The collapse of the Iranian economy after the US withdrawal from the nuclear agreement

The collapse of the Iranian economy after the US withdrawal from the nuclear agreement

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Shatha Khalil
US President Donald Trump announced on 8 May 2018 the withdrawal from the nuclear deal with Iran signed in 2015, although it was not a bilateral agreement, but it was a collective agreement involving five other major powers. Under which Iran agreed to restrict its nuclear program in exchange for easing economic sanctions.
Washington considered Trump’s decision to be an essential development, not only in Washington’s relationship with Tehran but in the international system as a whole, and destroying the prominent “achievement” of the foreign policy of his predecessor, Barack Obama.
The agreement was the only guarantee not to launch a Western war on Tehran, but a US withdrawal would make it possible, especially if Iran announced it would return to enrich uranium.

Nuclear agreement:
The agreement was made between Iran and the six countries (China, Russia, the United States, France, Germany and Britain) through negotiations in order to reach a comprehensive settlement of the Iranian nuclear program in the Swiss city of Lausanne in order to give it a peaceful character in exchange for the abolition of sanctions imposed on Iran as they have reached to the agreement   in July 2015 agreement known as the “Comprehensive Joint Action Plan” – the Nuclear Agreement.
Under the plan, Iran, the United States, Germany, Britain, China, Russia and France, known as the 5 + 1 group, and the European Union agreed to lift international sanctions on Iran’s nuclear program in return for dismantling Tehran’s nuclear program.
The plan came into effect in January 2016 under the auspices of the International Atomic Energy Agency (IAEA), which has wide oversight powers and led to lifting sanctions on Iran related to nuclear energy development, including sanctions on financial transactions, trade and energy. As part of the deal, tens of billions of dollars of Iran’s frozen financial assets have been released, but sanctions could be reinstated if Iran violated the deal.
The joint plan of action allows Iran to pursue its peaceful nuclear program for commercial, medical and industrial purposes in line with international non-proliferation norms. More importantly, the joint work plan concerns Iran’s nuclear program only, meaning that the agreement does not address other issues such as the Iran program With ballistic missiles, human rights violations, support for terrorist organizations and alleged “destabilizing” activities in the Middle East. On this level, there are sanctions and trade restrictions imposed by the European Union and the United States. There is also a separate UN Security Council resolution on Iran’s ballistic missile program.

Trump described Iran’s nuclear deal as catastrophic, that Iran was “lying” about its nuclear file and insisted on doing the most economic sanctions. “Every country that helps Iran in its pursuit of nuclear weapons can be subject to severe sanctions by the United States,” Trump warned.
Tramb said the Iranian regime financed “a terrorist system in which the wealth of its people was wasted” and that the nuclear agreement allowed Tehran to continue enriching uranium and to acquire nuclear weapons.
“This catastrophic agreement has given the Iranian regime millions of dollars,” Trump said. “If this agreement is allowed to continue, there will be a nuclear arms race in the Middle East.” Iran will not stop its ambition to acquire nuclear weapons.

The effects of the withdrawal on the Iranian economy
• Immediately after the announcement of Trump, the withdrawal of his country from the Iranian nuclear agreement, and the signing of a presidential memorandum to impose sanctions on the Iranian regime, this was reflected directly on the Iranian currency as it recorded a decline against the US dollar as some Iranians withdraw their savings from banks even before the declaration of withdrawal, led to impose pressures on the banking system which is already suffering from non-performing loans and years of isolation.
• Lack of confidence between the citizens and Iranian government has contributed to the expansion of problems that threaten Iranian President Hassan Rowhani in the religious establishment, with the decline of investments as banks impose a limit on lending while growth slows and the unemployment rate was high , prompting Rowhani to be increasingly criticized by hardliners.
• The Iranian riyal lost nearly half of its value in six months to April, because the United States adopted a tougher stance, making Tehran impose a ban on the circulation of foreign exchange locally and impose a limit for possession of foreign exchange of $ 12,000.
• Iran will not be able to export or import weapons, and black lists of individuals, companies and banks that were previously accused of violating US laws will appear.
• It will not be able to import spare parts for aircraft and ships to modernize its air and sea fleet, and will be deprived from large foreign trade deals that have been relied upon to revive its economy, which is already suffering from several problems that recently caused many street protests.
The Iranian oil sector, which is Iran’s main source of income, will suffer sanctions. It has been in urgent need of support from foreign companies to develop it in order to increase its production; in addition that many countries will stop importing Iranian oil.
• The Iranian riyal lost about 22% of its value against the US dollar, which is reflected in rising prices, increasing unemployment, increasing poverty and deteriorating economic situation in Iran.

