(Illustrative photo: Reuters)

The US announced new sanctions on Iran following its withdrawal from the Iran nuclear deal signed in 2015. The first sanctions, which will take effect on August 7, prohibit Iran from buying US dollars or trading coal, gold, other kinds of metals, and industrial software. The US will stop importing carpets and food from Iran and will bar other financial transactions.  

The US is scheduled to impose a second round of sanctions later on Iran’s petroleum sector and central bank.  

The US’s tough stance

The US sanctions on Iran come as Iran’s economy struggles with rising inflation and currency devaluation. The economic difficulties have worsened social problems such as the gap between the rich and the poor and sparked demonstrations. The IMF has forecast 4% growth for Iran’s economy this year, but the US sanctions may drag it down to 2%.   

On Tuesday, Secretary of State Mike Pompeo said the US will implement full sanctions on Iran. The White House’s decision to reimpose sanctions has the intention of putting heavy economic pressure on Iran.

But sanctions are unlikely to force Iran to change its policy in the Middle East, and will likely harden Iran’s opposition to making any concession. Sanctions are only effective if they are widely agreed to internationally.

Iran’s response

Iran says it will not give in. Iran has eased its policy on foreign currency. Foreign exchange offices are allowed to buy and sell strong currencies. Importers of unessential goods are allowed to use strong currencies and currency exchange rates are set by the open market. Foreign currency flow is unlimited and untaxed. Banks accept savings in USD to encourage saving by the public.

EU countries are also in the fight against the US sanctions. The European Union has said it will introduce new measures to protect its businesses from the effects of US sanctions on Iran. A curfew mechanism will take effect on August 7 to keep EU businesses from honoring US sanctions, unless they have the EC’s permission. Germany’s Federal Ministry for Economic Affairs has pledged to support export and investment activities with Iran.

The US cannot enlist the EU countries in an economic war against Iran because they are still honoring the nuclear deal signed in 2015. The US’s condition for resuming normal trade with Iran is that Iran responds to US concerns about its ballistic missile tests and support for rebel groups.

Iran says the US has no credibility after withdrawing from the previous nuclear deal, imposing new sanctions, and proposing re-negotiate the deal.