Trump Sanctions Iran Again, Inching Toward Economic Blockade

But some experts say the move is a weak response to alleged Iranian attacks on Saudi oil.

Iranian women walk in the capital, Tehran, on Aug. 27. Iran’s economy has struggled with U.S. sanctions and could face even more after last weekend’s attack on Saudi oil facilities.
Iranian women walk in the capital, Tehran, on Aug. 27. Iran’s economy has struggled with U.S. sanctions and could face even more after last weekend’s attack on Saudi oil facilities. Atta Kenare/AFP/Getty Images

Just days after declaring the United States was “locked and loaded” in response to a suspected Iranian attack on key Saudi Arabian oil facilities, U.S. President Donald Trump on Wednesday said that he directed the Treasury Department to “substantially increase” sanctions on Iran.

That raises several questions: What is left to sanction? How much more could it hurt Iran than losing almost all of its oil exports? And would those new sanctions be a prelude to U.S. military action against Iran or its proxies—or a substitute?

For the Trump administration, to an even greater degree than prior administrations, using the full force of U.S. economic statecraft has been the preferred way to apply so-called maximum pressure on Tehran since Trump pulled out of the Iran nuclear deal in May 2018. U.S. sanctions have cut off Iran from the international financial system, all but zeroed out Iranian oil exports, and scared off international banks and suppliers even in sectors—like food and medicine—that aren’t technically subject to sanctions.

Trump and his officials appear to believe the economic chokehold is working. Iran’s inflation is officially north of 40 percent (and many economists suspect it is much higher), its economy is projected to shrink by 3 to 6 percent this year, and, most importantly, the regime’s main source of revenue to fund destabilizing activities in the region has been severely curtailed. Oil exports have cratered from about 2.5 million barrels a day before Trump left the nuclear deal to less than 200,000 barrels a day now—and most of those are shipped out to repay debt, not to earn hard currency.

“Their economy is crashing,” Trump said in July.

But Iran has refused to negotiate, and the sheer scope of existing U.S. sanctions make it hard for some analysts to identify any significant areas of the economy that could still be targeted. Oil, oil products, and the automotive industry—the three biggest slices of the Iranian economy—are already sanctioned by Washington.

“There are few if any sectors not already subject to pretty intense sanctions already,” said Richard Nephew, a former Iran sanctions architect under former President Barack Obama. The United States could tighten restrictions on consumer goods, he suggested, or widen the existing sanctions targeting the mining and mineral sectors.

And in recent weeks, despite the economic pain, Iran appears to be thumbing its nose at the U.S. president. Iranian President Hassan Rouhani has declared he will not consider meeting Trump at the United Nations General Assembly next week without a lifting of sanctions, and if Iran was behind the Saudi attack, it would amount to a brazen escalation of hostilities by Tehran against a U.S. ally.

For the Trump administration, short of military action, about the only major economic response left would be a full secondary sanctions ban that would amount to a virtual economic blockade of Iran—that is, a prohibition on countries or companies that do virtually any business with Iran from doing business with the United States, even in areas like humanitarian aid that are nominally permitted. Short of that, further incremental sanctions on a country already in economic free fall would be seen as a weak response to the weekend attacks that took 5 percent of global oil production briefly offline.

“As much as I see sanctions as a powerful tool, in the context of the attack and the existing sanctions, this will be seen as anemic as a response, if this is the totality,” said Nephew, now at Columbia University’s Center on Global Energy Policy.

Others, though, see room to pressure Iran further, seeing a weak economy as a perennial chink in the armor in the regime’s ability to maintain control.

“Economically, there are a number of things the United States can still do,” said Alireza Nader, the CEO of New Iran, a research and advocacy organization in Washington. He pointed to continued trade between Iran and its neighbors—Tehran still enjoys a U.S. waiver to sell electricity and natural gas to Iraq—as well as its proxies such as Hezbollah that are still able to move funds through financial systems such as Lebanon’s.

Additionally, because Iran is a big food importer just a year removed from massive popular protests over the country’s economic management, Nader sees a vulnerability for Iran’s rulers if they invite further U.S. sanctions that could imperil already-scare supplies of subsidized food, for example.

“The regime is having problems with food management, importing food, and maintaining prices,” he said. “If Trump doubles down on sanctions, that is the worst weapon for them. Sanctions and internal unrest are what they worry about the most.”

One potentially explosive option the Trump administration could explore is to sanction Bank Markazi, the central bank, which handles humanitarian trade for Iran, said Brian O’Toole, a former U.S. Treasury sanctions expert now at the Atlantic Council.

Taking such a step would without question tighten the screws on humanitarian areas of trade that are nominally unaffected by U.S. sanctions—food, medicine, and medical supplies. (In reality, limits on financial transactions and the wariness of international banks mean that Iranian food and medicine imports have already suffered due to U.S. sanctions, even though they are officially allowed.) Formally seeking to shut down Iran’s channels for humanitarian trade would only deepen the rift between Washington and the European Union.

O’Toole said he doubted the United States would take that step, given the diplomatic blowback from Brussels, but couldn’t rule it out. More likely, he said, would be additional sanctions designations on Iranian companies and individuals, especially those in the orbit of the Islamic Revolutionary Guard Corps.

But despite the impression that U.S. economic pressure on Iran is already at a fever pitch, Nader said that it could always be dialed up further.

“Iran constantly underestimates U.S. economic leverage, and it is highly vulnerable to U.S. sanctions,” he said. Piecemeal bans on important sectors—such as oil and automobiles—could give way to a much broader campaign seeking to smother the decades-old Iranian “resistance economy,” potentially opening political fault lines in a country that has spent much of the past year putting down popular protests of one sort of another.

“The option of a virtual economic blockade has not been explored. Economically, that is what the regime is facing,” Nader said.

Keith Johnson is a senior staff writer at Foreign Policy. Twitter: @KFJ_FP

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