U.S. pushes Iran sanctions in chaotic Middle East
During his 2016 election campaign, U.S. President Donald Trump was already gloating that he would withdraw immediately from the Joint Comprehensive Plan of Action that the United States had signed with Iran under the Obama administration. After he was elected, the United States withdrew unilaterally. The remaining parties, called the P5+1+EU (the United Nations’ Security Council’s five permanent members – the United States, Britain, France, Russia, and China plus Germany and the EU) did not withdraw.
But the United States did not stop there. It announced that it would reinstate sanctions on Iran and punish any third country or firm that did not abide by them. Since all transactions made in dollars must pass through the U.S. banking system, the United States is able to do this.
Last month the United States took two further steps backward from its international commitments. One of those was the withdrawal from its 1955 Treaty of Amity with Iran. When Iran proved that the United States had violated this treaty, Washington also withdrew from the Optional Protocol of the 1961 Vienna Convention on Diplomatic Relations between the two countries, as this protocol was predicated upon the peaceful resolution of disagreements.
The second stage of the sanctions, which mostly take aim at the energy sector among other key parts of Iran’s economy, took effect on Nov. 5. Many countries are reliant on petrol from Iran and refused to comply with the sanctions. The United States agreed to allow eight of those countries to remain outside the framework of sanctions. Turkey is one of those. The United States said these exemptions would come to an end after six months, and during that time they should wind down their petrol imports from Iran. Two of the countries said they would reduce these imports to zero within a few weeks.
The EU, Britain, France and Germany said they were deeply saddened by the U.S. reimposition of sanctions on Iran. Turkey, among other countries, refused to comply with the sanctions at all. Only time will tell what difficulties the United States will cause these countries.
The countries of the EU are hesitant with regard to the sanctions. The EU explained that they would not prevent European companies doing business with Iran. In fact, three of the countries that signed Iran Nuclear Agreement - Germany, France, and Britain - are attempting to set up a special clearing house mechanism known as a Special Purpose Vehicle. Using this SPV, European countries could trade with Iran without using the U.S. dollar or making direct cash transfers. Instead, an equal amount of goods could be exchanged for credits based on the amount of petrol imported. Neither dollars nor euros would be used in the transaction. However, the set-up has not yet been completed.
No country has yet been explicitly willing to host this clearing house. Britain used Brexit as an excuse, while France and Germany are both hesitant to host it due to fear of U.S. anger.
The French minister of finance complained that the European economy was too dependent on the U.S. dollar. The need for this clearing house mechanism makes this dependence on the dollar abundantly clear. However, if this mechanism is successful it would be one step forward in reducing dependence on the U.S. dollar.
The United States, noting that no country has yet been willing to host this mechanism, said that there had not yet been any concrete developments. Iran, on the other hand, complained that the EU countries were moving too slowly.
The use of the U.S. dollar in international trade has become so widespread that it is not easy to leave it, however the United States’ bad attitude toward this dependence has led some countries to search for alternative solutions.
As Trump works to keep his word to prevent Iran from selling its oil, there is also a negative effect from the sanctions on the United States. If Iran’s crude exports decreased significantly due to sanctions and this will have an effect on the overall price of oil. Washington wants Saudi Arabia to increase its production to offset the decline in Iranian oil exports. But Riyadh has been standoffish with regards to this suggestion. If Riyadh cannot be convinced, then the production of petrol will decline, and the price will rise.
Saudi Arabia and Israel are the most ardent supporters of U.S. sanctions on Iran. Due to Israel’s close strategic relationship with the United States, this support is not expected to flag. Behind Washington’s oppositional attitude toward Iran are the neo-conservatives and Israel lobby. This lobby has further plans to make Iran a permanent enemy through the Middle East Strategic Alliance (MESA), which has been likened to an Arab NATO.
This project brings together disparate forces from across the complex Middle East. It is not yet clear which countries would be included in such an arrangement however the Gulf Cooperation Council (GCC) members as well as Egypt and Jordan are likely candidates. The weak points of this project are the current dysfunctional state of the GCC as well as relations with GCC member Qatar. Since Qatar has close relations with Iran, it is likely that the other countries in the region would want to prevent it from entering an “Arab NATO.”
The Arab world’s backlash against Trump’s decision to move the U.S. embassy in Israel from Tel Aviv to Jerusalem may slow the development of this project.
In such a chaotic environment, the effectiveness of Trump’s sanctions on Iran will determine the ultimate balance.