Why Trump's Sanctions on Iran Carry So Much Force

(Bloomberg) -- Few things in Donald Trump’s foreign policy have been more consistent than his opposition to the Iran nuclear deal the U.S. reached with that country and five other nations in 2015. He campaigned against it while running for president, complained about it regularly during his first year in office and finally pulled the U.S. out of it in May 2018. Now, Trump is gradually reimposing sanctions that were frozen by the agreement, threatening to penalize even close allies if they keep doing business with Iran. That’s undermining Iran’s economy and raising the pressure on President Hassan Rouhani, who pushed hard for the nuclear accord.

1. Why did Trump abandon the nuclear deal with Iran?

Despite broad international support for the accord, Trump and his allies said the agreement -- which eased economic sanctions on the Islamic Republic in exchange for restrictions on its nuclear program -- never addressed what they see as Iran’s malign behavior in the Middle East, its support for terrorism or its ballistic missile program. Trump wants a new, tougher deal.

2. How do sanctions factor in?

Sanctions that banned most trade and investing with Iran were credited with forcing Iran to the negotiating table, then were relaxed when the nuclear deal was signed. So far, Trump has reinstated sanctions that include prohibitions on purchasing Iranian debt and pistachios, and a bar on the planned sale of commercial aircraft by Boeing Co. and Airbus SE. Sanctions returning on Nov. 5 are aimed at Iran’s port operators, insurance and reinsurance businesses and -- most importantly -- foreign purchases of Iranian oil. Iran currently exports hydrocarbons to countries around the world, including China and India, as well as U.S. allies Japan, South Korea and Iraq. U.S. officials have sent out teams of diplomats in an effort to persuade nations to cut Iranian oil purchases to as close to zero as possible. Countries that don’t do so will find their companies under sanctions.

3. What effect will sanctions have on Iran?

Even without U.S. sanctions, Iran’s economy had been struggling with slow growth and inflation, with allegations of corruption spawning public protests. The rial weakened further as the August sanctions neared. But Iran’s dependence on oil exports means the planned U.S. sanctions in November will strike a serious blow against the economy.

4. What are the possible consequences?

The economic consequences are already playing out. While a range of companies have had an interest in doing business in Iran, the reimposition of U.S. sanctions has increased the risks of doing so. Within hours of Washington unveiling its first round of sanctions, German carmaker Daimler AG froze a plan to make Mercedes-Benz trucks in Iran. Companies from Total SA to Renault SA and PSA Group have said they’ll backtrack on Iran plans. Politically, tougher U.S. sanctions put a harsh spotlight on Rouhani, who staked his credibility on securing the 2015 nuclear deal. He’s been imploring other partners in the agreement to ensure Iran keeps reaping the benefits of the deal, though the reaction from companies is making that job harder. The U.S. says it isn’t seeking regime change. Should Rouhani’s government fall, it’s unlikely to be replaced by leaders more accommodating toward the U.S. and its allies.

5. Would a Trump-Rouhani summit help?

Supreme Leader Ayatollah Ali Khamenei, who has the final say on state affairs, has rejected talks “at any level” with the U.S., saying the Trump administration has proved that it cannot be trusted. The U.S. president has said he’d meet Rouhani “without preconditions,” citing his summit with North Korean leader Kim Jong Un in June 2018 as a precedent. That kind of get-together would be tough for Iran’s current leadership to stomach. Rouhani said he’d be open to negotiations if the U.S. is “sincere,” but he added that such talks would be meaningless while his nation is being hit with sanctions.