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Can Iran survive the sanctions? – BBC news



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Hassan Rouhani, President of Iran's Quotation: The copyright of the image
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New, tough sanctions targeting the Iranian oil sector will come into force on Monday, imposed by the United States.

Iranian President Hassan Rouhani reacted strongly.

"Undoubtedly, the United States will not succeed in achieving this new act against Iran as they step back step by step."

Iran depends heavily on oil input, and renewed sanctions, if they are effective, have a strong impact on the economy.

Despite the new sanctions, the EU has proposed to support companies trading with Iran.

But are these companies posing a risk of secondary sanctions that limit the ability to trade with the United States?

Why sanction America?

The president of Donald Trump was in great deal angry at the fact that this year Iran signed a multilateral agreement with Iran in 2015, under which rigorous controls were placed on Iran's nuclear program in exchange for a number of nuclear sanctions.

As a result, the United States and others sanctioned in 2016 are unilaterally replicated by the United States.

  • Iran's nuclear agreement – The most important details
  • Impact of sanctions on Iran

The copyright of the image
Getty Images

Caption

Iran is the world's fourth largest petroleum stock

But other countries, including the European Union, believe that Iran is in the bargain of nuclear agreement and has made it clear that it is not following US leadership.

Such is the US dominance in global trade that the announcement of renewed sanctions is enough to cause the wave of international companies to start investing in Iran and its exports of crude oil will be reduced.

How will US sanctions work?

The latest US measures exclude Iranian dealers from doing business in the United States.

In addition, by using far-reaching secondary sanctions, all American companies will be punished if they conduct business with a company that is in business with Iran.

Bank sanctions are also being introduced on Monday. In August, they covered a number of industries, including gold, precious metals and automotive trade.

The United States has made it clear that it ultimately wants to halt Iranian oil trade, but has allowed eight countries to maintain a temporary concession to import time to reduce imports. US allies such as Italy, India, Japan and South Korea are among the eight Associated Press reports.

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AFP

Caption

The IMF predicted that Iran's economy will shrink by 1.5% this year

Obtaining sanctions

In order to attract businesses to Iran and not face US punishment, the EU intends to introduce a payment mechanism – a Special Purpose Vehicle (SPV) – that will allow these companies to avoid the US financial system.

Like the bank, SPV manages transactions between Iran and its dealers, avoiding direct payments to and from Iran.

Thus, when Iran exports oil to a country in the EU, the company from the host country pays the SPV.

Iran may then use the payment as a loan to purchase goods from other EU countries via SPV.

The EU has also updated a statute – called a blocking statue – that will allow EU companies to reimburse the American sanctions.

So you keep it?

Even with the EU's plan, business-related costs for Iran are still too high for many companies.

For example, even if the shipping service purchases oil through the SPV mechanism, the cargo insurance company may continue to oppose the risk of secondary sanctions and the loss of all business activities in the United States.

The Iranian economy is not directly dependent on US financial systems, says Richard Uncle, a specialist in sanctions and senior research fellow at Columbia University.

"But the question is that it is the majority of Iran's largest trading partners and this affects their willingness to endanger US access to Iran's business."

He says that small and medium-sized enterprises are more likely than large companies to use SPV.

The other problem is that a product used in SPV in Iran may also be in breach of secondary sanctions, says Leigh Hansson, head of international trade and national security at Reed Smith. "The transaction itself will be problematic."

Temporary compromise?

The United States insisted that exports be reduced to zero, but this seems unlikely because it would increase oil prices – says Scott Lucas, professor of international politics at Birmingham University.

In addition to the countries that continue to be allowed to buy Iranian oil, China's support to Iran's largest trading partner may also be critical.

Most recently, from 2010 to 2016, international sanctions were imposed on the oil industry, while Iran's exports fell almost halved.

There is no doubt that exports will have an impact this time, but it is clear that Iran and its other business partners will work hard to maintain trade relations.

"Do not find out how painful it will be," says Ellie Geranmayeh, senior politician at the European Council of Foreign Affairs. But "Iran has repeatedly sanctioned the sanctions".

Iranians are forced to find a creative way to sell oil, relying on their previous years of sanctions.

To overcome the shortcomings of lost European investments, Iran looks to the East and builds new relationships with Russia and China.

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