‘Firms That Agreed to Engage in Iran are Now Worried About US Punishment' - Prof

© AP Photo / Vahid Salemi, FileThis Nov. 17, 2007, file photo, shows a portion of the Tehran oil refinery, in Tehran, Iran
This Nov. 17, 2007, file photo, shows a portion of the Tehran oil refinery, in Tehran, Iran - Sputnik International
US Secretary of State Mike Pompeo has warned that Washington will enforce the sanctions on Iran, the AFP reported. According to the news agency, he added that the restrictions on Tehran aim to combat Iran's malign activity. The sanctions, banning Iranian authorities from buying US banknotes, enter into force on Tuesday.

Sputnik discussed this with Nader Habibi, a Henry J. Leir professor of practice in the economics of the Middle East at Brandeis University.

Sputnik: In your view, who will benefit the most from the newly re-imposed US sanctions on Iran's economy? Is it really twisting the knife?

Nader Habibi: Obviously Iran would be the major loser and I think it would be a setback for the countries that have initiated trade and investment with Iran including, a few United States companies, such as Boeing. As to who would benefit, I don't think there's any economic gain from this initiative, but, of course, the United States had geopolitical objectives in the region which they used to justify their unilateral withdrawal and introduction the of sanctions.

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Sputnik: How would these sanctions, as well as the restrictions that come into force in November, affect Iran's partners and customers?

Nader Habibi: After the JCPOA nuclear agreement was signed and many European countries, Russia and China started engaging with Iran in areas that were prevented from attracting foreign investment before, we saw, for example, many European firms going into Iran, in Iran's oil industry, the company Total and several Russian investment firms and several European firms, [as well as] Chinese and Korean.

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All these companies and firms that agreed to engage with Iran are now worried about US punishment if they continue. They are the ones whose investments in Iran have been turned into unprofitable investments and they will have to suffer losses as a result of this. Other partners include gold customers that have to cut back because of US pressure; Iran purchases significant amounts of nickel and if financial sanctions are reintroduced as part of US measures, then those customers, those potential exporters to Iran, will suffer.

Sputnik: Iran had announced a relaxation of foreign exchange rules allowing exchange offices to buy and sell hard currencies for purposes such as foreign trade, how much of a game changer is this move? Will it be able to abate the consequences from the USA sanctions and why?

Nader Habibi: As you know the Iranian exchange market was interrupted as soon as the United States withdrew and Iran's national currency has suffered a significant amount of depreciation. The government took a number restrictive measures, including punishing people for purchasing hard currency in May, June, and July, which did not help; the Iranian currency continued to lose value against the dollar, so finally, they decided that they would create the secondary market.

As long as the risk of significant decline in Iran's oil revenues continues, people would remain concerned about holding any assets in rial and they would continue to convert their property into either precious metal or investing in hard currency.

Obviously, the creation of this secondary market would create transparency, but that by itself does not address the question of the fear of inflation. For example, Turkey has an efficient exchange market, yet we see that when there are concerns by investors, their currency also depreciates. So this helps a little bit but does not address the underlying risks that Iran faces moving forward.

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Sputnik: What effect could this have on the Iranian domestic level? Can it drive more support for the Iranian authorities do you think? What's the general reaction in the markets been with the increased tempo from the USA?

Nader Habibi: The economy has suffered significantly, primarily because of the financial tariffs and the collapse of the exchange rate, because the domestic prices are very much influenced by the exchange rate value and the fact that the exchange rate has depreciated by more than 50% and even more, this has caused significant disruption. There's fear that now that, on the one hand, all of these foreign investments are frozen; come November Iran's oil revenues will be in jeopardy because of the US sanctions.

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All of these factors together are going to put additional pressure on the Iranian economy. The government is trying to shield the economy as much as it can, even the European countries are trying to encourage investment in Iran; but, overall, so far the impact domestically has been negative, and the people partly blame mismanagement for it.

To a large extent, they blame economic mismanagement more than they blame the reintroduction of sanctions because the media has revealed a number of very serious [cases of] corruption and abuse of government financial resources and that has affected people's perceptions about who's responsible for the current economic plight.

Sputnik: Mike Pompeo said that in order for Washington to reverse its decision on the sanctions, Tehran must first have to drastically reconsider its political course. Is it achievable and realistic, in your opinion? That's basically what the USA wants, are they able to impose that desire?

Nader Habibi: Yes, it is difficult for the United States, because many countries are resisting. For example, they negotiated very seriously with China, demanding that China reduce its oil exports, but just recently China said it won't do so; [the US] similarly reached out to Turkey, asking Turkey to join sanctions, but the Turkish government refused.

The views and opinions expressed in this article are those of professor Nader Habibi and do not necessarily reflect those of Sputnik.

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