A Year of Maximum US Pressure on Iran

What Happened Since Trump's Iran Deal Exit

The Iran deal was reached between Iran and the United States, the UK, Russia, France, China, Germany and the EU in July 2015 to ensure Iran's nuclear program will be "exclusively peaceful” by limiting its uranium enrichment program until 2030.  US President fulfilled his campaign promise and withdrew the US from the agreement May 8, 2018, a move that irritated European allies. He called the agreement “disastrous” and “one sided”, claiming it did not address Iran’s ballistic missile program or its roles in Middle Eastern conflicts. When he set out his policy, he pointed to Iran’s support for groups around the region such as Hezbollah, Hamas, the Taliban, and Al-Qaeda. He also claimed that the nuclear deal – formally known as the Joint Comprehensive Plan of Action (JCPOA) – did little or nothing to forestall Iran’s alleged nuclear ambitions and claimed the deal had allowed Iran to enrich uranium and “cause havoc within the Middle East and beyond.” He said that if the deal was to stand, there would soon be a “nuclear arms race in the Middle East.”

After pulling out of the deal, there has been a steady stream of measures designed to put “maximum pressure” on the Tehran regime. In August 2018, Trump re-imposed economic sanctions against Iran. The first set of sanctions targeted financial transactions that involve US dollars, Iran’s automotive sector, the purchase of commercial planes and metals including gold. Immediately after issuing the order, Trump tweeted that these were "the most biting sanctions ever imposed" and would "ratchet up to yet another level" in November when Iran's oil sector and central bank would be targeted. On 5 November, the US completed its full snapback oil and financial sanctions on Iran, but initially allowed its eight biggest buyers limited imports for another half-year. This marked the heaviest economic pressure ever applied by Washington on the Islamic Republic.

Despite the US withdrawal, the multilateral agreement remains in force as the Europeans, along with China and Russia, have remained committed to the deal. The Trump administration has demanded repeatedly that the Europeans abandon the JCPOA but despite the difficulties facing the deal, mounting US pressure, and recent strains on relations with Iran, European governments and the EU have continued to engage with Tehran. Last summer the European Union passed a revisited blocking regulation promising to prevent European companies from suffering from U.S. extraterritorial sanctions. They approved modest funds to support investment in Iran's ailing economy. In January, the E3 — France, Germany and the U.K. —established a "special purpose vehicle" to facilitate transactions for non-sanctioned trade with Iran, called the "Instrument in Support of Trade Exchanges" but it has yet to become operational. Despite these measures Europeans have been unable to safeguard their oil imports from Iran and prevent it from being disconnected from international financial markets.

On April 22, the Trump administration announced the surprise news that buyers of Iranian oil must stop purchases by May 1 or face sanctions, ending the six months of waivers which had allowed Iran’s eight biggest buyers of crude to continue to import limited volumes oil. The move sent prices up to nearly six-month highs and Iran responded by revisiting its familiar threat to close the Strait of Hormuz, prompting fears about the potential ramifications for oil prices and broader financial markets.

Despite the exemptions, sanctions are having a dramatic effect on Tehran. Iran's GDP contracted by 3.9% in 2018, according to estimates from the International Monetary Fund (IMF).  The IMF said in late April that it expected the Iranian economy to shrink by 6% in 2019. However, that projection preceded the expiration of the sanctions waivers. The Rial has lost almost 60% of its value against the US dollar on the unofficial market according to foreign exchange websites.  The IMF estimates that inflation has soared to 31% in 2018 and predicts that it could reach 37% or more this year if oil exports continue to fall. The drop in Iran’s oil exports, its main foreign revenue source, has cost Tehran an estimated $10 billion, according to US officials.  As a result, the regime is under intense pressure from the Iranian people for reforms that answer their unmet economic and social needs.

The US added another layer to its “maximum pressure” campaign against Iran on April 8 when it designated Iran’s elite Islamic Revolutionary Guard Corps a terrorist organization, marking the first time the US has formally labeled another nation’s military a terrorist group. The step drew Iranian condemnation and raised concerns about retaliatory attacks on U.S. forces. Critics of Trump’s decision said it was largely symbolic because U.S. law already carried penalties of up to 20years in prison for U.S. persons who deal with the IRGC, the country’s most powerful security services, because of its designation under another U.S. sanctions program, the U.S. Specially Designated Global Terrorist list. The IRGC, however, is the body driving many destabilizing regional activities that the Trump administration has declared must cease, through its support for regional proxies such as Hezbollah. Tehran took retaliatory action by naming the US Central Command (CENTCOM) as a "terrorist organisation" and the US government as a "state sponsor of terrorism".