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 some officials and institutions of the Islamic Republic due to human rights violations. Economists believe these unprecedented sanctions could inflict widespread destructive effects on the body of Iran’s economy.
The European Union, after years, sanctioned some Iranian individuals and institutions last week. The US Treasury Department also, following a series of recent White House sanctions against the Islamic Republic, imposed new oil sanctions on several Iranian and Chinese companies. The Justin Trudeau government has also announced that Canada has sanctioned 25 individuals and 9 institutions of the Islamic Republic of Iran for their involvement in widespread human rights violations.
Now the question arises, what has happened that such a global consensus against the Islamic Republic has emerged again after years? On the other hand, many experts believe that the consequences of the recent global consensus for Iran’s economy are not only very extensive but could also be the final blow to the country’s economic body.
American sanctions still smell of oil.
Last week, the US Treasury Department announced the sanctioning of 10 companies active in the oil industry and a ship for their involvement in the transfer of Iranian oil. Most experts believe that the new round of US sanctions, in addition to potentially creating serious obstacles for the trade of petrochemical products, could 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 that one of the main motivations for the Biden administration’s recent sanctions is the way the Islamic Republic has dealt with Iranian protesting citizens.
A look at Joe Biden’s record and positions also shows that this seasoned American politician has always emphasized the need to uphold human rights worldwide. Therefore, many think the role of the Islamic Republic’s security institutions’ actions in the recent US Treasury Department’s action 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 exporting 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 unprecedented oil sales since the US withdrawal from the JCPOA, although experts have many doubts about this claim. However, it should be noted that the recent sanctions create serious obstacles for the 13th government’s oil exports.
A major difference.
The new US sanctions have a very important and fundamental difference from other sanctions that this country has previously imposed on oil and petroleum product exports. This difference is the Biden administration’s intense focus on the entirety of Iran’s petrochemical industry. Until now, the US Treasury Department has 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 Ebrahim Raisi government has placed special emphasis on industries like petrochemicals to provide the country’s needed foreign exchange. In other words, the US government has deliberately organized the sanctions to block the channels of the Islamic Republic’s foreign exchange resources. However, it should not be forgotten that until now, economists believed that one of the main reasons for the increase in the government’s oil revenues was the Biden administration’s overlooking of oil sanctions.
In fact, the conscious overlooking of sanctions evasion by the United States was done to create a suitable environment for continuing negotiations. But now it seems that the White House no longer needs to facilitate conditions to advance its diplomatic goals and has decided to tighten the situation as much as possible for the Ebrahim Raisi government.
Farewell to the $27 billion income.
In May of this year, the 13th government announced the economic team’s planning to achieve a $27 billion income by the end of 2022. This goal-setting was made while Iran’s total export revenues from the petrochemical industry in 2021 were about $23 billion. In other words, the Raisi government promised at the beginning of this year a roughly 15% increase in the country’s income from petrochemical product exports.
On the other hand, it should be noted that more than 80% of the country’s petrochemical export income in 2021 was related to various holdings in this field. By looking at the recent Biden administration sanctions, it can be clearly understood that the US Treasury Department has specifically targeted these holdings and their communication channels with the outside world, including several Chinese companies. This is why it is said that this action means crippling the petrochemical industry in Iran and significantly reducing the 13th government’s foreign exchange revenues.
What happens to 170,000 jobs?
According to the National Petrochemical Company, for every one million tons of petrochemical feedstock supplied, over 170,000 jobs are created. Considering the annual need for 5 million tons of feedstock 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 holdings targeted by US sanctions, it can be said that if 30% of these groups 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. Meanwhile, the government had promised foreign companies’ investments in this industry to reduce unemployment and create new jobs. In reality, the Raisi government has not only failed to bring investment into the country but also effectively lost 200,000 job positions.
The final blow.
However, experts believe the most significant harm that crippling the petrochemical industry inflicts on the economy is in foreign exchange provision. As mentioned, the share of this industry in foreign exchange earnings is far higher than most other industries. For example, in 2021 alone, over $8 billion in foreign exchange supply commitments were made to the NIMA system by petrochemical companies, and about $12 billion was supplied through this channel to NIMA.
The importance of these numbers becomes clear when we look at the Central Bank report on Iran’s oil revenues in 2021. According to the Central Bank’s published information, the total revenues from oil and petroleum product exports last year were over $38 billion. Now, considering the $12 billion supply from the petrochemical industry in 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 intensified sanctions, could lead to more severe inflationary jumps in the not-too-distant future. It should not be forgotten that the government has a pressing need for foreign exchange resources for importing food and medicine into the country, and the new sanctions have precisely targeted the source of foreign exchange earnings.