Sanctions depress oil sales, taking heavy toll on economy; unclear where strategy is headed
You think you have trouble at work? It could be worse. You could be the government official in charge of Iran’s budget.
It is becoming increasingly clear just how effectively the Trump administration’s campaign of economic sanctions is shredding the Iranian government’s balance sheet and damaging the underlying economy. You may agree or disagree with the strategy, and where it is taking things is unclear, but its impact is no longer in doubt.
While precise figures are elusive because some black-market trading persists, Iranian oil exports likely have been reduced to about 200,000 barrels a day, and actually were lower than that at some points this summer. That’s down from roughly 2.5 million barrels a day when President Trump announced in May 2018 that the U.S. was withdrawing from the nuclear deal President Barack Obama and other world leaders negotiated with Iran, and began imposing new sanctions to stop companies and countries from buying Iranian oil.
Worse yet for Iran, the price of the oil has dropped at the same time, to $56 a barrel now from $69 a year ago. So Iran is selling a lot less oil at a lower price.
Consider that the budget that Iranian President Hassan Rouhani unveiled last December envisioned selling 1 million to 1.5 million barrels of oil daily and you’ll get some sense of the squeeze Iran now is feeling.
The ripple effects are spreading out across the economy. The International Monetary Fund estimates the Iranian economy will shrink 6% this year. Meanwhile, a declining Iranian currency is driving up inflation; consumer prices will climb 37.2% this year, the IMF estimates.
The budget crunch raises new questions about how Iran’s government will continue paying for a broad range of subsidies designed to keep down the prices of everything from gasoline to food. Analysts estimate that 17 of 18 national retirement funds are in the red. Meanwhile, inflationary pressures are putting housing out of reach for many Iranians.
And there’s no sign the Trump administration is doing anything but escalating the pressure. This spring, it stopped providing waivers to nations such as China, India and Turkey that allowed them to keep buying Iranian oil temporarily in order to wind down purchases and find alternate sources.
Just last week, the U.S. blacklisted dozens of Iranian-owned oil takers, companies and insurance firms that the U.S. said are controlled by Tehran’s Quds Force, a military unit the U.S. has designated a terror group. In the last few days, Sigal Mandelker, the Treasury Department’s undersecretary for terrorism finance, has been visiting Persian Gulf nations to warn companies there against participating in black-market oil shipments from Iran.
U.S. and Iran Play a Calibrated, Yet Increasingly Dangerous Game
Moreover, the Trump administration has expanded its sanctions to penalize those who purchase Iranian petrochemicals, industrial metals and precious metals. The effect, U.S. officials say, is to crimp the top four Iranian sources of export revenue.
The one potential hole in this sanctions net is China, which, officials say, continues to buy some shipments of Iranian oil covertly. But one senior official says there could be more sanctions coming against Chinese firms in an effort to stop that activity.
So, while Iran is finding ways to sell other oil products even as crude sales decline, the overall impact of sanctions isn’t really in doubt. Less clear is the direction in which this pressure is driving Iran.
The Trump administration hopes, of course, Iran will buckle and agree to negotiations to redo the nuclear deal, adding new restrictions on its nuclear activity, ballistic-missile development and aid to regional allies Hamas, Hezbollah and the Houthis.
But Iran has declared that it won’t negotiate anything until it first gets relief from sanctions, a condition the Trump administration finds easy to decline. French President Emmanuel Macron is trying hard to bridge the gap, proposing an international line of credit to Iran in return for a resumption of diplomacy. But U.S. officials appear lukewarm, to say the least.
The other option for Iran is to respond not by caving in but by doing the opposite—hunkering down internally and growing more radical externally. Anyone who visited Iran during its brutal, eight-year-long war with Iraq saw the ability of Iranians, personally and as a nation, to endure prolonged pain.
Already Iran is busy throwing aside the restrictions on its nuclear activity under the international deal the U.S. has discarded; a bigger nuclear breakout is possible. Iran knows one of its most potent weapons for fighting back is to spread alarm among European leaders that the nuclear deal they still broadly support will go up in smoke.
Also possible: stepped-up covert Iranian attacks on American allies and international shipping in the region, to show that Tehran has the ability to spread around its pain.
In short, U.S. policy is succeeding in driving Iran to a fork in the road; which branch it takes is harder to predict.
Write to Gerald F. Seib at jerry.seib@wsj.com
@ Peter Dale:
Why agricultural land?
Meanwhile, Iranian generals, being the prudent chaps they are, continue to buy agricultural land in Ontario, Canada.