The effects of US sanctions on Iran's economy are coming into greater focus after Tehran's crackdown on mass demonstrations.
US Treasury Secretary Scott Bessent has acknowledged the Trump administration engineered Iran's recent financial crisis, which led to mass protests across the country.
“What we have done is created a dollar shortage in the country,” Mr Bessent told senators last week. “It came to a swift and, I would say, grand culmination in December when one of the largest banks in Iran went under.
“There was a run on the bank. The central bank had to print money, the Iranian currency went into free fall, inflation exploded, and hence we have seen the Iranian people out on the street.”
US President Donald Trump has renewed a so-called maximum pressure sanctions campaign on Iran since returning to office, continuing a policy he pursued after withdrawing from the 2015 Joint Comprehensive Plan of Action – a deal between Iran and world powers, in which Tehran limited its nuclear activities and subjected them to increased monitoring – in 2018.
Iran's economy, already faced with a weakening currency and high inflation, was dealt another blow last year after the UK, France and Germany imposed a snapback mechanism that reinstated all pre-2015 UN sanctions against Tehran.
Stephen Fallon, founder of DBM Consulting, said the US sanctions imposed on Iran were an “overwhelmingly strong driver” in the widespread protests that swept the country in last month. Pressure from sanctions, he said, manifests in different forms.
“In the case of Iran, it's manifested sanctions pressure causing street protests. But for them to say that this is some fiendishly clever plot and they knew exactly what would go here, they didn't know that. That said, they knew something like this would happen,” Mr Fallon said.
The US has most recently placed a round of secondary sanctions on Iran, against any country that does business with it. It also recently placed more sanctions on Iran's so-called shadow fleet, accusing the vessels and their respective owners of carrying hundreds of millions of dollars' worth of forbidden Iranian oil to foreign markets.
Maximum pressure 2.0
The latest sanctions campaign comes amid a major US military build-up in the region while holding negotiations with Iran.
Mr Trump maintains the possibility that the US could launch strikes against Iran, and has sent an aircraft carrier group to the Middle East. The President, who previously threatened strikes if Iran carried out a mass execution of protesters, said the regime must make a deal on its nuclear programme.
Israeli media on Tuesday reported Mr Trump as saying the US would do “something very tough” if no agreement were reached. He was scheduled to host Israeli Prime Minister Benjamin Netanyahu at the White House on Wednesday.
“Iran is objectively weakened and the spectre of war really is hanging over its head,” Dina Esfandiary, the Middle East geoeconomics lead at Bloomberg Economics, said during an online discussion hosted by the Gulf International Forum on Tuesday.
“For a very long time when the Israelis threatened to attack Iran, it wasn't really a credible threat, but after the June war, it is.”
Mr Fallon, who was the chief compliance officer of the Instrument in Support of Trade Exchanges to preserve the nuclear deal between Europe and Iran after the US withdrew from it, said the current military stance makes this episode fundamentally different from that of the prior Trump administration.
“The backdrop of genetic action is way more apparent. The threat of … military action is so much stronger this term than last term,” he said.
After diplomats from both countries held talks through mediators in Oman this weekend, Mr Fallon said Iran needs reassurances on the effectiveness of sanctions relief.
“They [Iran] can't breathe a sigh of relief from becoming a nuclear state, but they also don't have a viable pathway to de-escalate, so we're just stuck in this perpetual escalation zone,” he said.
Meanwhile, Mr Bessent said US sanctions are beginning to bite into Iran's elite, telling senators last week that the Treasury Department's Financial Crimes Enforcement Network is seeing "Iranian leadership wiring money out of the country like crazy”.
“The rats are leaving the ship, and that is a good sign that they know the end may be near,” he said.
