Iran grapples with sanctions in wake of US nuclear pullout
A year after Trump withdrew from accord

Iran grapples with sanctions in wake of US nuclear pullout

Tehran’s economic situation getting worse as countries fear losing American markets if they do business with Islamic Republic

Young girls walk in front of a mural showing the Iranian national flag in the center of the  capital Tehran, April 23, 2019. (ATTA KENARE / AFP)
Young girls walk in front of a mural showing the Iranian national flag in the center of the capital Tehran, April 23, 2019. (ATTA KENARE / AFP)

TEHRAN, Iran (AFP) — A year after the US withdrew from a landmark nuclear accord, Iran’s economy is suffering under renewed sanctions — but Tehran is sticking to the pact even while warning its patience “has limits.”

The Islamic republic’s economy is expected to shrink by a whopping six percent this year, on top of a near four percent contraction last year, according to the International Monetary Fund.

But the downturn may yet be even more brutal, because the IMF’s prediction came before the US sunk a vital trade lifeline a few days ago.

On April 22 the United States announced it was terminating a sanctions waiver that had allowed eight countries to continue buying Iranian oil.

Iranian President Hassan Rouhani speaks in an open session of parliament in Tehran, December 25, 2018, as he submits the $47.5 billion budget for 2019 that is less than half of the previous year, mainly due to US sanctions. (AP/Vahid Salemi)

“The economic situation in Iran is bad — and is getting worse,” warned Henry Rose, an analyst for Eurasia Group, an American consultancy, in a recent research note.

The current crisis appears in some ways worse than a 2012-13 recession, when pre-deal multilateral sanctions against Tehran’s nuclear programme and its ballistic missile projects were biting hardest.

The July 2015 nuclear agreement reached in Vienna between Iran and the so-called P5+1 — the five permanent UN Security Council members and Germany — had seen Iran emerge from the cold to tentatively rejoin the community of nations.

The accord, approved by the Security Council, partially lifted the international sanctions on Tehran, bringing what many saw as the prospect of a sustained economic recovery.

In exchange, the Islamic republic agreed drastic curbs on its nuclear program and pledged never to develop an atomic weapon.

Rampant inflation

But decreeing that the pact failed to sufficiently temper what he calls Iran’s nuclear ambitions, US President Donald Trump on May 8 last year unilaterally withdrew from the deal — and warned he would re-impose sanctions suspended by the Vienna accord.

Those sanctions began to kick in from August 2018.

The United States says it is leading a campaign of “maximum pressure” against Tehran in order to negotiate a better deal.

It appeared to up the ante on Sunday, saying it would send an aircraft carrier strike group and bomber task force to the Middle East in a “clear and unmistakable” message to Iran.

The USS Mitscher, part of a strike group led by the USS John C. Stennis aircraft carrier, sails as an Iranian Revolutionary Guard vessel shadows it on December 21, 2018. (AP Photo/Jon Gambrell)

But a year after Trump’s move, there is not even “the beginning of the beginning” of an answer as to what would constitute a better deal, according to a European diplomat who did not want to be named.

This diplomat contended that Washington is instead hoping to push Tehran into violating its nuclear commitment.

“Then (they can) say to the world ‘Iran is a threat’,” he reasoned. “It’s rather a cynical plan and an irresponsible plan.”

Since Trump pulled out of the nuclear accord, Iran’s rial has lost more than 57 percent of its value against the dollar on the black market.

That has helped spur inflation to 51 percent year-on-year — up from a manageable eight percent a year ago, according to official figures. The true pace of price growth is likely considerably higher.

Wages have failed to keep pace with rising prices, hitting workers in the pocket.

There has been a particularly severe impact on the affordability of food.

“We have raised our prices by 70 percent” since the start of the last Iranian year (March 21, 2018), said a food industry source.

“And we will probably have to increase by a further 20 percent by July,” he added.

It has become difficult to find red meat in some of the capital’s shops.

For many, pistachio nuts — previously a permanent fixture on tables at festive occasions — have become an unaffordable luxury.

Washington’s end to the oil waivers has been received with something of a fatalistic attitude in Tehran.

“What will become of the country if it can no longer sell any oil?” mused a Tehran resident.

‘Iran needs Europe’

In the face of the US withdrawal, Iran has so far chosen to stick to the nuclear accord and continue to respect the commitments it made in Vienna.

“Confronted with the real difficulties linked to the impact of reimposing sanctions, Iran’s government has so far exercised great pragmatism,” another diplomat said.

A group of protesters chant slogans at the main gate of old grand bazaar in Tehran, Iran, June 25, 2018 as swarmed the historic Grand Bazaar and forced shopkeepers to close their stalls in apparent anger over the Islamic Republic’s troubled economy, months after similar demonstrations rocked the country. (Iranian Labor News Agency via AP)

But Iran is irritated by what it sees as the inability of Europe to stand up to the US and save the nuclear deal and its associated economic benefits.

Iran’s deputy foreign minister Abbas Araghchi has repeatedly warned that his country’s patience “has limits.”

The European signatories to the nuclear accord in late January established an exchange mechanism allowing Iran to continue trading with Europe.

But it has not so far been blessed by a single transaction.

One analyst warns that Europe needs to push harder to keep a coherent Iran policy free from US pressure, even as European firms fear being cut off from American markets by retaining any involvement in the Islamic republic.

“Iran needs an economically sovereign Europe to maintain the status quo” in the wake of the US ditching the nuclear accord, said Clement Therme, a researcher on Iran at the International Institute for Strategic Studies.

But at the same time the situation “requires Iran to maintain political dialogue with Europe to prevent a US-European agreement and the emergence of a combined effort against Iran’s economy.”

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