More economic crises await Tehran, the Federation of German Chambers of Commerce and Industry announced that European companies may face sanctions in the United States if their Iranian partners in business were put on US sanctions lists.
As for the investments, Iran will not be able to attract foreign investments. Most of the agreements will stop; it means freezing Tehran’s funds abroad, especially in the United States.
The most important agreements that will be affected by the withdrawal are:
The agreements between Boeing and Airbus as they are the most important and largest deals, “We are studying the announcement and assessing the most appropriate steps that are in line with our domestic policies and are consistent with the sanctions regulations and laws,” Airbus said in a statement, commenting on Trump’s decision.
– Deals with major international oil companies, electronic devices, such as deals made by Tehran with Total Oil Company, Volkswagen German automaker and GE Electric for electronic devices and equipment.
– Airlines and hotel groups, where companies in the sector have benefited from lifting sanctions on Tehran and promoting Iran as a tourist destination, such as the work of companies such as British Airways and Lufthansa, on direct flights from Berlin and London to Tehran. While a number of global hotels w ill be affected such as Accor, which was the first to open in Iran in 2015 as well as other hotel groups such as Rotana and Melia.

The repercussions of the withdrawal on European countries:
The European companies did not hide their fears of the announcement of the withdrawal, which will cause them heavy economic losses. This prompted an official of the French presidency (May 9, 2018) to announce that European officials will make every possible effort to protect the interests of their companies operating in Iran through the interference with the US administration. ”

Washington threatened when it announced the withdrawal to impose sanctions on all foreign companies cooperating with Iran and gave it 180 days to comply, as expressed by the new US ambassador in Berlin, Richard Grenell, where he urged, in a social networking site, German companies to withdraw from Iran immediately.
He said that German companies operating in Iran should “stop immediately.” US national security adviser John Bolton also said that the reinstatement of US sanctions linked to Iran’s nuclear program would immediately apply to new contracts pointing out that foreign companies have a few months to exit ” from Iran.
The German magazine Focus published an article calling on the German government to rescue German economic interests.
According to the magazine, the volume of German exports to Iran amounted to three billion euros in 2017, which amounts to 0.2% of the total German exports in general.
German exports rose 16 percent from a year earlier, but the Trump decision could freeze economic relations between the two countries and inflict heavy losses on Germany, the magazine said.

German companies have expressed concern about supposed financial losses. Volkswagen Company said it started last year only by sending cars to Iran. The US decision may mean stopping the export. Henkel Company, a leading detergent maker, also expressed concern about the impact of Trump’s decision on its future business plans with Iran, according to Focus magazine.
German Chancellor Angela Merkel has vowed that Berlin, Paris and London “will do everything necessary” to ensure that Iran remains in the nuclear agreement in 2015 after the withdrawal of the United States.
Merkel’s head of international policy, Norbert Roitgen, told German magazine Spiegel that it would be difficult to abide by the agreement without the United States, since European companies that continue to trade with the Iranian side could face harsh US sanctions.

Norbert added that anyone who “invests in Iran will face harsh sanctions by the United States, and the price can not be compensated.” He warned saying “Therefore, the affected companies will probably quickly stop their investments or withdraw from the country altogether.

Economic Studies Unit
Rawabet Center for Research and Strategic Studies