White House national security adviser John Bolton: 'Iran is a rogue regime. It has been a threat throughout the Middle East.'

Trump’s sanctions on Iran might well achieve regime change – but not to the kind of regime the US would like

Iran’s deteriorating economic situation will likely bolster the power of the country’s most reactionary forces

Kim Sengupta
Monday 05 November 2018 17:48
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Donald Trump’s reintroduction of sanctions on Iran – overwhelmingly deplored by the international community with the exception of Israel and a Saudi-led bloc – has now come into force making the world, in many ways, a more uncertain and dangerous place.

Tehran marked the fateful day with air defence drills and military manoeuvres with President Hassan Rouhani saying, “We are in a war situation.” An armed conflict is not about to break out, but the punitive US measures can certainly be seen as a declaration of economic war against his country.

“We are confronting a bullying enemy. We have to stand to win,” Rouhani stated. Trump has been called a bully and far worse many times. It is, however, unclear who will emerge as the winner from this bitter confrontation. There is the possibility that in Iran President Rouhani and his reformist government are among the casualties, with the hardliners and conservative clerics emerging as winners.

The constant charge those of us covering the last parliamentary and presidential elections in Iran heard from the hardliners was that the west, and especially the US, could not be trusted. The Rouhani administration, ran the accusatory narrative, betrayed national security by curtailing the nuclear programme in return for empty promises.

As the economic situation in Iran continues to deteriorate, there is every chance that popular unrest, which has already been in evidence, will grow, strengthening the hand of the reactionary factions as the next elections come.

Some of Trump’s close allies, such as national security adviser John Bolton and personal lawyer Rudi Giuliani, have talked of wanting regime change in Iran. There is a possibility they will achieve this – ushering in a leadership that will sweep back reforms and be implacably hostile to the west.

Trump has vowed to “hurt” Iran “badly” with the sanctions and they will certainly damage the economy. More than 700 banks, shipping companies, oil exporters, transport firms and individuals are now on the sanctions list.

Despite US claims that the measures are aimed at Iran’s government rather than the people, it is ordinary citizens who are likely to suffer first with vital necessities being affected.

Western European governments have so far failed to persuade the Trump administration to offer specific exemptions for food and medicine from the new punitive measures. Humanitarian supplies are supposed to be exempt, but foreign companies and banks were so apprehensive of American financial penalties during the sanctions imposed before the 2015 nuclear deal that supplies dried up, causing severe shortages.

Gerard Araud, the French ambassador to the US, who has been to the state department along with his British and German colleagues to ask for exemptions, said: “The fact is that banks are so terrified of sanctions that they don’t want to do anything with Iran. It means that in a few months there will be a shortage of medicine in Iran if we don’t do something positive.”

The Trump administration’s aim is reduce Iran’s oil sales, the main source of revenue, to zero. But that will mean a global increase in the price of oil which will hurt American industry and hit American drivers at the petrol pumps.

Washington has asked other oil-producing states, principally Saudi Arabia – one of the instigators behind the reimposition of sanctions – to increase production. At the same time it has agreed to a waiver from penalties of around six months for some of its allies that import Iranian oil including India, Turkey, South Korea and Japan, as well as China. These states are among the top eight consumers of Iranian oil, so there is unlikely to be an immediate dramatic dip in sales.

The other signatories to the nuclear deal, the JCPOA (Joint Comprehensive Plan of Action), Britain, France, Germany, Russia and China, have repeatedly stressed that Tehran was fulfilling its obligations, as has the UN’s International Atomic Energy Authority.

But there was little illusion in Iran that sanctions weren’t coming. The malign shadow of Trump has loomed large over the country in recent years.

The parliamentary elections in 2016, with overwhelming victory for the reformists, began to shine light into a closed society, with people looking forward to rejoining the outside world. This continued with the election of President Rouhani the next year.

In his first speech following victory, Rouhani made the deliberate and controversial gesture of praising former president Mohammad Khatami, ignoring a ban on publicly mentioning the leader whose own attempts at reform were thwarted by the reactionary clergy. He also lauded students, academics and activists for championing the democratic process: precisely the people who had been targeted by previous Islamic regimes.

A few days later there was another speech. This time in Riyadh, by Donald Trump, who was on his first presidential trip abroad. It was basically an arms selling mission to the Gulf state, but he used it to launch a prolonged attack on Iran, accusing it of backing terrorism. Mohammad Zarif, Iran’s urbane foreign minister, drily suggested that the US president would be better off spending his time in Riyadh discussing how to avoid his Saudi hosts carrying out another 9/11 atrocity instead of making baseless accusations.

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But the Iranian leadership told us that they had begun to believe by now that Trump would tear up the nuclear agreement, sooner rather than later. The liberals were fearful of just how far this will drag the country back into the shadows.

President Rouhani’s inauguration a few months later was attended by representatives from more than a hundred nations, including the Emir of Qatar, the country by then blockaded by a Saudi-led coalition, as well as Oman and Kuwait, regional states that had maintained good relations with Iran. Also present were other signatories to the nuclear deal. The international presence raised flickering hopes, Iranians told us, that they would not be abandoned and may just survive sanction, acknowledging grim times lying ahead

Speaking in Tehran, President Rouhani has vowed today: “We will break the sanctions.” But would that be actually possible? The European Union, along with China and Russia, is planning to put in a place payment mechanism, a special purpose vehicle (SPV) which is supposed to enable companies to bypass the US financial system, allowing them to avoid direct payments in and out of Iran with the SPVs handling transactions. Tehran can then use the payment as credit to buy goods from other countries.

At the same time, the European Union has updated a “blocking statute” under which firms in the Union do not have to comply with foreign sanctions laws and that allows them to recover damages from such sanctions.

The main problem, however, is that the price of doing business with Iran may be simply too high for many companies, facing, as they do, the prospect of US penalties, or litigation, and the possibility of being shut out of the much more lucrative US market.

There are also the problems of secondary sanctions applied to third parties that do business with any companies using SPVs. Richard Nephew, a sanctions analyst at Columbia University in the US said: “The issue is that most of Iran’s biggest trading partners do and that affects their readiness in the US to do business with Iran.” The threat of secondary sanctions, Leigh Hansson, head of international trade and national security at Reed Smith wanted to point out, will mean “the transaction itself will be problematic”.

Mike Pompeo, the US secretary of state, has boasted that just the threat of sanctions has led to more than a hundred companies pulling out of trade with Iran. It is certainly the case that there has been a large exodus from the market, but this has not always left a vacuum, China is on its way to becoming a beneficiary of Washington’s Iran policy with signs that its companies will pick up some of the contracts, including taking over the £5bn contract for the South Pars gas fields with the French multinational, Total, pulling out.

Beijing, itself the target of an American trade war, has stated it will protect its businesses from Washington’s retribution. Meanwhile the Moscow led Eurasian Economic Union has signed a deal with Iran to lower tariffs on hundreds of goods and become part of a free trade zone.

It remains to be seen how the sanctions play out. The other signatory states to the nuclear deal along with a number of governments have urged the Rouhani government not to walk away from the JCPOA.

Tehran has been privately advised by some diplomats to consider “outsitting” Trump; bearing the hardship until there is a new administration in Washington that would not be so keen on an Iranian crusade.

What happens to Trump as he faces imminent midterm elections, and the report by special counsel Robert Mueller into alleged Russian collusion in putting him in the White House, is likely to decide the final outcome of the strife over Iran sanctions and other upheavals created by this extraordinary presidency.

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