Economy, Geopolitics

US Announces Plan to Stymy Iran’s Oil Export

President Donald Trump announced plans to end exemptions from sanctions for countries purchasing oil from Iran.  The sudden announcement will have broad impacts on the world economy and international relations, some more hidden than others.

 

The White House’s staunch opposition to Iran comes as no surprise considering Secretary of State Mike Pompeo and National Security Advisor John Bolton are both notoriously hawkish towards Iran.  This latest move shows that the White House is showing no sign of rapprochement with Iran and will continue their antagonistic stance which has further hardened recently.

 

Early in April, President Trump designated Iran’s Islamic Revolutionary Guard Corps as a foreign terrorist group.  Iran responded in turn by declaring the United States military is a terrorist organization.

 

The end to exemptions from sanctions is an attempt from the United States to drive Iranian oil exports to zero.  Iran is already feeling the pressure from previous sanctions and an end to its oil exports would be disastrous.  The IMF has reported that Iran is tumbling into an economic recession, and the most recent numbers show inflation at 40 percent and a forecasted 6 percent reduction in the Iranian economy in the upcoming year.

 

But more than just affecting America’s bilateral relations with Iran and Iran’s economy, the announcement threatens sanctions to valuable trade partners and economic powers such as India, China, South Korea, and Turkey.  It also has far-reaching implications on Middle Eastern politics.

 

Turkey

 

Turkey could be particularly hard hit by this decision as President Erdoğan has increasingly pivoted toward Iran as a trade partner as tensions have soured with Saudi Arabia and other regional partners.

 

An economic downturn now would come at a particularly inopportune time for Erdoğan considering his party AKP’s unexpected defeats during recent local elections.  Voters in Istanbul and Ankara both voted for opposition party CHP to take over the mayoral office in a stark rebuke to Erdogan, former mayor of Istanbul.  Turkish voters have been animated by economic disparity in the country, so the ruling political elites are vulnerable in the event of an oil crash.

 

Next to Iraq, Turkey is one of the countries with the greatest reliance on Iranian oil, despite ratcheting down oil imports from Turkey over the last two years in expectation of America’s hardened stance toward Iran.  However, Turkey’s foreign ministry announced that their trade ministry would be working with Iran to circumvent any new American sanctions to keep up oil trade between the two partners.

 

Simultaneously, the Turkish foreign ministry is working to convince the White House that the sanctions are bad for business.  But Turkey and the United States seem to be growing apart as Turkey continues to work with Iran and increases its ties to Russia.

 

Iraq

 

Iran is Iraq’s most important regional trade partner, and Iraq is heavily reliant on Iran for oil amongst other energy sources. 

 

Iraq’s Prime Minister Abdul Mehdi made a statement on the tensions between America and Iran and said, “we are going to deploy all our efforts to ease and calm down the situation.  It is not in the interest of any of the parties engaged.”

 

The United States still has around 5,000 active duty troops in Iraq despite factions within the Iraqi government asking for the American troops to leave.  President Trump has stated his policy on American troops is to keep them in Iraq to keep an eye on Iran.

 

But the Iraqi government may be pushed into a corner if America continues its hard line stance on one of its most valuable partners, Iran.  Harming Iran could cripple Iraq’s economy, and it has already begun to look for other great powers outside of the US.

 

Russia and Iraq held high-level bilateral meetings at a two-day conference and came to 16 agreements.  One of the highlights of the meeting was Russian-Iraqi trade in oil and gas.  Russian energy giant Lukoil is heavily investing in the Iraqi economy, and Lukoil’s president met with Prime Minister Abdul Mehdi in late March.

 

Both Iraq and Russia committed to deepening ties between the two states during the meetings, and developments in their relationship indicate that Iraq is turning away from America into the hands of Russia as a direct result of America’s anti-Iran stance.

 

Oil Prices

 

Outside of foreign relations, the latest anti-Iran move is expected to cost Americans at the gasoline pump.  If prices hike significantly during the summer months, the Trump administration may face the brunt of anti-motorist sentiment.

 

Americans are particularly sensitive about their gas prices, and President Trump often appears to be very sensitive to his supporter’s perception of him.  If his Fox News allies turn on him due to rising gas prices then he could decide to change course on a whim.

 

President Trump has indicated that Saudi Arabia and the UAE will pick up production to cover for the loss of Iranian oil to the global market.  However, neither state has committed to a plan to pick up their production.

 

Unfortunately, American foreign policy is quite unpredictable in the age of Trump, however, his foreign policy confidants have been steadfast in their opposition to Iran.  If one was taking bets, you would expect the Trump administration to remain firm in their position toward Iran despite potential backlash from the public.