The new set of U.S. sanctions on Iran are just around the corner. For more than forty years, the Iranian regime has been smartly maneuvering to alleviate the impact of economic sanctions and break the long-bitter siege. Jeopardizing the living standards of the Iranian people, the regime has never offered any practical solution to reach a settlement with the international community and to save its debilitated economy.
The first set of new sanctions on August 6, 2018, will target Iran’s Central Bank, foreign businesses in Iran, and its oil revenues. Consequently, Iran will face a severe U.S dollar shortage.
The Iranian regime has until now survived because of variant strategies and plans to circumvent the previous international sanctions. Would the same old tactics work out this time? Would the regional and international variables play a part in this scenario?
Russia: Oil-for-goods agreement
It is a possible scenario to circumvent U.S sanctions that the Iranian government may seek to commence trading oil for goods. Having reached an agreement to exchange oil for goods with Iran in 2017, Russia has become the most likely actor in this scenario. The deal was estimated at $45 billion. It is worth mentioning here that by the end of 2016, the trade volume between the two countries barely reached $2 billion even though sanctions had been lifted, and the two countries developed unprecedented political relations. After the new U.S. sanctions on Iran, the $45 billion target has become far-fetched. According to Iranian economic data published in 2014, Iran-Russia trade was estimated at $1.67 billion. Iranian imported mainly arms and equipment from Russia during the period 2007-2014 which were permitted under the international sanctions, back then. Upon this reality, Russia has offered no real support to Iran to alleviate its economic suffering.
To shed light on the looming ambiguity over its economic partnership with Iran to the Trump administration, the Kremlin, on May 13, negated the statement of Ali Akbar Velayati the foreign policy Adviser to the Supreme Leader Ali Khamenei, in which he said, “President Vladimir Putin agreed to invest $50 billion in Iran’s oil and gas industry.” This was not only quite embarrassing to the Iranian Advisor, but also it sent a clear message to the United States and Iran that future Russian economic support to Iran is almost marginal. This was only three days before the U.S.-Russia Summit held in Helsinki, Finland to discuss issues of mutual understanding and friendship between the two countries.
The Russian Energy Minister Alexander Novak reconfirmed –on the same day- that his country is ready, by collaborating with other oil producers, to pump more oil to the world market to alleviate any potential shortage in supply. He said that a deal under oil-for-goods is not active yet, however, Russia is keen to export its goods to Iran.
In other words, Russia would only support Iran to increase its economic benefit without jeopardizing the interests of its large companies under the new U.S. sanctions. Also, Russia wants to avoid any future conflict with the United States, especially after President Donald Trump had asked the large oil producers to pump two million barrels a day to lower oil prices when Iran’s oil exports are skittled down to zero; a goal confirmed by the Trump administration. It is worth mentioning here that Russia is facing an economic siege imposed by the U.S. and other European countries over its meddling in the 2016 U.S. presidential elections and its annexation of the Crimea.
Trade and oil imports through Iraq
Many observers reported that Iran noticeably doubled its trading volume and oil imports through Iraq during the embargo period. It is quite possible that Iran will use Iraq for this purpose once again by exploiting the major oil port of Basra, near to Iran’s largest oil field, Ahvaz. Iran will use the same strategies and tactics to face the new U.S. sanctions. These are probably the secret plans Iranian officials have said they will use. The incorrect and deceitful statements by Iranian officials lifted the veil on hidden disagreements between Iran and Iraq. Iran’s Oil Ministry announced on June 3, 2018, that Iran will start shipping Kirkuk’s crude oil to Iran under the oil swap deal concluded in December 2017, and that the crude oil has already been delivered by tanker-trucks to Darreh Shahr.
Two facts unveil the hidden disagreements: First, the agreement has not gone into effect yet despite the modest oil amount set by the agreement; second, intensive analysis and study are carried out before concluding any deal, thus to claim the deal is ineffective after a six-month period does not make sense.
In the next stage, Iran will exert all possible endeavors to increase its non-oil trade with Iraq, consequently increasing its U.S. dollar reserves in its Central Bank. One month before the first set of new sanctions with a ban on all trade in dollars, Iran’s traders offered tempting discounts reaching up to 20% on all kinds of goods, to Iraqi traders —under the condition that they can only purchase in U.S. dollars. The Iraqi traders met the condition as the Iraqi government provides U.S. dollar liquidity to Iraqi traders and facilitates trade with Iran. A member in the Iraqi Chamber of Commerce expressed his rising concern over the amounts of U.S. dollars leaking out of the country, which will decrease the value of the Iraqi dinar in return.
