If there is one country that has been a victim of trade embargos and sanctions, it is Iran. The tense relationship between Iran and the United States of America dates back to the seventies during the reign of Shah and the US has been imposing trade embargos and sanctions on Iran time after time. Currently, the country has started feeling the economic pressure as a result of the announcement by the US that no foreign bank should deal with Iranian banks or financial institutions because of the country’s stance on terrorism. Iran is one of the countries in the Middle East that is feared to be pursuing a terrorist agenda through its nuclear missile program and these sanctions are aimed at taming the country which poses a global terrorist threat alongside North Korea. The sanctions also affect Iranian companies especially those linked with terrorism or nuclear proliferation. These sanctions are supposed to supplement the efforts of the United Nations Security Council which had imposed some limited sanctions on Iran because of its stance on terrorism (Kaveh,2008). The United Nations Security Council had frozen assets belonging to extremist Iranian firms and issued travel bans on extremist individuals who are the main architects of the Iranian proliferation program. These sanctions have dealt the economy of the country a big blow because it has been squeezed to the edge due to the isolation of Mahmud Ahmedinejad’s regime from the rest of the world. Ahmedinejad’s regime is not the first Iranian regime to be sanctioned by the US and the UN. In the eighties, the Khomeini’s regime was sanctioned by the US because of its radical and extremist stand on the Middle East peace deal. It will require more than the lifting of the ban to remedy the economic situation in Iran. One of the hardest hitting actions by Washington was the pressure that was put on foreign banks that deal with Iranian financial institutions. The banks were warned that their access to the US financial markets could be limited if they continued dealing with Iranian financial institutions. The USA had indentified a number of Iranian institutions to be affected by the sanctions due to their perceived closeness with the Ahmedinejad’s regime that is pursuing a nuclear program illegally. The Iranian nuclear industry has come under scrutiny especially because of the countries stance on terrorism and the best way of taming the Ahmedinejad’s regime was to starve the country economically using isolationist tendencies.
Washington has also urged Europe to severe its economic ties with Tehran and most European countries have obliged because they know a penalty would be leveled upon them by U.S if they do not cooperate. Most German, French and British banks have complied to protect their interests in the US markets and this has left Iran in a tight position economically. To start with, Iranian international banks cannot transact business using the US dollars meaning that they cannot operate on the international stage. The US dollar is the international currency that is used in global trade and the shortage of US dollar in the country has led to the devaluation of the Iranian currency. These isolationist punishments have led to high levels of inflation in Iran. The Iranians feel that this action goes beyond the jurisdiction of the United Nations restrictions that are served under the resolution 1737. This resolution had frozen only ten Iranian firms and imposed travel advisories on less than twenty personalities who are feared to be heavily involved in the nuclear exercise.
However, some countries lie China and Russia did not agree with the United States especially because the sanctions have been affecting millions of citizens of Iran who have nothing to do with terrorism or the nuclear programs. Due to the fear of the US penalties, most countries around the world have cut ties with Iran and the isolation of Iran by the international world has led to a severe economic decline that is unprecedented in this Islamic country. What has affected Iran most is the withdrawal by Europe from the bilateral cooperation because 40 percent of the country’s exports comes from Europe.
More than 200 European companies have interests in Tehran especially in energy and telecommunication. The stress and pressure being put on Iran by the US is not necessarily meant to punish the country economically, it is meant to restrict the Islamic regime from acquiring nuclear materials from outside and even technological know how that may help the country in its nuclear proliferation strategies. However, the sanctions have caused untold problems to the Iranian citizens who mainly depend on imports for their livelihood because Iran is a very and unproductive country. The country uses its income from its massive oil exports to buy food, machinery, clothing and gadgetry from outside, especially Europe and the sanctions have therefore dealt the country a heavy blow.
The financial ban has the capacity to affect all the other sectors of the Iranian economy and has already stifled the country’s economic growth. However, there are some economists who argue that the sanctions may in the long run have positive effects on the Iranian dollar because it will be shielded from the external pressures. However, this may not have a big impact on the economic survival of this besieged country because the rate of inflation that has hit the country is unprecedented. There is a serious shortage of basic commodities because of the trade embargo and the few commodities that are arriving in the country from the few countries that have not heeded to the U.S warning are being sold at unaffordable prices. These countries that are still trading with Iran include china, Russia and the neighboring Saudi Arabia.
