The United States has levied new sanctions on Iran. Thursday’s move now excludes eighteen Iranian banks from the international system.

These Iranian banks that had thus far evaded the majority of re-imposed US sanctions were the specific target of the new measures. Foreign, non-Iranian financial institutions now also face penalties for conducting business with Iranian institutions. Earlier sanctions banned most major commercial sales and limited Iran’s oil trade.

Iran is Now Mostly Cut off From the Entire International Financial System

The latest sanctions increase the pressure on Iran and prevent the Iranian government from “gaining unlawful access to US dollars,” said Treasury Secretary Steven Mnuchin. The measures virtually cut off Iran from the international financial system.

The sanctions target 16 Iranian banks for their role in the country’s financial sector, one bank for being owned or controlled by another sanctioned Iranian bank, and one military-affiliated bank, Mnuchin said in a statement. Foreign companies that execute business with those financial institutions have 45 days to cease relations or face “secondary sanctions.”

“Our sanctions programs will continue until Iran stops its support of terrorist activities and ends its nuclear programs,” Steven Mnuchin said in a statement, adding the administration seeks to cut off Iran’s “illicit access to US dollars.”

Europe Criticizes the Strict Sanctions

The extension of the punitive measures to foreign banks faces criticism from within Europe. European banks can now be subject to sanctions for conducting business with Iran that were previously permitted.

The sanctions are due to come into force in 45 days and thus after the election. Democratic presidential candidate Joe Biden announced during the election campaign that he aims to focus on renewed diplomacy in the conflict with Iran. The multitude of active sanctions makes resetting relations between Tehran and Washington difficult, even under a potential Biden Administration.

Iranian Foreign Minister Mohammed Jawad Zarif criticized the sanctions.

“Amid the COVID-19 pandemic, the US regime wants to blow up our remaining channels to pay for food and medicine,” Zarif wrote in a recent tweet. “Iranians will survive this latest of cruelties. But conspiring to starve a population is a crime against humanity. Culprits & enablers—who block our money—will face justice.”

What Economic Options Does Iran Have Left?

The White House conducts a “maximum pressure” strategy against Tehran. President Donald Trump unilaterally terminated the “The Joint Comprehensive Plan of Action,” known commonly as the Iran nuclear deal or Iran deal, in 2018, and reintroduced several sanctions against Iran while it coerced third countries away from Iranian oil under the threat of sanctions.

Iran’s business is thus almost exclusively limited to deals with China and the United Arab Emirates. The country’s overall foreign trade, barring oil, is estimated to have amounted to $24.6 billion between March to August of this year.

Secretary of State Mike Pompeo reaffirmed the White House’s commitment to the current approach on Thursday, stating that “our maximum economic pressure campaign will continue until Iran is willing to conclude a comprehensive negotiation that addresses the regime’s malign behavior.”

Implications of the Latest Sanctions

Critics of the maximum pressure approach point out the redundancy of sanctions. Iran is already so heavily sanctioned that another set of restrictions does not make a considerable difference to the government. Tehran’s resilience may instead make it turn even more firmly to China, undermining the West’s leverage even further.

However, the reality is that with companies from other countries now facing US sanctions for conducting business with Iranian banks, the latest sanctions are likely to isolate Iran further and to an unprecedented extent. The Iranian banks are now effectively excluded from the international financial system, depriving Iran of desperately needed financial oxygen.

With the country already scrambling for dollars to pay for its imports, the new sanctions create an urgent liquidity crisis for the regime by making foreign exchange challenging to access. The results will be accelerated inflation by a double-digit rate and more expensive imports, all while the Iranian rial has hit record lows in recent weeks and with an Iranian population that is no longer impervious to the consequences of the regime’s conduct.

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