5% in 2016 and the IMF expects growth to reach 3-4% this year and next. Although the very tough sanctions probably played a role to bring the Iranians back to the negotiation table, it might also be the case that Iran decided that it had reached most of its goals in respect of building a nuclear capability, which is, maybe, why Trump is twitchy about the accord.

Reformer or warrior…?

We believe it is a grave mistake when the U.S. upholds existing sanctions against Iran, let alone adding new ones. What is the point of giving in to Western demands if sanctions are not lifted in a meaningful way? There is a lot wrong with Iran, not least the country’s support for terrorist groups like Hezbollah, Hamas and Mr. Assad’s regime. But this is a wider issue in the region. For example, we also do not approve Saudi Arabia’s support for al-Qaeda and Islamic State and Saudi’s war crimes in Yemen. Rouhani is far from an ideal leader but he has staked his future on economic reform and a democratic system (a rarity in the region) and seems to be willing to comply with the accord, as the IAEA repeatedly has confirmed. Rouhani needs a win, i.e. full sanctions relief, if he is to defeat the hardliners (Revolutionary Guard) for good. The Iranian people, a well-educated lot, have clearly shown this is their chosen path by standing behind Rouhani. Iran, a country with 80 million inhabitants, is a developed industrialized economy that goes well beyond oil. Once Iranians enjoy economic prosperity at home, maybe then there is a better chance to address the other issues by diplomatic means. We should not let them down…