The end of Iran oil sanctions waivers is a tough but necessary move

The Iranian economy is exptected to move deeper into recession this year. AFP 

It is not just Iran that will suffer from the Trump administration’s decision to increase the sanctions stranglehold on Tehran. The decision by Secretary of State Mike Pompeo to end the waiver on those countries still buying oil from Iran is going to have profound implications for a number of Washington’s important allies, as well as adding increased pressure on America’s already strained trading relationship with China.

Announcing the administration’s decision to end the waivers on May 2, Mr Pompeo declared that Washington remained determined to increase the pressure on Iran to end its destabilising influence on the Middle East, as well as its continued support for terrorist groups such as Hezbollah.

“The aim remains simple,” said Mr Pompeo. Washington’s policy was “to deprive the outlaw regime of the funds it has used to destabilise the Middle East for four decades, and incentivise Iran to behave like a normal country.”

Noble intentions indeed. But, by removing the last loophole from what has been described as the most punitive sanctions regime imposed against a rival state in history, Washington is placing itself on a diplomatic collision course with a number of important countries.

Washington’s decision to withdraw from the controversial nuclear deal with Iran that former US President Barack Obama helped to negotiate in 2015 has already caused friction in the transatlantic alliance, with leading European powers such as Britain, France, Germany and Italy both maintaining their commitment to the deal and signalling their determination to continue trading with Iran.

In an attempt to circumvent the threat of punitive measures by the US against European businesses that want to maintain their commercial relationships with the country, the EU is attempting to establish an alternative trading framework, known as a special purpose vehicle, which French officials reported earlier this week was “progressing positively with a view to near completion”.

And European leaders, responding to Mr Pompeo’s announcement, reaffirmed their commitment to continue trading with Iran, as well as maintaining their support for the nuclear deal, a position that is only likely to increase tensions between the US and its European allies.

But, the more immediate challenge, so far as Mr Pompeo’s decision to end the waivers is concerned, will be to deal with the diplomatic fallout from those countries that Washington allowed to continue trading with Iran, but which will now find themselves under pressure to fall in line with Washington’s diktat.

The exemptions allowing a number of countries to continue buying oil from Iran date back to the Trump administration’s decision in November to ratchet up the sanctions regime against Tehran. Waivers were granted to eight countries whose economies were dependent on a steady flow of Iranian oil, until alternative arrangements could be made.

Three of those involved have now managed to formalise new arrangements. However, the other five have not: China, India, Japan, South Korea and Turkey. The prospect of these key states finding themselves subject to punitive measures from the US if they continue buying oil for Iran could seriously affect relations at a point when, for a variety of reasons, the Trump administration can least afford it.

By far the biggest issue for Washington will be managing the response from Beijing.

Trade talks between the US and China are finely poised, as the world’s two largest economies try to hammer out a final deal. Earlier this week, Donald Trump said the negotiations were going well, but progress could falter if Beijing concludes that its future economic prospects will be undermined by Washington’s demand that it ends oil imports from Iran.

American diplomats will also need to be at the top of their game when it comes to handling the fallout from the other countries affected by the ending of the waiver. South Korea is a vital ally in Mr Trump’s effort to end the longstanding crisis over North Korea’s nuclear weapons programme, and Seoul’s continued support for American diplomatic efforts will be even more necessary following North Korean dictator Kim Jong-un’s summit with Russian President Vladimir Putin in Vladivostok this week.

Maintaining a strong relationship with Japan, meanwhile, is critical for Washington as it tries to contain China’s attempts to expand and deepen its influence in Asia, particularly its claim to control the vital shipping routes through the South China Sea.

Keeping on good terms with India is another key aim of American foreign policy when it is vital to defuse tensions between nuclear-armed New Delhi and Islamabad, while Washington’s relationship with Turkey is central to combating attempts by Isis to regroup, following its defeat in Syria and Iraq by coalition forces.

However, while Washington’s decision to end the waiver on Iranian oil is undoubtedly going to cause difficulties, it is unlikely to result in a change of policy on the part of the Trump administration for the very good reason that all the evidence suggests that the sanctions are working.

Even before the US announced the end of the waiver policy, the latest estimates produced by the International Monetary Fund predict that Iran’s economy will contract by around 6 per cent this year. Inflation has risen significantly in recent months, and Iranian households now have to spend around 50 per cent more on basic commodities compared with the same month last year.

Nor is the hardship confined to Iran. In Lebanon, militia members employed by Hezbollah and other pro-Assad groups have had to endure a fall in wages as Iran struggles to finance its overseas military adventures. Iran’s financial crisis is also limiting its ability to fund and support pro-Tehran militias and political groups in Iraq and elsewhere.

Washington’s sanctions regime, therefore, is having the desired effect on Tehran, which is why the international community should lend its unequivocal support to the Trump administration’s approach, rather than seeking ways to undermine it.

Con Coughlin is the Daily Telegraph’s Defence and Foreign Affairs Editor.