LONDON: When President Donald Trump signed the order on 6 August re-imposing sanctions on Iran, a reporter in the room shouted a simple question at him: “How does your decision make the United States safer?” Glacially staring at the reporter with his “don’t confuse me with the facts my mind is made up” look, Trump stayed silent. That look said it all. Iran presents no explicit danger to the US. None. Zilch. His decision has, in fact, made the whole world a much more dangerous place. Only twisted and absurd logic could conclude that an agreement which curtailed the development of Iran’s nuclear weapons with a strict inspection regime which everyone, except for a few US neocons close to Trump, agreed was working, should be abrogated in the hope of getting a wider control of Iran’s military activities. Nevertheless, we are where we are.
Europe is still reeling from Trump’s decision to walk away from the Joint Comprehensive Plan of Action (JCPOA) painstakingly negotiated over a period of 10 years and sealed in July 2015 under President Barack Obama. They consider the move as sacrificing expert statecraft for domestic political posturing. Most see Trump’s decision as all ego, satisfying petty personal interests of undoing his predecessor’s legacy. Undeterred, however, European leaders are strenuously trying to keep the JCPOA alive.
But how realistic is this when the US has threatened any companies with penalties if they continue business with Iran? Many have far greater commercial ties with the US than Iran and will not wish to prejudice this advantage. Already many banks are refusing to do any business connected with Iran, fearing penalties by the US and losing access to the US dominated global financial system.
Unquestionably, it is sanctions on oil exports that have the potential to be economically devastating to Tehran. Habibollah Bitaraf, the Iranian Deputy Oil Minister, said in June that Iran had an estimated $50 billion from the sale of oil in fiscal year 2017 and that oil and petroleum products made up 70% of Iran’s total exports. Iran produced approximately 4 million barrels of oil in 2017, about 4% of total global production and of this it exported 2.1 million barrels per day. Imagine what would happen to Iran in the unlikely event that these were cut to zero.
Ironically, this presents Trump with a dilemma. If sanctions are too tight and this amount of oil is suddenly removed from the market, it would have a dramatic effect on oil prices, something which Trump has repeatedly said he doesn’t want for fear of offending his electoral base before US half-term elections. He is, therefore, likely to insist on a gradual reduction of Iran oil exports starting in November, hoping to persuade Saudi Arabia to increase production to offset Iranian reductions and thus keeping a lid on prices.
European importers of Iranian oil depend on access to US-dollar financing and global insurance markets. As the US has already said that it will apply sanctions to any bank which processes payment for Iran’s oil, this will probably force Europe to cut crude imports, despite government objections. Similarly, many European companies have significant operations in the US and will not wish to risk sanctions.
China and India are in a different position. Beijing has given no indication to date that it intends to cut the 500,000 barrels per day of Iranian crude. In fact, July shipments were up by 105,000 barrels a day. Having exposure to the US, large Chinese oil companies will not wish to incur sanctions. But there are a number of small refineries that aren’t exposed and could therefore continue to deal with Iran. Also, China has a number of small banks which could process payments and not be bothered by sanctions.
China could therefore simply ignore sanctions and continue to provide Iran with 25% or more of its oil income. Just how it decides will depend on the perceived balance of advantage at the time of increased trade and commercial tensions between Beijing and Washington. Beijing could turn the tables on Trump and see sanctions as an opportunity to internationalise its currency by using its Renminbi in transactions with Iran, thus raising its profile on the world stage. With Iran playing a crucial role in China’s Belt and Road Initiative, Trump could see China consolidating its hold on Iran as a result of his ill-conceived sanctions. The decision for China is therefore more political than financial.
For India, Iranian sanctions present both political and financial problems, due to its strong relationship with both Iran and the US. In this respect, India is between a rock and a hard place. An immediate problem for New Delhi is the continuation of oil supplies after November as Iran is India’s third largest supplier of crude oil. It was a sensible, but temporary measure to increase oil from Iran, with July shipments up by 120,000 barrels a day.
A permanent solution would be to source supplies from other oil-rich Gulf states or to ignore Trump’s threats altogether. Both would create short-term problems, but these could be alleviated if the strong Delhi-Washington relationship were used to obtain waivers on oil trade. These were successfully developed during an earlier period of Iranian sanction under President Obama and there is no reason why they should not be repeated under President Trump. It would also be in India’s interests to support the P4+1 efforts to keep the JCPOA alive.
The example of the visit by the President of the European Commission Jean-Claude Juncker to Washington on 25 July, which averted a US-EU trade war, should serve as a useful example to Prime Minister Narendra Modi that Trump, who has a tendency towards narcissism and bullying, is amenable to sweet-talk. It would be hard to find two more quintessential examples of the new continent and the old than Juncker and Trump, but it worked!
John Dobson worked in UK Prime Minister John Major’s Office between 1995 and 1998 and is presently Chairman of the Plymouth University of the Third Age.