Analysis

Trump's Sanctions Against Iran Threaten to Mar the World Order

Days before resuming heavy penalties on Iranian crude oil, the White House doesn't know how to bridge the gap between its ambition to twist Tehran's arm and the reluctance to hurt its allies

Worshippers chant slogans against America, Israel and Saudi Arabia in a rally to condemn Saturday's terror attack in Ahvaz, Tehran, Iran, September 28, 2018.
Ebrahim Noroozi/אי־פי

“The United States won’t succeed in turning November 4 into a bitter memory in Iran’s history,” Iran’s Supreme Leader Ali Khamenei said this week. He is right, because November 4 is already engraved in history as a tragic day for the Islamic Revolution. On this day in 1964 the Shah of Iran exiled Ayatollah Khomeini to Turkey, where he stayed in the city of Bursa in a Turkish intelligence officer’s home.

Eleven months later he moved to the city Najaf in Iraq, from which Saddam Hussein deported him to France in 1978. There, in a Parisian neighborhood, he set up his political salon, from which he planned the revolution.

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Whether or not President Trump checked the calendar before choosing the date, the looming deadline for the American sanctions to come into effect must be extremely worrying not only to the Iranians but to the rest of the world’s economies, due to the expectation of rising oil prices.

The sanctions, due to come into effect on Monday, will have “severe consequences” for the world order, warned Iranian Foreign Minister Javad Zarif in an interview to CBS. The world order may not be disrupted, but if citizens of numerous countries have to pay more to gas up their cars and light up their homes, and factories have to raise prices on products, there could be competition between Iran’s endurance and that of Western states.

On the other hand, Western analysts believe Saudi Arabia and Russia will make up the shortage of close to 2 million barrels of oil a day, which the sanctions will cause. But this process will take time, at least until March 2019.

However, by then American policy will depend on the good will of Saudi Arabia and Russia, both of which could benefit considerably from the rising oil prices. The United States will have to pay for their cooperation by lifting some of the sanctions on Russia and helping the Saudis whitewash Jamal Khashoggi’s murder.

The American administration itself isn’t of one mind regarding the sanctions. National Security Adviser John Bolton is demanding the enforcement of harsh, uncompromising measures (except on imports of food and medicines), while the State Department is in favor of a certain limit on Iranian exports, to avoid harming U.S. allies.

Bolton took a more conciliatory tone this week when he said the United States doesn’t want to harm friendly states and understands that some of them probably won’t be able to “go all the way” with the sanctions – that is, impose a complete ban on crude-oil imports from Iran.

Treasury Secretary Steven Mnuchin, who supports strict sanctions, also suggested disconnecting Iran from the international bank transfer system known as SWIFT. This would enable Iran to use the system to purchase basic products and medicines, and show that the sanctions are directed against the regime rather than the Iranian people.

But this argument is contradictory, because sanctions against the regime are sanctions against the people. Alternatively, if the intention is to make the people rebel against the regime, any alleviation of sanctions will dissolve the desired uprising.

Confusion in D.C.

These disagreements and contradictions show that the administration itself doesn’t know exactly what it wants to achieve with the sanctions, and at the very least doesn’t know how to settle the gap between wanting to twist Iran’s arm and the reluctance to harm its allies.

One possibility is to respond to the requests of some states, such as India and Turkey, which asked to be excused from the sanctions. To persuade the administration to exempt them, they reduced considerably the extent of their oil purchase from Iran. India, which until now bought some 500 barrels a day reduced the number by a third in recent weeks. Turkey, Iran’s third largest buyer, did the same. But neither promised to stop trade with Iran completely.

Indeed, on Wednesday India received a partial exemption from the sanctions and will be able to continue buying about 1.5 million tons of crude oil a month.The form of payment will prevent Iran from using the money for military purposes, India explained to the United States.