Roughly speaking, since the fall of Saddam Hussein’s regime, the Iraq-Iran trade volume has grown rapidly. After a significant turndown in variant industrial sectors, the Iraqi market is wide open to Iranian goods. Six billion U.S. dollars Iran gained from its non-oil trade with Iraq last year. If this process remained stable and resisted any external variables, the Iraqi market would partially meet Iran’s demand for U.S. dollars under the new U.S. sanctions, in comparison to $55 billion in total annual oil revenues.
Three variables may cause a dramatic change in Iran’s economic trajectory with Iraq:
First variable: Iraq-Iran relations have recently witnessed fundamental developments. There is a struggle between two Iraqi parties, one of which wants to keep Iraq under Iran’s umbrella and the other wants to return Iraq to its Sunni Arab environment. Iran has received two powerful indicators stemming from the awareness of Iraqi citizens of their Arab roots. The first indicator was when Iraqi citizens voted for the Sa’eroun trans-sectarian party which won the Iraqi parliamentary elections, the second indicator came from the Shiite provinces in Southern Iraq, especially Basra and Najaf. Protests broke out after the suspension of Iranian electricity to Southern Iraq for long periods during the hot summer months. They also protested Iranian incursions into Iraq and burned some of the Popular Mobilization Forces headquarters.
Also, there is an awakening movement among Iraqi people against political corruption. The Iraqi people are fed up with Iranian interference inside Iraq, as well as the sectarianism, division, and attempts for hegemony over the Iraqi government to stabilize Iran’s economic and political gains and support its militias in Iraq. The recent demonstrations and the trans-sectarian alliance are a clear evidence of a possible change in the previous constants and this awakening was monitored by the Iranian media and warned Iranian decision-makers about its seriousness.
Second variable: The United States may pressure the Iraqi government to meet its strategic targets with Iran, so Iraq will no longer be a way out for Iran anymore. The Iraqi economy depends heavily on oil exports and needs a flow of U.S. dollars without any restrictions. If the new U.S sanctions kick in, Iran has to face a new trade scenario in Iraq. A complete standstill on its oil smuggling through Iraqi ports is a high possibility in this regard.
Third variable: Iraq’s neighboring Arab countries succeed in meeting the Iraqi demand for improving its economy and provide quality goods at competitive prices in comparison to Iranian ones. This is a highly significant step to curtail Iran’s expansionist influence over the region. It is realistic, as most leading firms are based in the Arab Gulf and North Africa. Saudi Arabia has already reopened the Arar border crossing with Iraq.
In a nutshell, Iran’s oil-for-goods deal with Russia, to circumnavigate U.S sanctions, is not quite reliable as the Russia-Iran trade volume has never been very powerful—even during the nuclear deal period; the latest Russian remarks have raised doubts over the extent to which Russia may go to aid Iran in withstanding the negativities of U.S. sanctions; and the U.S.-European sanctions have further weakened the Russian economy and it is unable to deal with the economic hurdles facing it.
However, Iraq has played a more integral role in alleviating the pressure of Iran’s economic siege than Russia, whether through non-oil trade or through exporting Iranian crude oil. Iran will exert all efforts to reuse the same strategy with the new U.S. sanctions. While new variables are arising, the probability of this scenario is fading away. At the international level, the United State takes a tough position towards Iran. With Iraq’s domestic political space overcrowded and new debates arising, Iran’s relations with Iraq could be affected. The cross-sectarian Sa’eroun coalition won the latest Iraqi parliamentary elections. Furious protests over Iran’s interference in Iraqi domestic affairs have mushroomed like wildfire in Southern Iraq. As a result, Arabism and patriotism have grown significantly amongst Iraqis, who have realized their own unique history and identity as well as that they belong to the Arab sphere.
Next article will discuss the possible tactics and strategies Iran may use to get around the U.S. sanctions
Opinions in this article reflect the writer’s point of view, not necessarily the view of Rasanah