Iran Remains Defiant as Sanctions Take Huge Toll on its Bottom Line

Iranian Finances are Unlikely to Withstand Further Tightening of Sanctions Promised by Snapback

The Trump administration’s bid to trigger snapback sanctions through the UN has thrown into sharp relief the already grim economic predicament gripping Tehran. Senior officials are publicly signaling that sanctions have crippled Tehran’s ability to obtain even basic necessities, while the best publicly available data on oil exports shows a cratering of Iranian revenue. While the regime’s spokespeople maintain a defiant posture, it seems unlikely that Iranian finances can withstand the further tightening of the sanctions regime promised by snapback.

‘NOT EVEN A DROP OF OIL’

Last week, Mohammad Baqer Nobakht, one of Iran’s twelve Vice Presidents and the Head of the Budget and Planning Organization, offered a highly unusual concession to the effectiveness of the American sanctions campaign, one rarely heard in the tightly scripted remarks of senior officials. While speaking at a public meeting in Hamedan province, Nobakht lamented that "Tehran cannot sell even a drop of oil," and "everyone, especially the Islamic Republic's Supreme Leader Ali Khamenei, knows that we have a tough year ahead."

If financial hardship correlates with rhetorical excess, Tehran is indeed in dire straits. Describing Americans as "executioners devoid of justice," Nobakht said, "The most severe stage of the sanctions was [the 1995-2003] oil-for-food [program], but now we are in a situation where these 'unjust hangmen' do not even allow us to sell a drop of oil to buy food and medicine."

As if to underscore this lament, while Nobakht was speaking in Hamedan, Reuters reported that an Iranian oil bound for Venezuela and seized by American naval forces was being taken to Texas, scheduled to arrive imminently. According to the U.S. Department of Justice, the August seizure of 1.12 million barrels “represent the government’s largest-ever seizure of fuel shipments from Iran.” The Department declined further comment on the case, except to note that it intends to auction the oil, and the proceeds “may in whole or in part be directed to the United States Victims of State Sponsored Terrorism Fund.”

IRAN’S DEEPENING AUSTERITY

According to data from the Statistics Center of Iran (SCI), Iran’s GDP suffered a severe contraction in the second quarter of 2020, as compared year-over-year, shrinking by some 3.5 per cent. Oil and gas production is among the leading factors in that contraction, having declined steadily since the reimposition of American sanctions in 2018. According to Kepler, a private intelligence firm, Iranian oil production has dropped to roughly 100,000 barrels per day (bpd), down from 2.5 million prior to the U.S.’s withdrawal from the JCPOA.

Yet even this relative austerity represents an achievement of sorts for Iranian oil exporters. At present, only China and Syria are willing to purchase Iranian oil openly, forcing Iran to sell petroleum clandestinely and under the flag of other nations such as Malaysia and Indonesia. Despite considerable scrutiny, the processes by which Iranian oil producers are compensated remains opaque, given that most international banks block any payments to Iran, for fear of running afoul of American sanctions. 

Despite the obvious toll such sanctions enforcement is taking on Tehran’s bottom line, their spokespeople remain defiant. When reports emerged that Swiss diplomats had visited Tehran in an attempt to mediate between Iran and the U.S. ties, Ali Raba’eiissued a statement aimed at quashing such speculation. Insisting that American sanctions must end before meaningful negotiation could begin, Raba’ei said “Our answer is clear, not only in this case, but also to any other country (with such intentions of mediation): Americans must first stop putting pressure on Iran, and then make the claim of negotiating.”