New sanctions appear to be taking its toll on the Iranian economy and businesses. The US and European countries are making all out efforts to make the sanctions work so as to pressure Iran to pull back its controversial nuclear enrichment programme and negotiate transparent and verifiable terms of engagement.  As Iranian President Mahmud Ahmadinijad remains defiant, the US has been sending representatives to various countries to enforce the sanction regime in its letter and spirit.

The UN Security Council passed resolution 1929 on June 9 this year imposing additional sanctions on Iranian military purchases, trade and financial transactions.  This was the fourth trench of sanctions imposed by the Security Council since 2006.  The US and the EU further added their own sanctions to make them more biting and hit at Iran’s energy sector, which is its life-line.

Restrictions on banking and insurance have particularly impacted the Iranian business with the member –nations of European Union, which is their single largest trade and finance partner.  All major western oil and gas companies have already withdrawn completely from the Islamic Republic and trading in other products has also come down drastically as the bankers refuse to entertain any huge financial transaction. As per the EU-US sanctions, any transaction above Euros 40,000/- needs prior authorisation of concerned country and this is not likely to be forthcoming. The Iranian businessmen are also no longer able to open new lines of credit with EU members.

The International Energy Agency has reported that the US sanctions will not only have a “material impact” by curtailing fuel imports, but also hamper progress in oil and gas fields in the long term.  Iran is a net importer of refined petroleum products and these are also likely to take a hit.  Iranian efforts to skirt the sanctions regime by offering payments in cash or opening front (shell) companies are also not leading anywhere as European companies are demanding complete transparency of transactions.

The financial dimension of the sanctions started hitting Iran since early 2007 but it is only now after the additional sanctions came into effect that the Iranian businesses and even officials posted abroad have begin to feel the pinch.

Many Gulf States have also been acting tough, under pressure from the US, to prevent any illegal trade with Iran.  The UAE authorities have ordered unprecedented checks to prevent use of intermediaries by Tehran to divert trade in goods through Dubai to Iran.  All export consignments are being examined to re-conform that their final destination is not Iran.  Similar restrictions are also being imposed by Saudi Arabia, Kuwait, Qatar and Oman. 

“Friends” of Iran, however, have vowed that they will not abide by the unilateral US sanctions and would continue to help Islamic Republic.   They argue that negotiations are the only way to convince Iran to conform to the international safeguards of its nuclear programme and unilateral sanctions would only complicate the situation making Teheran more stubborn. 

Turkey reportedly conveyed to Iran of its continued support. Ankara also increased in June gasoline supplies from the existing 1.2 million barrel mark. It has since been forced to cut down the supplies substantially after the US sanctions became effective in July. The Iranian TV said the Turkish Energy and Natural Resource Minister reiterated (August 12, 2010) his country’s commitment on setting up of a joint Iran-Turkey Gas Power Plant of 600 MW.  He said that a pipeline for export of Iranian gas to Turkey and Europe with the cooperation of Sam patrol private company of Turkey is under construction.  He ruled out any impact of US sanctions on energy trade between the two countries as Turkey does not intend to stop oil sale to Iran. 

Russian and Chinese companies also have resumed supply of oil to Iran.  China’s State run company, Zhuhai Zhenrong, reportedly enhanced its supplies of gasoline.  It is said to be supplying additional quantities of gasoline in conjunction with the Russian oil company, Lukoil. The Chinese companies have also reassured of their continued investments in Iran’s oil projects.  Venezuela is another friend that has rallied in support of Iran and assured its continued cooperation in the energy sector.

These friendly gestures notwithstanding, Iran is likely to face crippling effect of N- sanctions.  There are already several tell-tale marks of impact from sanctions that came in to force four years ago. The US and Europe are divided on a military solution to force Iran to abandon its nuclear ambitions particularly after the tryst with Saddam Hussein in Iraq. Regime change through military intervention came after crippling Iraq under san
ctions.  There is general consensus between the US and EU that sanctions regime should be continued to bring Tehran on its knees.  This is bad news for Iran. A long haul of sanctions regime might bring further instability to the already volatile region.