China, which buys some 800 barrels a day, reduced this figure but made it clear it will not be able to suspend its purchases fully because there isn’t enough oil available on the world market to fill the deficit that will ensue.

If the United States grants a full or partial exemption to these states, and accommodates a firm Chinese stand against the sanctions, Iran may as a result have to reduce only about a million of the 2.5 million barrels it sells daily. This would put Tehran in a better situation even than the one it was in during the sanctions President Barack Obama imposed on it before signing the nuclear agreement. This is why Trump is not expected to give up or let go, so as not to appear a “softer” president than his nemesis.

At the same time India, Iran, China and Russia are continuing to discuss opening a channel bypassing the Suez Canal to transfer merchandise from India via Iran’s Chabahar Port to China and Russia. This route will save about 30 percent of the current transport cost via the Suez Canal.

Supreme Leader Ayatollah Ali Khamenei, right, speaks with Russia's President Vladimir Putin, in Tehran, Iran, September 7, 2018.
AP

India is planning to invest some $500 million in the Iran port and apparently when this route opens, it will serve as another way to bypass the sanctions on Iran.

Yet these considerations do not exempt Iran from preparing for the punishment. The Iranian Parliament is discussing suggestions to pad the state’s coffers to soften the expected budgetary difficulties following the sanctions.

One suggestion is to set a consumer oil quota and charge consumers a higher oil price for exceeding it. But the difference between the official price of 24 cents per liter (compared to a $1.27 per liter world average) and adding 12 cents per liter to that is too small to yield a significant increment to the Islamic Republic’s income.

Another suggestion is to raise oil prices for everyone, with no quotas, but it this could well provoke dangerous protests.

Iran hopes the European Union’s plan to bypass the American bank sanctions will leave it a financing route that enables it to buy products above what the American sanctions permit. But this route hasn’t been agreed on yet, and the effectiveness of the European laws that are expected to punish companies complying with the American sanctions promise nothing, because the companies will make their own economic calculations whether to be punished by the United States or by European law.

Exposing the Iranian intelligence service’s plot to assassinate a prominent activist of the Danish branch of the separatist Arab Struggle Movement for the Liberation of Ahvaz poses a new problem for Iran. Denmark has turned around and is demanding not only to impose sanctions on Iran, but is trying to persuade the European states to join the American sanctions.

Tehran’s cushion

Iran’s important cushion, though, is its foreign currency reserves, which are estimated at more than $100 billion. The problem is that the money is managed in banks that could be harmed if they let Iran use its money for purposes banned by the sanctions.

Rohani may be pleased that the Revolutionary Guards decided to sell their shares in the government cellular company, at Khamenei’s order. The army also said it is gradually disengaging from the state’s economy, as Khamenei demanded when Rohani was elected president. He also demonstrates self-confidence by declaring Iran has already beaten the United States because “the United States’ allies in Europe have abandoned it, and who would have believed Europe would stand by Iran against the United States.” But Rohani will be required to take dramatic steps, for which he and the whole regime would have to pay dearly.

>> Read more: In just two years, President Trump has reversed the decline of American influence in the Middle East | Opinion ■ Why Israel will end up facing Iran alone | Opinion

Iran has become the red flag for American policy in the Middle East and the whole world. Among the agreements and understandings over which Trump has ridden roughshod, crushed or withdrawn from, quitting the nuclear agreement with Iran is the most significant and it carries the greatest risks.

Trump’s prestige as a president will hang on the success or failure of the sanctions on Iran, more than the phony romance with North Korea, transferring the U.S. embassy to Jerusalem, withdrawing from UNESCO, striking at UNRWA or fighting with Canada and Mexico.

Trump isn’t deterred by the division he plunged most of the world’s countries into over the continued existence of the nuclear agreement. He flouted the European Union, isolated the United States and strengthened the rival bloc of Russia and China.

More than a threat to world peace, Iran after the nuclear agreement has become the main focus of the new American ideology created by Trump, who will try to start the revolution on Monday.