New Sanctions Put the Future of Iran’s Economy into Question
On 6 November 2018, following the implementation of President Trump’s new round of anti-Iran sanctions, President Rouhani has claimed that Iran would “proudly bypass the sanctions”. However, although Iran has managed to economically overcome various sanctions imposed on it at different points during its nearly 40 years of history, the article below discussed the new context in which the recent sanctions take place. In the past, Iran has resorted to a network of trading companies that were legally established in Iran and operating in countries such as the United Arab Emirates, Russia, Turkey, and even in the United States (US) and Europe to bypass the sanctions. Nevertheless, American efforts, combined with President Rouhani’s instructions to directly deal with Western trading partners in signing of the Joint Plan of Action with the US, have dismantled the illegal procurement network. With major industries as Shell and Boeing withdrawing from Iran and the rial losing value, it is questionable how Iran will manage to bypass the recent sanctions.
The article below was published by Al Arabiya:
[“We will proudly bypass the sanctions”]. That’s what Iranian President Rouhani said on November 6 , one day after President Trump’s new round of anti-Iran sanctions took effect.
So, the immediate reaction is: “Oh really? How?”
It is not clear whether this claim was merely an immediate response and a political pose for domestic consumption, or an illusion on President Rouhani’s part, or that he really thinks or was advised that it is possible to break and circumvent the sanctions.
In my opinion, it is all of the above. It is simultaneously an illusion and a calculated political move for domestic consumption, while also acting as a response to the president’s rivals that nothing has changed and that sanctions can readily be circumvented.
It may be possible to circumvent part of the sanctions, but breaking or bypassing the entirety of the sanctions is completely unlikely. Rouhani’s assertion that Iran conceivably can bypass some of the sanctions was either purposely confrontational, or it was just a political move for domestic consumption—and the latter is conceivable.
The Islamic Republic has faced various types of sanctions imposed on it, in one way or other, at different points in its nearly 40 years of history. The first was in response to taking over the US embassy and holding Americans hostage, and then during its eight-year war with Iraq.
The main cause of the war in fact was Iran. Right after the revolution, Ayatollah Khomeini pro-actively and deliberately began a campaign of provocation against Saddam Hussein. Different reasons existed for the provocations. Some were due to his personal hatred of Saddam Hussein. Second, it was a reflection of his staunch anti-Arab character.
He also aspired to lay claim to the leadership of the Shiite world and domination of the Shi’a sites in Iraq. And finally, his belief in the mission to take over Jerusalem and eventually destroy Israel. The sanctions were imposed by the United Nations and the international community for eight years because of Khomeini’s foolish and illogical lack of military expertise and the mullah’s stubborn insistence on continuing the war.
“This network has enabled Iran to successfully meet the needs of the country, from agricultural products to food to weaponry, including highly specialized industrial and military items and nuclear and missile parts”
These are the assertions of ex-President Rafsanjani and Ebrahem Yazidi, the first Iranian foreign minister, who publicly revealed these facts before their deaths recently. Other sanctions followed in response to other notorious actions in the region.
Iran has become superbly efficient at bypassing sanctions by instituting a vast and very sophisticated network and web of trading companies to procure and purchase the goods and services the regime needs to survive. These legal and mostly front companies were established in Iran and stretch to the United Arab Emirates (UAE), Kuwait, Qatar, Bahrain, and Turkey as well as Russia, Asian countries, and even the US and Europe.
This network has enabled Iran to successfully meet the needs of the country, from agricultural products to food to weaponry, including highly specialized industrial and military items and nuclear and missile parts and components.
However, it has had to pay up to ten times market prices, according to credible sources. Iranians have had the ability and the capacity to continually and very quickly change the names of compromised and exposed illegal companies.
Over the past decade, the US has carefully pieced together evidence of this network and in the process quietly dismantled it.
Beginning in 2008, a secret project was launched by the CIA, the FBI, and the DIA (Defense Intelligence Agency) called the Open Source Intelligence and Exploitation Center. It was located in a six-story building just outside the Washington Virginia Beltway in, a suburb of Washington, D.C., halfway between CIA headquarters in Langley and the Pentagon.
The building housing the center has no address, no name, an unknown owner in the public records, and no records of property taxes.
The agency’s function is to collect and assess foreign-based, publicly available information or open source intelligence that spans traditional media, academic papers, geospatial data and technology, datasets, and social media. The Center is managed under a civilian director by DIA with active cooperation from the CIA and the FBI counter-intelligence division.
While each agency has its own open source intelligence, the specific function of the Center is to have all materials about Iran and Al-Qaeda that were collected abroad and brought in to the center. Hundreds of Farsi and Arabic linguists sift through and identify important and intelligence-worthy documents and translate them into English.
Material on Al-Qaida was limited, and most of the information consisted of a vast and comprehensive array of documents obtained from raids on and the monitoring of Iranian front companies around the world that facilitated the procurement of materials and bypassed the sanctions. Documents included details of transactions, materials prices, names of the purchasers and the various in-between companies, orders, bills of shipping, modes of shipping, letters of credit and banking documents, and related emails—the full transaction cycle from the beginning to the end.
Researchers found that there were thousands of illegal and front companies by Iranians and others running these companies.
The Center slowed down its work after 2015 when President Obama brokered and signed the Joint Plan of Action (JPA), or the Iran nuclear deal. On July 14, 2015, Iranian President Rouhani boasted of JPA as a great achievement and issued a memo to ministry and government directors to eliminate the procurement networks created to bypass the sanctions. This included the elimination of all go-betweens and instead to deal directly with Western original equipment manufacturers (OEM).
However, before any actual transactions between Iranian end-users of products and manufactures were to be signed, the Iranians were required to fill out a 70-page questionnaire, designed and provided by OEMs and original service providers in the West, to state how the items or commodities were purchased before JPA, from whom, name of agents, vendors, the purchase price, mode and place of original and destination shipment, through what port, the freight forwarders’ names, the country and the currency of purchase, and detailed history of the overseeing organizations in Iran.
The direction from Rouhani was that all the needed information must be provided, and he instructed directors to tell the new Western trading partners the truth. His memo stated that at least for the next 15 years, the country no longer needs go-betweens.
Iranians believe that there has been coordination between Western companies who designed the questionnaire such as Boeing, Airbus, Total, Shell, and other giants in major industries. As a result, the entire illegal procurement network has been destroyed and these sources are now completely burnt.
However, after November 5 all these companies withdrew from Iran, creating a disaster for Iranian purchasing managers who blame Rouhani for eradicating the networks. Moreover, with Iranian oil production now slashed and the rial collapsing in value, the country is struggling to pay for ongoing government expenditures, let alone importing goods at up to ten times their market value.
Despite the extension of eight countries, India, Turkey, South Korea, Japan, Italy, Taiwan and Greece, to buy Iran's oil for a maximum of six months, it is anticipated that Iran's oil export to diminish to zero afterward.
Additionally, 700 Iranian banks, companies, and individuals were added to the U.S. sanctions blacklist. Also, all ports and insurance companies were warned by the US to steer clear of Iranian ships as “floating liabilities.”. And to make matters worse, the “Swift” system for transferring money to Iranian banks has been banned
Surely, President Trump, Secretary of State Mike Pompeo, and Brian Kook, the U.S. Special Representative for Iran must have known that Iranian secret trade networks had been destroyed as they all recently asserted that it would be so difficult to circumvent the new sanctions.
Now, under the circumstances, it remains unclear if Mr. Rouhani gets it, and how can he boast that “we will proudly bypass the sanctions”?
This article was first published in Asharq Al-Awsat.
Photo courtesy of Wikipedia Commons