Iran and sanctions from gold to carpets

Turning off the lights on the Tehran regime will cost it a lot domestically at a time when the domestic situation does not look stable as protests against livelihood conditions are ongoing on an almost on a daily basis across the country.

Beginning this week, all companies and governments are prohibited from using the dollar currency when dealing with Iran, and all bank transactions using the dollar will be suspended. It’s also prohibited the buy the Iranian rial or deal with it.

Banks are not allowed to lend Iran money and American banks are prohibited from dealing with their counterparts from the Iranian banks. It’s also prohibited to sell gold, iron, aluminum and even coal. It’s also not allowed to import goods and carpets to the US.

Three months from now, sanctions on Iran will include oil and petrochemical products. These sanctions are unilateral– only imposed by the US without the rest of its allies, which chose to remain committed to the nuclear agreement and deal and trade with Iran.

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However, most of them will not be able to do so. The American sanctions will prevent these countries from using any American products or possessions in their manufacturing and trade, even if partially.

These countries are also not allowed to use the dollar, which is the major currency in the global market. The companies dealing with Iran will thus also be subject to be added to the American blacklist.

It’s true that these are American sanctions but the latter are so severe that most European, Chinese, Indian and other companies will not dare deal with Iran.

Intermediary companies

Iran will thus have to deal with them via intermediary companies, and this will prolong the duration of trade and greatly raise the cost. What’s more difficult is preventing Iran and its partners from using the dollar during purchases so it will be left with using the barter system, which does not suit its needs.

For example, it would sell oil to China in exchange of buying cars or furniture or so, or it would accept to sell oil using China’s currency, the yuan. However Iran will not be able to use the yuan with other countries. The same applies to dealing with the Indian rupee.

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When Iran buys from foreign countries, it would still need to do so using a hard currency like the dollar. Iraq faced this problem last month when the government tried to pay its dues for buying Iranian electricity and other services using the Iranian rial which is available in large amounts in Iraq but Iran refused and asked to be paid in dollar.

The euro which the Iranian government started using at the beginning of this year will not solve the problem of European companies, which fear American sanctions, if they trade with Iran. European governments cannot force their companies to trade with Iran, and at the same time they cannot protect them from American sanctions.

Opening accounts

European governments have begun opening accounts for Iran using their currency, using the Euro in countries which currency is the Euro, like Germany and France, and using the pound sterling in Britain. Austria and Sweden did the same using their local currencies.

Fear in the Iranian street has been reflected on the price of the Iranian rial which drastically dropped to around 120,000 rial to the US dollar. The government’s assurances did not work and the economic situation is difficult on more than one front.

Iran will not be able to sell half of the oil it sold despite the global market’s need for it. This is because the US prohibited using its tankers and using its companies for insurance and prevented dealing using the dollar. The government’s income in Tehran immediately decreased.

This is in addition to what the government is suffering from as a result of other economic sanctions which increased the price of products and services.

This article is also available in Arabic.

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Abdulrahman al-Rashed is the former General Manager of Al Arabiya News Channel. A veteran and internationally acclaimed journalist, he is a former editor-in-chief of the London-based leading Arab daily Asharq al-Awsat, where he still regularly writes a political column. He has also served as the editor of Asharq al-Awsat’s sister publication, al-Majalla. Throughout his career, Rashed has interviewed several world leaders, with his articles garnering worldwide recognition, and he has successfully led Al Arabiya to the highly regarded, thriving and influential position it is in today. He tweets @aalrashed.