International sanctions are hurting Iran, but by hook or by crook – and sometimes by US-approved exemption – the country is not frozen entirely out of global trade.
The European Union joined the US in imposing an oil embargo at the beginning of last month and these sanctions are designed to make it hard for other countries to do business with Iran, even if those countries might otherwise be happy to keep trading.
The EU has banned its financial firms from insuring foreign tankers carrying Iranian crude, and the US has been progressively tightening rules designed to choke off financial transfers into and out of Iran – something it is uniquely able to do, because oil is typically traded in US dollars.
As well as direct trading with Iranian institutions, any bank that operates in the US is now banned from trading with any foreign institutions that process payments with Iran – with some exceptions.
The exceptions are trading with institutions in China, Japan and India, financial superpowers that the US cannot afford to cut adrift entirely from the US financial system. In any case, Iran is increasingly bartering oil for goods and services directly with trading partners, such as engineering and other services from Chinese companies, using local currency accounts outside the US system.
And there is always the black market, where Iranian oil is transported on Iranian-owned tankers that switch their flags to countries such as the Tuvalu Pacific islands, or stay out of radio contact, or hawk their wares through Middle Eastern traders willing to supply fake paperwork.
Bit by bit, the pain for Iran is getting worse. Analysts expect Iranian exports to drop 30 per cent in the remainder of the year, and inflation inside the country has leapt to 23 per cent. Meanwhile, the US Congress is pushing for tighter financial restrictions, and regulators are threatening banks – such as HSBC and potentially now Standard Chartered – with huge penalties for any transgressions.