‘A new level of provocation’: How much will the new US sanctions hurt Iran?
Updated
New economic sanctions imposed by the US on Iran’s leadership have further fuelled tensions between the two nations that have been steadily rising for months, but experts have questioned the potential impact of this latest round of economic penalties.
Key points:
- The new sanctions are unlikely going to have a significant economic impact
- The US have been imposing “a string of sanctions” on Iran since May last year
- Sanctions have been devastating to Iran’s economy sending food prices skyrocketing
Making the announcement on Monday, US President Donald Trump told reporters that the “hard-hitting measures” would deny Iran’s Supreme Leader Ali Khamenei and others in his office, access to the US financial system and assets in the US.
The new sanctions come amid rising tensions after Iran shot down an unmanned US drone it claimed was flying over Iranian territorial waters last Thursday, but the US claimed the drone was in international airspace when it was shot down.
Mr Trump now appears to have chosen to intensify his “maximum pressure campaign” rather than resort to a military response.
So what effect could these new sanctions have on Iran, and how have the existing sanctions already impacted its economy?
How much will the new sanctions hurt Iran?
It appears Mr Trump misspoke when making his announcement, naming the “Ayatollah Khomeini” — Iran’s former leader who died in 1989 — rather than current leader “Ayatollah Ali Khamenei” as one of the main targets of his new measures.
But experts say the sanctions are unlikely to have a significant effect on either Ayatollah, as Mr Khamenei is not thought to possess any assets in the US and his Government operates largely outside the mainstream global financial system.
While previous sanctions have had a devastating effect on Iran’s economy, this latest round were designed to personally target Iran’s Supreme Leader and members of his government and military figures, blocking them from access to any financial assets they have under US jurisdiction.
Ali Vaez, Iran project director for International Crisis Group, told the ABC the “designated individuals and entities were quite insulated from the global economy”, so these new sanctions would have an “negligible economic impact on Iran”.
“But these sanctions marked a new level of provocation that render diplomacy less likely and war more likely,” he said.
But US Treasury Secretary Steven Mnuchin said the measures were far from “symbolic”.
“We’ve literally locked up tens and tens of billions of dollars.”
Iran’s UN ambassador responded to the sanctions by calling them an act of hostility against Iran, while the Foreign Ministry said it signalled “the permanent closure of the path of diplomacy”.
“Trump’s desperate administration is destroying the established international mechanisms for maintaining world peace and security,” tweeted Foreign Ministry spokesman Abbas Mousavi.
Dr Bryce Wakefield, executive director of the Australian Institute of International Affairs, told the ABC that Mr Trump’s “maximum pressure” strategy and the heavy sanctions already imposed on Iran have “exhausted his diplomatic space”.
“The new sanctions are more window dressing than a clearly calculated manoeuvre.”
What’s the aim of the sanctions and will it be achieved?
Some analysts have speculated that US sanctions could be aimed at sparking a new push for regime change from within, as frustration continues to grow among civilians who are baring the brunt of the US-Iranian standoff.
Even before sanctions began to be reimposed on Iran, anger towards the Government was on the rise.
At the end of 2017, anti-government protests erupted across the country, venting anger at government policies and corruption, economic conditions, rising food prices and unemployment, marking the most intense domestic challenge the Iranian Government has seen in almost a decade.
While some in the White House may have been hoping to capitalise on domestic frustrations, Dr Wakefield said regime change was unlikely to result from US sanctions.
“So far, Iran has proven to be tenacious, and it is doubtful that the sanctions will achieve their narrow goals of forcing Iran to abandon its missile or nuclear program, much less result in the broader aim that some in the White House harbour of regime change,” he said.
In fact, he argued that sanctions may even prove counter-productive.
“Countries that want to deal with Iran and to keep the Joint Comprehensive Plan of Action [Iran nuclear deal] alive may seek to do so by constructing financial mechanisms that avoid the use of the US dollar and oversight by US financial authorities,” he said.
“So Trump may actually weaken the US position in the long run.”
Tensions have been escalating between the two nations since May last year when the Trump administration pulled out from a 2015 nuclear deal signed between Iran and world leaders, with Mr Trump calling it the “worst deal ever” and urging Iran “to abandon its nuclear ambitions” and “change its destructive behaviour”.
At the same time, the US began imposing a “sting of sanctions [that] will only grow more painful if the regime does not change its course”, warned US Secretary of State Mike Pompeo.
The US has since begun deploying additional forces to the region, including aircraft carriers and bombers and 2,500 troops in response to “troubling indications and warnings” from Iran.
In recent months, Washington has also blamed Iran for attacks on six ships in two separate attacks, a drone attack on a Saudi Arabian pipeline and a rocket attack near the US embassy in Baghdad — while Iran, who denied any involvement in the attacks, is now threatening to break the uranium stockpile limit set by the 2015 nuclear deal.
“The Trump administration’s maximum pressure campaign has led to a climate that is ripe for inadvertent conflict,” Mr Vaez previously told the ABC, after the US released footage it claimed proved Iran’s involvement in the attack of a Japanese tanker.
“Each cycle of escalation brings the parties closer to the brink of a catastrophic military clash.”
Have the previous sanctions on Iran worked?
While the additional sanctions announced this time are not expected to have a major impact, previous sanctions have already ravaged Iran’s economy.
The first of the “string of sanctions” took effect in August last year and targeted Iran’s automotive sector, financial transactions involving US dollars and the purchase of commercial airplanes and metals, including gold.
As a result, Iran’s currency began rapidly losing value and food prices skyrocketed.
Another round of sanctions that took effect in November targeted Iran’s oil industry — its largest source of revenue — at a time when Iran was already grappling with an economic crisis.
More sanctions have since followed with the US further removing a waiver that allowed countries to import Iranian oil, meaning that if countries including China, India and Japan continued to buy oil from the Republic they could also face US sanctions.
In the last 12 months the cost of meat has risen by 57 per cent, diary products and eggs by 37 per cent and vegetables by 47 per cent, according to the Statistical Centre of Iran.
“Unemployment is rising along with inflation, while the currency has lost two-thirds of its value and the economy is shrinking at the rate of 6 per cent,” Mr Vaez told the ABC.
“The sanctions have been devastating for the general population who is struggling to make ends meet.”
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