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Economic Consequences of the US Withdrawal from the Nuclear Deal

An analysis

Friday 9 November 2018, by Nazar TAMASHEVSKA

With the withdrawal of the US from JCPOA, the secondary sanctions imposed on Iran came into force again in November 5, 2018. Therefore, foreign firms doing business with any firms or persons cited in the Iranian SDN list may be punished on the basis of American sanctions-system.

The Economic Consequences of the US Withdrawal from the Nuclear Deal (PDF)
(Click to download)
The Economic Consequences of the US Withdrawal from the Nuclear Dealn
Murat Aslanr
Center for Iranian Studies in Ankara — İRAM (September 2018)
ISBN-13: 978-605-7559-02-9

Last May, Donald Trump announced the American withdrawal from the 2015 Iranian nuclear agreement, a decision that opens a period of great uncertainty on the international relations front. Concluded in 2015 in Vienna between the Islamic Republic and the so-called 5+1 group (China, France, Germany, Great Britain, Germany, Russia and United States), this agreement made it possible to put an end to Iran’s isolation by lifting part of the international economic sanctions in exchange for Tehran’s solemn commitment to renounce to acquire nuclear weapons.

The withdrawal of the United States from this pact led to the reinstatement of a first round of US sanctions against Tehran in August. A second wave followed on 5 November, targeting in particular the Iranian oil sector and the Central Bank.

In this paper, Murat Aslan treats the following subjects:

  • The Background of Iran Sanctions
  • The JCPOA and US Commitments
  • Redefinition of the Iran Sanctions
  • The Positions of the Other Major Powers: Russia, China and Other Asian, countries, EU, and specially Turkey

The author thinks Russia is unlikely to be exposed to secondary sanctions because of low trade volume with the US and Iran. Despite Iran’s significance for China’s energy security, the author states that China will expectedly look for a middle-way solution not to escalate its relations with the US any further. Finally, he thinks European states, while trying to keep the JCPOA, will seek to minimize the adverse effects of the sanctions on European firms.

Murat Aslan observes that several countries, mainly the EU countries, are trying to minimize their losses resulting from the US withdrawal from the JCPOA. Therefore, the future of the nuclear deal will be determined by the EU’s attitude. According to the author, statements by Turkey indicated that the trade relations with Iran would likely continue, however, it can be anticipated that Turkey would possibly wait for the EU’s actions and shape its agenda accordingly.

Murat Aslan thinks it is very difficult to terminate the US secondary sanctions completely, so the countries will attempt to minimize their losses. In that regard, these steps, on the one hand, should ensure the implementation of the JCPOA, on the other hand, should not be entirely at variance with the US. Moreover, there are varying levels of political relations that EU countries have with the US and Iran. Therefore, the concrete steps taken by the EU have to consider the reaction of the US, although, they should aim for a middle ground which will satisfy the member states. For this reason, as a rational solution, small and medium-sized enterprises (SMEs) can be encouraged to trade with Iran through euro-based sovereign credit lines and incentive mechanisms. However, it is essential to consult and caution SMEs regarding the actors on the SDN list.

Nonetheless, Murat Aslan paints a rather bleak picture for Iran’s future. According to him, in the short run (2019-2020), Iran’s oil exports, which in 2018 is nearly 2.3 mln bpd, is expected to fall to approximately 1.5-1.7 mln bpd, representing a drop of 300,000- 500,000 bpd. However, as oil prices are expected to trade around $70 to $80 per barrel, a decrease in Iran’s revenues from oil exports would be limited in the near future. The worrying point is that, in 2018, Iran’s GDP has not reached 2010 levels. Subsequently, Iran’s oil revenues are expected to drop further within the next years. Besides, due to diminishing oil revenues, the presence of the secondary issues such as unemployment and inflation should also be considered. Marking the socioeconomic and political problems of Iran, the long-needed foreign direct investments would not transpire in Iran.

The author concludes that ultimately, the US secondary sanctions leave the hands of corporations, global companies and large-scale companies tied. Therefore, the diminishing oil revenues and foreign direct investments will fuel the deepening of the socioeconomic problems in Iran.

About the Author:

Prof. Dr. Murat ASLAN is graduated from Hacettepe University, majoring in public finance, with distinction in 1993. In a nationwide exam, ranked 1st among 236 candidates taking a field exam in economics, and he was awarded a full scholarship from the Turkish Ministry of Education to pursue graduate education in the US. He received his MA degree from The American University, Washington DC in 1997 and his Ph.D. from George Mason University, Virginia US in 2004. He returned back to Turkey and worked as an assistant professor and later an associate professor at the Eskişehir Osmangazi University (2004-2012).

He has been working as an associated professor for the Yıldırım Beyazıt University, Ankara since 2012. His main research areas are political economy and public economics.

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