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US reimposes sanctions on Iran: What does that mean?

Chase Winter
August 7, 2018

The Trump administration has reimposed the first tranche of sanctions on Iran, isolating Washington as much as Tehran. A second round of US sanctions in November will target Iran's energy sector.

President Donald J. Trump signs an EO on Iran Sanctions
Image: Shealah Craighead

The first round of renewed US sanctions on Iran entered into effect on Tuesday as part of Washington's strategy to apply "maximum pressure" on Tehran over its alleged malign activity.

US President Donald Trump took to Twitter to warn that "anyone doing business with Iran will not be doing business with the United States."

The unilateral US sanctions reimposed on August 7 prohibit Iran's purchase of US dollars and precious metals, part of a larger move that attempts to cut the country off from the international financial system. Broad sanctions on Iranian industry, ranging from carpets and health care to the automotive sector are also being reimposed.

Read more: Can Europe rescue Iran as Trump's sanctions loom?

In addition to prohibiting US persons and entities from doing business with Iran, the sanctions are also extraterritorial. This means that non-US firms and financial entities that do not comply with the sanctions could face fines and be cut off from the American-dominated global financial system. 

The Trump administration pulled out of the 2015 nuclear deal signed between Iran and world powers in May, despite the UN repeatedly confirming that Tehran is living up to the accord.

Under the terms of the deal known as the Joint Comprehensive Plan of Action (JCPOA), punishing international sanctions on Iran were lifted in exchange for Iran dismantling its nuclear program and subjecting it to international inspections.

Read more: What is the Iran nuclear deal?

The Trump administration's decision to pull out of the nuclear deal despite European entreaties has added strain to trans-Atlantic ties. In July, the US rejected a request from European allies for waivers and exemptions for companies doing business with Iran in sectors including health care, finance, automotive and energy.

Read more: US rejects EU request for Iran sanctions relief

The EU has sought to shield its companies from extraterritorial sanctions, but so far its actions have failed to stem a steady withdrawal of major companies from the Iranian market.

A second tranche of US sanctions on Iran's oil and gas sector are set to go into effect on November 4. This second round is likely to have a bigger impact on Iran's coffers, with insurers reportedly already halting cover for shipments.

Among others, Turkey, India, China and EU states are seeking waivers or ways around the energy-related sanctions — including alternative payment mechanisms. China and Turkey have flat out said they will not comply with US energy sanctions.

Read more: Could Iran really close the Strait of Hormuz?

US Secretary of State Mike Pompeo has vowed to "enforce the sanctions," putting Washington on a collision course with Europe and other countries with close economic ties with Iran.

Even before the US announcement to leave the JCPOA in May, the threat had started to be felt in the Iranian economy. That process has since sped up since May, with the rial, the Iranian currency, plummeting, inflation rising, and average Iranians feeling the pinch. The situation has sparked protests and complaints over the government's economic mismanagement and corruption. Some Iran analysts point out protests in Iran are nothing new. 

The Trump administration strategy appears intent on forcing Iran to capitulate to its long list of demands, or foment instability with a goal towards regime change. 

"It was never just the nuclear question alone that was important to the Americans," Henning Riecke from the German Council on Foreign Relations told DW. "The Trump administration is hoping the regime in Tehran will collapse under the economic pressure ... it is a very risky and naive policy."

Read more: Pompeo unveils US Iran plan: Economic strife, break with EU

However, unilateral US sanctions are unlikely to be as punishing as the international sanctions imposed on Iran before the 2015 nuclear deal.

Even if the EU is unable to fully protect its businesses, countries like China, India, Turkey and Russia are likely to be able to provide Iran with enough breathing space.

Indeed, with a trade conflict between Washington and Beijing in full swing, China appears to be looking to extend cooperation with Iran.