President Trump’s “maximum pressure” strategy against Iran is working, despite warnings of a backlash against the U.S. for the economic sanctions he has imposed on the Islamic Republic.
As protests continue in Iran, security forces may have killed over 1,000 people who are calling for an end to the country’s dictatorship, U.S. Special Envoy for Iran Brian Hook told reporters recently.
The continuing protests show that the Iranian people are directing their anger at Tehran’s corrupt and oppressive regime, even though American sanctions helped push Iran into a deep recession.
The Trump administration’s withdrawal in May 2018 from President Barack Obama’s nuclear deal with Iran marked the beginning of the U.S. turn to maximum pressure.
Within days, a pair of Stanford University political scientists were saying the Trump strategy was destined to fail. Abbas Milani and Michael McFaul (who was Obama’s ambassador to Russia) said: “Patriotic Iranians, including those opposed to the autocratic regime, are now likely to rally around the flag.”
At first, the pressure on Iran increased gradually. Most sanctions did not return until November 2018, six months after President Trump’s withdrawal from the nuclear deal.
Another six months passed before the Trump administration got serious about cutting off Iran’s oil exports – the key to its economy. But now it’s clear that the Iranian economy is in dire straits.
Last month, Iranian President Hassan Rouhani said: “Iran is experiencing one of its hardest years since the 1979 Islamic revolution. We have never had so many problems in selling oil. We never had so many problems in keeping our oil tanker fleet sailing. Without money, we cannot run the affairs of the state.”
A few days later, in search of revenue, Rouhani made the mistake that ignited the current protests – he decided to ration gasoline and increase prices by as much as 200 percent.
An unprecedented wave of protests swept across 719 locations across the country. Not only did the regime murder protesters – it sought to cover up its violence by stealing corpses from the morgue and abducting injured demonstrators from hospitals. Thousands of others wound up in prison.
Predictions aside, maximum pressure is doing fine; the Iranian regime is not.
One important cause of poverty for Iran’s 80 million people is the corruption and incompetence of their rulers. Yet thanks to Obama’s nuclear deal and the relief it provided, the regime was able to get by.
Obama and his top advisers even predicted that new sanctions would not have much effect on Iran. That turned out to be wrong as well.
Iranian oil exports have dropped from 2.8 million barrels per day before the U.S. withdrawal from the nuclear deal to somewhere between 250,000 and 600,000 barrels per day over the past few months. China and Syria, the main importers of Iranian oil, may not even be paying in hard currency.
Unable to sell oil for dollars or euros, Iran’s currency reserves are diminishing fast. The International Monetary Fund (IMF) estimates Iran’s reserves will drop from $101.1 billion last year to $85.5 billion at the end of this year and $68.8 billion next year.
To make things worse, Tehran does not have full access to all its reserves, which may be in escrow accounts held by China and others. The U.S. government estimates that only 10 percent of Iran’s reserves are fully accessible.
What all this adds up to is an awful combination of deep recession and high inflation, or stagflation. In October, the IMF said Iran’s gross domestic product will shrink by 9.5 percent this year, a number on par with failed states like Libya and Venezuela.
The World Bank estimate was just slightly better: a drop of 8.7 percent.
Both the IMF and the World Bank put the inflation rate in Iran in the upper 30 percent range – the fifth-highest in the world this year. They predict inflation will stabilize at a lower level in coming years and the Iranian economy will gradually recover – but don’t bet on it.
While the short-term effect of raising gasoline prices has been mass protests, the long-term effect may be even higher inflation.
The IMF and the World Bank also have a track record of underestimating the impact of sanctions. So unless the U.S. lifts sanctions on Iran, economic growth is highly unlikely.
Without hard currency, Iran won’t be able to import intermediate and capital goods, nor will be it be able to invest infrastructure. Plus, American pressure is still far from its potential maximum, despite the name of Trump’s strategy.
For now, Iran’s non-oil exports remain relatively healthy – official statistics (which may be unreliable) say they have only fallen about 11 percent in value.
The U.S. has sanctions in place on key exports like metals and petrochemicals, which make up half of this sector, but Washington is not enforcing them aggressively. The U.S. could also sanction intermediate and capital goods, so that Iran can’t buy them even if it comes up with the money.
Since Trump's inauguration, Iran has seen the two most widespread waves of protest since the birth of the Islamic Republic.
Despite the consensus among Beltway insiders that maximum pressure would fail or even make things worse, the Trump administration’s unilateral sanctions have been immensely successful and have put the Iranian regime on edge. Now it needs a final push back into the abyss of hatred, bigotry and evil that it rose from.