The impact of the sanctions on Iran - ERDAL TANAS KARAGÖL

The impact of the sanctions on Iran

The implementation of U.S. sanctions on Iran is causing a great social unrest in the Iranian economy, especially the increase in exchange rates and the cost of living.

On the other hand, the recent tension between Iran and the United States has become an important issue both for Iran's trading partners and for many countries in the energy sector.

What sort of attitude will Iran’s trade partners adopt?

The reaction of regional and ally countries regarding the sanctions imposed as of this week will also determine the direction of the global economy in the short term.

While Germany, France and Britain have stated that the nuclear deal signed with Iran remains valid in their own countries, economists and politicians alike are very curious about how flexible their economies can be against sanctions.

Meanwhile, Britain, France and Germany, which are parties to the Nuclear Peace Deal, took decisions that support the sanctions in their private sector, and on the other hand they also strive to develop a reserved policy with the United States by speeding up diplomatic communication.

In the midst of all this, the German foreign minister's statement that the nuclear deal with Iran is still in force in Germany, while Germany's private sector companies have decided to leave Iran, supports his view.

On the other hand, a French automotive company took a decision to stop its production in Iran and, in a similar vein, a Japanese automotive company, which has continued its production in Iran for many years now, has decided to leave Iran as well, in order not to lose its market share in the U.S. However, when the U.S. administration announced that it would withdraw from the nuclear deal, Macron said that Trump's decision was a mistake.

The extended and deepened second phase of the sanctions is expected to be reinstated on Nov. 4, 2018. While energy-focused sanctions to be implemented on Nov. 4 are expected to prioritize energy supply security on the agenda of countries, the foundations of the multipolar world’s economic co-operation seem to be laid in this process.

The policy of China and Russia

At the same time, the policy to be adopted by Russia and China, which are permanent members of the United Nations Security Council, in response to Iranian sanctions is also already under focus due to both their geopolitical positions and also their acting as allies in their policy toward Eurasia and the Middle East.

As a matter of fact, it is very clear that the Beijing's government will continue to cooperate with the Tehran government against the U.S. sanctions. Because, on the one hand, the U.S. brings sanctions that target the Iranian economy to the agenda, on the other hand it intimidates the Chinese government by increasing tariffs on Chinese products through the instrument of trade wars.

Against the sanctions, Beijing's government wants to continue its connection with Iran, which is its ally in Eurasian policies as well as in global trade.

Although it is hard to predict how Russia will react since it is in competition with Iran regarding energy, Iran's disqualification due to sanctions will create an important opportunity for Russia. It is envisaged that Russia will take advantage of this opportunity.

Is the energy equation changing?

Iran's decline in oil exports after the sanctions is expected to cause changes in regional and global energy policies.

These sanctions will allow countries with large reserves such as Saudi Arabia to come into play, while on the other hand they will motivate the U.S. to enter the market with new technologies along with the increase in oil prices.

However, the possibility that the Strait of Hormuz, which is under the control of Iran, but is a problem with the Gulf countries and routes the transfer of 30 percent of the world’s oil, will be closed by Iran, and that the transfer of oil through the strait may be interrupted will likely cause a new crisis in global energy trade.


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