The Iran Sanctions & A Declining Superpower
Earlier this month, the U.S. State Department’s Director of Policy Planning, Brian Hook, told reporters that Washington would not be granting waivers to countries keen on continuing to buy Iranian oil after American sanctions are instated later this year.
“This is a campaign of imposing pressure,” Hook said in reference to the planned sanctions regime against Tehran.
“Pressure is critical to achieve our national security objectives,” he added.
Hook explained that Washington’s campaign is focused on Iran’s energy sector and that he would like to reduce the number of states importing Iranian crude “to zero as soon as possible.”
The announcement followed a May 8 decision by U.S. President Donald Trump to unilaterally pull out of the 2015 nuclear deal with Iran.
Shortly thereafter, Trump’s Secretary of State Mike Pompeo outlined the ‘objectives’ with his 12-point list of demands, which included calls on Iran to withdraw from Syria and cut ties with Hezbollah.
The unrealistic set of demands, coupled with the draconian sanctions, led some to conclude that the ultimate goal is regime change in Tehran.
In a paper published last month, the Washington-based Brookings Institution suggested that “the Trump administration is deploying U.S. sanctions on Iran as a bludgeon rather than a scalpel, in the hopes of wreaking maximum havoc on Iran as quickly as possible.”
But how much havoc will the global oil market have to endure as a result of Washington’s gambit? And how realistic are stated U.S. objectives at a time when it does not enjoy the support of major allies, let alone China and Russia?
A thorny road ahead
It goes without saying that Iran’s economy is heavily reliant on oil exports.
Oil sales underpin the government’s finances, generating an estimated 60% of the state’s export revenues.
The looming threat of sanctions has already prompted Iranian officials to warn of tough times ahead.
On July 10, Iran’s First Vice President, Es'haq Jahangiri, stated that the U.S. embargo would lead to “new and difficult conditions.”
Some of the main buyers of Iranian crude – Japan and South Korea – have already begun cutting their imports.
Meanwhile, last month, a number of European refiners and banks also cut back on Iranian oil purchases.
In the aforementioned Brookings Institution paper, the think-tank claims that a substantial chunk of investments by European and Asian firms in Iran had “shifted to wind-down mode.”
But can the fallout from the Trump Administration’s push to isolate one of the world’s key oil producers truly be confined to the Iranian economy?
Just last week, the deputy commander of Iran’s Revolutionary Guard, Brigadier General Hossein Salami, said that his country was ready to close its territorial waters to American and Gulf oil tankers sailing through the Strait of Hormuz.
Predications suggest that any further escalation of tensions could drive up crude prices from today’s USD 70 a barrel, to USD 250 per barrel.
This would not only be catastrophic for the American economy, but would hurt Trump himself, as he hopes to see his fellow Republicans maintain their house majority in November’s midterm elections.
Any significant hike in prices at the gas pump is certain to infuriate U.S. voters, and could have a substantial impact on the polls later this year.
Washington’s traditional allies in Europe are also challenging the administration’s Iran policy. The EU opposed Trump’s withdrawal from the JCPOA and is continuing to seek ways to maintain the deal, even without U.S. participation.
Posing an even greater challenge to Trump’s anti-Iran crusade are countries like India and Turkey.
Although both are hoping to get a waiver against sanctions from the US government, neither is shy about expressing their willingness to push against the embargo.
The joint secretary for international cooperation at India’s petroleum ministry, Sunjay Sudhir, told CNN in June that his country, “does not recognize unilateral sanctions, but only sanctions by the United Nations.”
For its part, Ankara has described Iran as an important neighbor and vowed to view the U.S. sanctions through such a framework.
Experts agree that Beijing will likely be the determining factor in helping Tehran withstand the economic pressures when the new sanctions kick in.
China, which currently imports 650,000bpd from Iran and is embroiled in a trade war with the U.S., has indicated that it would not honor Washington’s sanctions.
The greatest weapon in Beijing’s arsenal is the petro-yuan – a new mechanism for pricing oil that remains outside of the US dollar’s institutions and could serve as a lifeline for the Iranian economy.
Fear of such scenarios prompted American officials to warn that China, “will be subject to the same sanctions as everybody else if they engage in those sectors of the economy.”
The madman theory
The Trump Administration’s foreign policy decisions appear to be little more than a modern-day adaptation of the madman theory.
This approach was most commonly associated with former President Richard Nixon, who worked hard to make himself appear irrational and volatile. The objective was to dissuade foreign governments from challenging the U.S. for fear of an unpredictable American response.
Interestingly, Nixon’s Secretary of State Henry Kissinger and one of the most powerful figures in U.S. politics also happens to be an ‘advisor’ to the Trump Administration.
One can argue that Trump is the perfect front man for a declining superpower that needs to appear to possess a crude negotiating style – starting out with outlandish and outrageous demands before settling for much less.
A shrewd observer will also wonder about how much behind-the-scenes characters like Henry Kissinger really hope to get out of Iran in countries like Syria and Iraq, as well as how far they are willing to go to attain their objective.
But recent disclosures by Iranian officials, revealing that Trump asked Iran’s President Sheikh Hassan Rouhani for a meeting no fewer than eight times during last year’s UN General Assembly, exposes the administration’s eagerness for a deal rather than a confrontation.
The immediate aftermath of this week’s summit between Trump and his Russian counterpart Vladimir Putin appears to lead to the same conclusion.
Shortly after the two had their nearly two-and-a-half-hour, one-on-one chat, Putin's special envoy for Syria, Alexander Lavrentiev, was on the first flight to Tehran, presumably to brief the Iranian leadership on what was discussed in Helsinki.
Of course, if Pompeo’s 12-point list really does constitute the foundation for Washington’s objectives with respect to Iran and the wider region than the only possible outcome is war – and one that the Americans cannot win.
However, if Trump has taken a page from Nixon’s book it is safe to assume he has also taken one from Italian philosopher Niccolo Machiavelli, who believed that it was "a very wise thing to simulate madness".