(Reuters) – The impacts of fresh US sanctions on Iran have been cushioned by high oil prices and Washington’s international isolation, with Tehran being better placed to weather the storm, a Reuters analysis says.
Citing officials and analysts, the news agency said while the US sanctions will probably trigger recession in Iran next year, they will not lead to an economic meltdown.
US President Donald Trump on Monday decided to trumpet sanctions on Iran not with a speech, but a Twitter meme in reference to Game of Thrones, “Sanctions are coming.”
“Iran’s situation is better than pre-2016 because of high oil prices and the fact that the US is isolated this time,” the report by Reuters quoted a European diplomat as saying.
The diplomat’s comments echo the official stance of the Iranian government, which says the recent rise in oil prices has offset the impact of US sanctions on Iran’s oil exports.
“Trump thought he could shrink our country’s oil revenues by imposing sanctions on Iran’s oil and cutting its exports, but the rise in oil prices did not let that happen,” Mohammad Baqer Nobakht, the head of Iran’s Planning and Budget Organization, said last month.
The US has also granted waivers to almost all key clients of Iran’s crude oil for fear of further hikes in oil prices. The countries exempted from the US sanctions on Iran’s oil exports include China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea, which together took in over 80 percent of Iran’s oil exports last year.
However, Iran says the waivers are not enough to keep the oil price down, and oil consumers are set for “painful months” ahead because of insufficient supplies.
Meanwhile, as the European diplomat told Reuters, the US isolation under President Donald Trump would also reduce the impact of its unilateral sanctions on the Islamic Republic.
The previous sanctions on Iran, imposed by Trump’s predecessor Barack Obama, were supported by the UN Security Council and the European Union. However, this time the US is alone, and the entire world, except for a few countries, have vowed to maintain business with Iran.
“It will be a difficult period but Iran’s economy will withstand it for various reasons,” a second diplomat told Reuters, “including (the fact of) Russia being under (US and EU) sanctions, Saudi Arabia having its own financial and political issues, and (trade war) between China and the United States.”
The report also quoted a Fitch solutions analyst as saying that the new sanctions would not lead to the collapse of the Iranian economy, as the country would be able to keep exporting a significant volume of its crude oil.
“Tehran is still likely to see a substantial share of its foreign exchange earnings maintained,” Andrine Skjelland told Reuters. “This will enable Tehran to continue subsidizing imports of selected basic goods, keeping the costs of these down and thus limiting inflation to some extent.”
The new round of US sanctions, which had been lifted under a multilateral 2015 nuclear accord with Iran, came back into force on Nov. 5, drawing criticisms from the United Nations as well as Washington’s allies in the European Union.
The bans – the second of their kind since Washington’s withdrawal from the deal in May — take aim at Iran’s banking, insurance and energy sectors, targeting more than 700 entities. The first round was reinstated in August.
The European Union, which coordinated the talks leading to the nuclear deal, is set to enact a financial mechanism to facilitate banking transactions with Iran.