Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
The United States on 7 August reintroduced sanctions on Iran
that had been suspended as part of the Joint Comprehensive Plan of
Action (JCPOA), affecting Iran's ability to sell foreign debt,
acquire gold and base metals, trade its currency for the US dollar,
and trade in the automotive sector.
Iran is trying to consolidate politically and appease
protesters to prevent sanctions from destabilising the country;
this risks backfiring and reducing leadership cohesion.
Iran will turn to China, Russia, and Turkey to reduce the
impact of sanctions, but all three countries are embroiled in
complex negotiations with the US in which Iran is one bargaining
chip.
Iran is extremely unlikely to take military action, while the
US believes time is in its favour as it increases pressure on Iran
to see what concessions it can extract and how hard to push.
Our assessment is that the United States is not pursuing
objectives identified in advance. Rather, the US is escalating on
an opportunistic basis to see what it can get Iran to concede, and
will reassess its position along the way, deciding whether to
pursue sanctions and/or internal destabilisation efforts until it
gains enough concessions from Iran, or even the creating an
environment where regime change would be more likely. IHS Markit
assesses that the minimum requirement for the US is for Iran to
reduce the threat it poses to Israel and Saudi Arabia, through
negotiating a new agreement on the nuclear issue that includes
reductions to Iran's ballistic missile programme, the reduction of
support for the Houthi Movement in Yemen, and no further expansion
of Hizbullah or similar organisations in Syria.
From the US perspective, the longer sanctions are applied, the
greater the damage to Iran's economy and, therefore, the less
ability Iran has to pursue activities the US considers threatening,
and the greater the perceived likelihood of government
destabilisation. As such, leaving the JCPOA and evidence that Iran
was heading for nuclear 'break-out', or the closure of the Strait
of Hormuz are among the main triggers that would bring about
US-Iran war. The US has repeatedly warned that Iranian closure of
the Strait of Hormuz would be considered an act of war. Despite its
rhetoric, we assess that the Iranian government realises that a
military confrontation with the US would end in defeat, putting the
survival of the Islamic Republic at risk, while the US has no
interest in launching a war because it wants to give time for
sanctions to force Iran to negotiate. As a consequence, Iran is
unlikely to close the Strait of Hormuz in the coming months, even
after US sanctions on the sale of oil are introduced in November.
Localised Iranian attacks on US assets in Iraq, Syria, or elsewhere
would likely bring an overwhelming but localised US response.
Iran's foreign relations
Despite European governments' protestations and attempts at
maintaining the JCPOA through measures intended to block sanctions,
most major European multinationals are likely to adhere to US
sanctions, given their extensive interests in the US. The banking
and insurance sectors are particularly dependent on the US market,
and will remain the main bottlenecks for any investments in Iran.
China, Russia, and Turkey have also objected to the reintroduction
of sanctions. All three countries are engaged in complex
negotiations with the US over issues that are more critical to
their national security and economies than Iran. For Turkey, this
relates to Syria and the bilateral defence relationship with the US
and NATO membership, including US sanctions on Turkey and the
holding of US pastor Andrew Brunson. For Russia, this relates to
Syria, Ukraine, and sanctions. For China, this relates to trade,
North Korea, and Taiwan. For all three countries, Iran is a
bargaining chip - all three countries will likely offer to help the
US enforce its sanctions on Iran if they can secure US concessions
in higher-priority areas. However, each of these negotiations is
time-consuming and, while they are under way, all three countries
are likely to assist Iran in reducing the impact of sanctions.
China, which buys around a third of Iranian crude, has reportedly
agreed to not increase its imports from Iran, according to unnamed
US officials speaking to media outlets, therefore refraining from
challenging the US directly and allowing the US to pressure Iran
more effectively.
Iran's position
Iran has rejected US President Donald Trump's invitation to
bilateral talks without preconditions. It has conducted a naval
exercise which US and Israeli intelligence services claim simulated
closure of the Strait of Hormuz, reflecting Iranian President
Hassan Rouhani's threat to close the strait in response to
sanctions affecting its ability to sell oil, which will come into
effect in November. In contrast, Iranian Supreme Leader Ali
Khamenei had said that there would be no war with the US, because
Iran would not start one.
In an effort to placate popular dissent over endemic corruption,
Iran has also launched a campaign against corruption on 12 August,
arresting 67 officials and barring another 100 from travelling.
This was initiated by the head of the judiciary, Sadeq Larijani,
whose brother is the speaker of the Majles (parliament) and who is
a hardline conservative. Iran had dismissed the head of the central
bank, an ally of Rouhani, on 25 July, in line with demands from
half of the members of the Majles. The head of the central bank's
foreign-exchange operations was also arrested.
Outlook and implications
IHS Markit assesses that Iran will likely turn to China, Russia,
and Turkey to mitigate the impact of sanctions. However, all three
view Iran as a bargaining chip in higher-priority bilateral
negotiations with the US, indicating that, while they will not
fully enforce sanctions, they will also refrain from provoking the
US over this issue. This reduces Iran's ability to manage its
economy in the face of sanctions, especially the depreciation of
its currency, further raising unrest risks at a time when the
leadership is increasingly divided. Iran's measures against
corruption will deepen those divisions, as the country is unable to
reduce the role of the Islamic Revolution Guards Corps (IRGC) or of
the hardline clerical establishment in the economy, which is the
source of much of the corruption.
Key indicators of rising war risk would be Iran's resumption of
nuclear activities banned under the JCPOA, especially stockpiling
uranium enriched to 3.5% or enriching uranium beyond that level;
Iran ending its participation in the JCPOA and expelling
international inspectors; and Iranian-backed Houthi insurgents'
attacks on US shipping in the Bab al-Mandab Strait, or extensive
disruption to the United Arab Emirates' and Saudi Arabia's oil
shipping through the strait.
Posted 22 August 2018 by Firas Modad, Research and Analysis Director Country Risk – Middle East and North Africa, IHS Markit