Iran's President Hassan Rouhani. New US sanctions are set to squeeze the energy and banking sectors. Brendan Mcdermid / Reuters
Iran's President Hassan Rouhani. New US sanctions are set to squeeze the energy and banking sectors. Brendan Mcdermid / Reuters

D-day is looming on Washington's ambitious goal to reduce Iran's oil exports to zero



For all Tehran’s bravado, there can be little doubt that the new round of US sanctions that come into force on Monday are going to provide a stern test for Iran’s economy.

As part of the US administration's effort to intensify pressure on the regime, a new set of sanctions are due to be imposed on its banking and energy sectors from Monday, in keeping with president Donald Trump's declared aim of reducing oil purchases from Iran to zero.

These are in addition to sanctions the US introduced against Iran in the summer, directed against its currency trade, metals and auto industries, after Mr Trump announced his decision in May to withdraw from the controversial 2015 nuclear deal.

The sanctions imposed so far, together with the prospect of more to come, have already had a calamitous impact on the Iranian economy, with the rial losing an estimated 70 per cent in value this year. This, in turn, has resulted in a dramatic rise in the cost of living, provoking nationwide demonstrations against profiteering and corruption that have taken part in all the main towns and cities. For the first time since the failed Green Revolution of 2009, protesters have chanted anti-government slogans and called for the regime to end costly military interventions in conflicts such as the Syria and Yemen.

The American action is certainly designed to persuade Iran to change tack and to persuade the regime to change its policy of unwelcome meddling in the affairs of neighbouring Arab states. Mr Trump also wants Iran to renegotiate the nuclear deal, which was agreed by his predecessor Barack Obama. The current US administration argues that it does not cover Iran’s ballistic missiles, nor what happens to Tehran’s nuclear programme, which western intelligence agencies believe is designed to produce nuclear weapons once the deal expires in 2025.

The American attitude towards Tehran was best summed up in a tweet sent by US Secretary of State Mike Pompeo earlier this week about the collapse of the Iranian economy. He wrote: “That’s what happens when the ruling regime steals from its people and invests in Assad – instead of creating jobs for Iranians, they ruin the economy.”

In hitting Tehran with a new round of sanctions, the Trump administration is mindful of the salutary effect previous American sanctions have had on the Iranian regime. Washington believes that Iranian President Hassan Rouhani’s election in 2013 was, to a large extent, due to his promise to ease sanctions that had seriously impacted the economy. This, or so the Americans believe, was his primary motive in agreeing to enter negotiations over Iran’s nuclear programme, and gave him the political bandwidth to rally sceptical hardliners around the country’s Supreme Leader, Ayatollah Ali Khamenei, to support the initiative.

It is the hardliners, though, who have wasted the enormous economic benefits that might have accrued once the deal was agreed and the sanctions lifted. Instead of spending the tens of billions of dollars  received from the easing of sanctions, Mr Khamenei’s supporters in the Iranian Revolutionary Guard Corps immediately set about investing the proceeds in overseas military adventures, thereby frittering away a valuable legacy.

Now, with the prospect of even more draconian sanctions being imposed next week, senior figures in the regime are desperately trying to persuade sceptical Iranians that they are not to blame.

In quotes published by the state news agency IRNA, Foreign Minister Mohammad Javad Zarif blamed Iran’s economic plight on the Trump administration. “Unfortunately a law-breaking country seeks to punish a country that is abiding by the law. This method will have severe consequences for the world order,” he warned.

A foreign ministry spokesman also took umbrage at Mr Pompeo’s critique, claiming the financing of military operations abroad was not the cause of the economic crisis. “The Iranian economy had shown growth in all previous years when Iran was fighting against the terrorists,” he contended.

The reality, though, is that Iran's economic predicament is about to suffer yet more hardship when the new sanctions bite, despite the efforts being undertaken by Mr Rouhani to explore ways of circumventing the measures. Earlier this week Iranian officials met representatives from Turkey and Azerbaijan to discuss the implications of the sanctions, while officials from the oil ministry insist it will continue to sell crude oil to private companies as part of its strategy to counter the sanctions. The ministry announced 280,000 barrels of oil had already been sold on Iran's energy bourse last week, with another 720,000 barrels soon to be offered for sale on the exchange.

The Iranians will also be looking to exploit the lukewarm response to Washington’s actions from Europe and countries such as China and India, that rely heavily on Iranian oil exports for their own economic wellbeing.

To protect European firms with trade ties with Tehran, the European Union plans to implement a so-called Special Purpose Vehicle (SPV), which it believes will allow them to continue doing business with Iran without being liable to punitive American measures.

Iran will also take heart from comments made by John Bolton, the Trump administration's hawkish national security adviser, who concedes that he does not want the new sanctions to harm America's friends and might consider waivers for friendly countries whose economies depend on Iranian oil supplies.

But Tehran needs to understand that this would only be a temporary measure, one that will not deflect Washington from its ambitious goal of reducing Iran’s oil exports to zero, with all the implications that could have for Iran’s economy.

Con Coughlin is the Daily Telegraph’s defence and foreign affairs editor

__________________

Get stories like this one in your inbox each morning. Sign up for our daily newsletter here

The team

Photographer: Mateusz Stefanowski at Art Factory 
Videographer: Jear Valasquez 
Fashion director: Sarah Maisey
Make-up: Gulum Erzincan at Art Factory 
Model: Randa at Art Factory Videographer’s assistant: Zanong Magat 
Photographer’s assistant: Sophia Shlykova 
With thanks to Jubail Mangrove Park, Jubail Island, Abu Dhabi 

 
The specs

Engine: 1.5-litre turbo

Power: 181hp

Torque: 230Nm

Transmission: 6-speed automatic

Starting price: Dh79,000

On sale: Now

The Settlers

Director: Louis Theroux

Starring: Daniella Weiss, Ari Abramowitz

Rating: 5/5

The biog

Year of birth: 1988

Place of birth: Baghdad

Education: PhD student and co-researcher at Greifswald University, Germany

Hobbies: Ping Pong, swimming, reading

 

 

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”