What is the impact of the new US sanctions on Iran’s economy?
What is the impact of the new US sanctions on Iran’s economy? According to Iran Gate, the European Union, the United States, and Canada have recently imposed heavy sanctions against certain officials and institutions of the Islamic Republic due to human rights violations. Economists believe these unprecedented sanctions could inflict extensive destructive effects on the body of Iran’s economy.
Last week, the European Union took action to sanction certain Iranian individuals and institutions for the first time in years. The US Treasury Department also, following the recent series of White House sanctions against the Islamic Republic, imposed new oil sanctions on several Iranian and Chinese companies. The government of Justin Trudeau has also announced the sanctioning of 25 individuals and 9 institutions of the Islamic Republic of Iran by Canada, who have been involved in widespread human rights violations.
Now the question arises as to what has happened that such a global consensus has once again been formed against the Islamic Republic after years. On the other hand, many experts believe the consequences of the recent global consensus for Iran’s economy are not only very extensive but could also act as the final blow to the country’s economic body.
American sanctions still have the scent of oil.
Last week, the US Treasury Department announced the sanctioning of 10 companies active in the oil industry and a ship due to their involvement in the transfer of Iranian oil. Most experts believe this new round of US sanctions could not only create serious obstacles for the trade of petrochemical products but could also act as the final blow to Iran’s foreign trade.
The White House has not explicitly stated that these sanctions are related to human rights violations in Iran, but many believe one of the main motivations for the Biden administration’s recent sanctions is the way the Islamic Republic has dealt with protesting Iranian citizens.
Looking at Joe Biden’s record and positions also shows that this veteran American politician has always emphasized the necessity of respecting human rights globally. Therefore, many think the role of the Islamic Republic’s security institutions in the recent actions of the US Treasury Department should not be overlooked.
It should be noted that the recent sanctions include several Chinese and Iranian companies and an Iranian ship. According to the White House, these companies have played a pivotal role in the export of Iranian oil and petrochemical products in recent months. Meanwhile, the Islamic Republic has always reported a significant share of the petrochemical industry in the country’s foreign exchange earnings.
On the other hand, the government claims an unprecedented sale of oil since the US withdrawal from the JCPOA. Although experts have many doubts about this government claim, it should be noted that the recent sanctions create serious obstacles for the oil exports of the thirteenth government.
A major difference
The new US sanctions have a very important and fundamental difference from other sanctions that this country has imposed on oil and oil product exports so far. This difference is the intense focus of the Biden administration on the entirety of Iran’s petrochemical industry. Previously, the US Treasury Department had imposed extensive restrictions more than any other sector on individuals and companies involved, but now the sanctions regime is designed in a way that could completely cripple Iran’s export-oriented petrochemical industry.
This new American strategy has been adopted in a situation where the government of Ebrahim Raisi has placed special emphasis on industries like petrochemicals to provide the foreign currency needed by the country. In other words, the US government has deliberately organized the sanctions in a way that blocks the channels of foreign currency resources for the Islamic Republic. However, it should not be forgotten that economists previously believed one of the main reasons for the increase in the government’s oil revenues was Biden’s administration turning a blind eye to oil sanctions.
In fact, the conscious overlooking of sanction evasion by the United States was done with the aim of creating a suitable space for the continuation of negotiations. But now it seems the White House no longer needs to facilitate conditions to advance its diplomatic goals and has decided to tighten the space as much as possible on the government of Ebrahim Raisi.
Saying goodbye to $27 billion in revenue
In May of this year, the thirteenth government announced the economic team’s planning to achieve $27 billion in revenue by the end of 2022. This goal was set while the total export revenues of Iran from the petrochemical industry in 2021 were recorded at about $23 billion. This means the Raisi government promised at the beginning of this year a roughly 15% increase in the country’s revenue from petrochemical product exports.
On the other hand, it should be noted that more than 80% of the country’s petrochemical export revenue in 2021 was related to various holdings in this field. By looking at the recent sanctions of the Biden administration, it can be clearly seen that the US Treasury Department has precisely targeted these holdings and their communication channels with several Chinese companies. This is why it is said that this action means crippling the petrochemical industry in Iran and significantly reducing the foreign exchange revenues of the thirteenth government.
What happens to 170,000 jobs?
According to the National Petrochemical Company, for every one million tons of petrochemical feed supply, more than 170,000 jobs are created. Considering the annual need for 5 million tons of feed in the petrochemical industry, it can be said that a total of more than 850,000 people are employed annually in the downstream sector of this industry. Now, considering the 80% share of the holdings targeted by US sanctions, it can be said that if 30% of these collections become inactive, the country will face a reduction of more than 200,000 jobs.
It should be reminded that Ebrahim Raisi claimed that more than one million jobs are created annually by the government. Considering the statistics and figures mentioned above, it can be said that in facing petrochemical sanctions, the government, at best, loses 200,000 jobs. This is while the government had promised foreign company investments in this industry to reduce the unemployment rate and create new jobs. In fact, the Raisi government has not only failed to bring in investments but has also lost 200,000 jobs.
The final blow
However, experts believe the most significant damage caused by crippling the petrochemical industry to the economy is in foreign currency provision. As mentioned, the share of this industry in foreign exchange earnings is far higher than most other industries. For example, in 2021 alone, more than $8 billion in foreign exchange supply commitments were made to the NIMA system by petrochemical companies, and about $12 billion was supplied to NIMA through this channel.
The importance of these figures becomes clear when we look at the Central Bank’s report on Iran’s oil revenues in 2021. According to the information published by the Central Bank, the total revenues from oil and oil product exports last year were over $38 billion. Now, considering the $12 billion supply from the petrochemical industry to the NIMA system, it can be said that this industry’s foreign exchange earnings in 2021 amounted to 30% of the country’s total oil revenues.
Now, if the US government intends to expand sanctions in this area, not only will individuals and some Iranian and foreign holdings be affected, but Iran’s economy will fundamentally face problems. Problems that, if expanded due to increased sanctions, could lead to more severe inflationary surges in the not too distant future. It should not be forgotten that the government urgently needs foreign exchange resources for importing food and medicine, and the new sanctions precisely target the sources of foreign exchange earnings.