The other factor that has contributed to the stagnation of the Iranian economy is the falling of the fuel prices given that the state policies in Iran discourage private oil enterprises. Secondly, Iran cannot sell fuel to as many countries as it used to sell due to the trade embargos. The country used to sell most of its oil to European countries and now that the EU has cut links with the country, its foreign market has gone down leading to a further dent of the Iranian economy. A study carried out recently has indicated that the cost of living has more than doubled in Iran since the sanctions were effected by the United States of America and the compliance by the European Union. The effects of the sanctions by the US cannot be easily seen because, though the economy of Iran has sunk to unprecedented levels, it is not doing badly as compared to its Arabic neighbors.
The closure of some companies and industries to the failure to access the international markets because of the trade embargo has led to high rates of unemployment, which is also unprecedented in Iran. Iran relies on foreign investments to exploit its green oil fields (Jentleson, 2003). Its nuclear sector is also funded by the foreign investors and the sanctions that have denied the country credit extension and other forms of financial instruments have adversely affected the oil and gas industry which is the economic mainstay of this country. This has forced the country to obtain riskier loans that have less favorable terms from its Arabian neighbors. Foreign investors are also pulling out of the country due to the unfavorable conditions created by the sanctions and the trade embargo. Doing business in Iran for many foreign companies is not worth the risk in the face of the punitive sanctions. The financial sanctions are even more severe than the trade embargos especially because of the fungibility of oil as a business commodity.
However, the economic situation in Iran is not that dire given that the country is one of the wealthiest countries in the gulf region and it is estimated that the country can sustain itself for more than a year despite the sanctions. The other advantage that Iran has is the refusal by China and Russia to cooperate with the United States of America. This means that the two economic powerhouses can become alternative markets for its oil products. It can also import from the two countries and many other countries that are not afraid of the actions of the United States of America. The biggest problem lies in the exploitation of its untapped oil fields because the financial sanctions have reduced the country’s ability to borrow funds to develop these oil fields. China and Russia cannot give adequate financial support and the country is facing economic pressure especially in the energy sector.
However, insiders in the Ahmedinejad’s regime feel that the sanctions have had a limited effect on the Iranian economy because not all countries have complied with the US demands. They claim that the sanctions are symbolic because they have not stopped deals and financial transactions between Iran and countries in the east including China and Russia. For example, immediately after the sanctions were announced, the country struck a lucrative gas deal with china and Russia has announced that it will continue to supply Iran with defense machinery. For Iran, it is business as usual with Beijing and Moscow plus many other eastern European countries that do not have strong bilateral links with the US. The United States wants to bring Iran to the bargaining table like it did to North Korea and Macau but the punishments meted on Iran are not strong enough to make Tehran budge. The Iranian economy may have gone down because of the financial sanctions but the country has been cushioned by its past economic performances and the refusal by Russia and China to comply with the demands of the United States of America. However, if the sanctions are not lifted, this cushion will weather down due to the economic pressure being exerted by the financial sanctions and the trade embargos and the economic down fall that Iran will face may take years to remedy (Freidman, 2003). The current standoff between Iran and the United States of America is seriously hurting the ordinary Iranian citizens, because the cost of living has already skyrocketed and the basic supplies have been cut short. The insiders of the Ahmedinejad’s regime may try to justify that the country is not suffering but economic indicators show that the country is under a lot of economic and financial pressure brought about by the financial sanctions and the trade embargoes.
References
- Friedman. A, (2003). Spider’s Web: The Secret History of how the White House Illegally Armed Iraq. New York: Bantam Books.
- Jentleson, B. (2003). With friends like these: Reagan, Bush, and Saddam, 1982-1990. New York, W. W. Norton
- Kaveh, L. A. (2008). Iran’s Foreign Policy after September 11. New York: Booksurge.