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US Sanctions on Iran Return, but to What Ends?

US Sanctions on Iran
An Iranian youth shows on his mobile phone a statement declaring the website of Iran’s Arabic-language channel Al-Alam “has been seized by the United Government”, in the capital Tehran on June 23, 2021. AFP.

Sophia Akram

Rare Iran-related sanctions re-emerged recently under US President Joe Biden who had been holding off applying penalties while Washington and Tehran tried to make headway on the Iran nuclear agreement. However, the current pause has caused the US to seek to create incentives to bring Iran back to negotiations. But with Iran’s nuclear programme progressing, and with more at play amid Iranian oil exportation, are sanctions effective?

On 13 August 2021, the US Office of Foreign Assets Control (OFAC) added Omani national Mahmood Rashid Amur Al Habsi to the Iranian sanctions list with a number of his business interests for allegedly funding the Islamic Revolutionary Guard Corps’ Quds Force (IRGC-QF), through the discreet transport of Iranian oil, pursuant to Executive Order 13224 made to impede terrorist activity.

“The IRGC-QF is using revenues from its Iranian petroleum sales to fund its malign activities at the expense of the Iranian people,” said Director of the Office of Foreign Assets Control Andrea M. Gacki, in a statement.

“These sales rely on key foreign intermediaries to obscure the IRGC-QF’s involvement, and Treasury will continue to disrupt and expose anyone supporting these efforts,” she added.

The statement claimed Al Habsi worked with senior IRGC-QF official Rostam Ghasemi who was designated under order 13224 in 2019 and obscured IRGC-QF’s (also under the counter-terrorism designation) involvement in the sale and shipment of millions of dollars of Iranian oil by tampering with the automated identification systems (AIS) found on board sea vessels, forging documentation and paying bribes.

Masking AIS is common on tankers carrying Iranian oil in order to evade sanctions and is a tactic warned against in an advisory issued by the US Treasury.

In many instances, oil is being transported to China, Iran’s largest customer, and whose sales the US has said it may seek to “choke off,” by targeting the shipping networks facilitating them.

However, with the recent exposure of the shadow war between Iran and Israel at sea, obfuscating the identity and destination of Iranian vessels is also security-related.

The resulting situation leaves Iran open to sanctions, but should those tensions escalate, currently stalled negotiations around reigniting the Joint Comprehensive Plan of Action (JCPOA) or nuclear deal, which the US also seeks to nail down, will be made much harder.

Iran has already progressed its uranium enrichment work since former US President Donald Trump withdrew from the deal in 2018, and Iranian technology, the UN’s International Atomic Energy Agency reported, is now thought capable of making the core of a nuclear weapon, although Iran insists its aims are peaceful. The advancement is nevertheless at odds with the terms of the JCPOA and a move US State Department spokesperson Ned Price called “unconstructive” to returning to mutual compliance with the agreement.

Renewed negotiations are thought likely, however, after approval of the cabinet of new conservative Iranian President Ebrahim Raisi. The former judge has openly said he will support a return to the deal to lift sanctions, but analysts have noted Raisi’s desire to make Iran less dependent on outside forces.

In July 2021, US Secretary of State Antony Blinken also confirmed Washington is prepared to resume negotiations with Raisi’s administration but said talks “cannot go on indefinitely.”

While Iran-related sanctions have been applied since Biden took office, they have been less frequent than under Trump.

“The Biden administration tried to demonstrate goodwill by not policing Iran around illegal export of Iranian oil early on in the administration,” says Sanam Vakil, Deputy Director of the Middle East and North Africa Programme at Chatham House.

“But because things are dragging out, they’re trying to play hardball a bit. The problem here is there’s not much more that they can sanction. What they can do, though, is try and constrain whatever sales are taking place to pressure Iran,” she says.

Sanctions now, say analysts, in part act as leverage for negotiations on the nuclear agreement, although Raisi has suggested such penalties would not bode well for relations with the West.

Reza Afshar, Executive Director of non-profit diplomatic advisory group Independent Diplomat and former UK diplomat, says the fact is that sanctions played a crucial role in bringing Iran to the negotiating table originally and achieving the JCPOA — particularly EU sanctions. He says while sanctions may not always work as a foreign policy tool, sanctions on Iran had clear objectives and were coordinated internationally. As such, they had a significant impact.

“Many Iranians were sophisticated enough to blame the regime for the economic impact of the sanctions rather than the west,” adds Afshar, a point he says is important for understanding why Iran needed the nuclear deal so badly.

At the same time, Tehran’s uranium enrichment could be its own attempt to create leverage.

“I don’t think that the Iranian political establishment makes political decisions or will make concessions within the JCPOA solely based on sanctions pressure,” notes Vakil. “If that were the case, they would have come to the negotiating table many months ago.”

Afshar adds that Iran has always used its nuclear production as a bargaining chip.

“Some would argue that Iran’s entire nuclear programme at core evolved in order to generate leverage for removal of sanctions and normalisation of relations through negotiation,” he says.

As observers and investors wait for talks to progress, there are concerns that continued stalling might put an agreement out of reach.

“The longer it takes to reach an agreement, the more unlikely one will be reached at all,” says Dr. Adi Imsirovic, Senior Research Fellow with the Oxford Institute for Energy Studies.

Escalating tensions between Iran and its opponents could, furthermore, have a ripple effect on the economy. The tanker attacks near Oman and UAE in August 2021, for instance, sent jitters to the market at the time with a slight rise in prices. Commentators say, however, that the country’s leverage over global oil markets is constrained and will probably not shift prices over a longer period.

“The market has already priced oil according to an unlikely return of Iranian barrels to the global oil trade,” says Imsirovic, speaking to Fanack, “continued sanctions are unlikely to have an impact.”

A return to the deal, however, could reverse current highs and would have “a major, bearish effect on prices,” he adds, especially as 2022 balances are likely to be weaker and the market anticipates increased oil production.

However, if tensions escalate and sanctions don’t have the desired effect of pressuring Iran to the negotiating table, that disruption could impact prices.

The question is whether Iran and the US’s game of chicken will pay off.

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written by
Dima Elayache
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