US President Donald Trump’s latest sanctions on Iran's entire financial sector seek to cut Tehran off from the global system and will probably make its currency crisis worse.
The measures will probably fuel inflation and discourage humanitarian trade at a time when coronavirus ravages Iran.
Iran hawks in the Trump administration and in Congress spent the past several months pushing the president to impose the stringent sanctions on almost all the financial sector.
On Thursday, the US Treasury Department announced that any company conducting business with the 18 designated banks would face US sanctions if they did not wind down their transactions by mid-November.
"You'll see the immediate impact of the exchange mark on both the dollar and the euro appreciate greatly against the rial," Richard Goldberg, a former Trump national security adviser on Iran, told The National.
“This is going to contribute to the hyperinflation we’re seeing on the ground. Prices for consumer goods will likely rise.
“This will put enormous strain on the regime to have to continue to pump more of their reserves into the market to stabilise the system, which means they’re drawing down what foreign exchange reserves they have.”
The US dollar is worth about 42,100 Iranian rials.
Mr Goldberg returned to the Foundation for Defence of Democracies after leaving the White House this year.
Shahrzad Noorbaloochi, a sanctions lawyer, offered a similar assessment.
"There's going to be a shortage of foreign currency for the central bank to do anything," Ms Noorbaloochi told The National.
“Iran’s foreign assets are going to be de facto frozen because moving money in and out of Iran is going to be subject to secondary sanctions now, so that foreign currency is needed for conducting any sort of transactions that involve imports of goods.”
Mr Trump’s latest sanctions could also expel Iran from a key financial messaging network based in Europe, further frustrating its ability to import goods.
The Foundation for Defence of Democracies and several key Republican senators lobbied Mr Trump to impose sanctions Iran’s entire financial sector in the months leading up to the designation.
"Designating Iran's financial sector in its entirety would immediately blacklist all remaining Iranian banks and force Swift to disconnect them," wrote six Republican senators, led by Tom Cotton, in a September letter to Mr Trump.
It is unclear whether the US Treasury would go so far as to sanction the Swift network should it fail to disconnect the Iranian banks.
But Mr Goldberg said the secondary sanctions on Iran’s financial sector would also extend to the the financial messaging network based in Brussels.
He said the sanctions could be applied in ways to avoid interrupting the network’s service and floated punishing Swift’s board of directors and senior officials if they did not disconnect those banks.
US sanctions had forced Iran out of Swift, but Tehran rejoined in 2016 after president Barack Obama’s nuclear deal, from which Mr Trump withdrew the US in 2018.
Former vice president Joe Biden, who hopes to unseat Mr Trump in the US election, has pledged to re-enter the nuclear deal if Iran complies with the accord.
Critics of the Iran sanctions, including several European countries, said the new penalties will further block Tehran's ability to import agricultural and medical supplies, despite an exception for humanitarian trade issued by the US Treasury in February.
“The complexity of figuring out whether or not your transactions are within the scope of these general licences and authorisations is a very heavy burden, so a lot of companies don’t really have an incentive to pursue that,” Ms Noorbaloochi said.
“They don’t really necessarily need to undertake all of those costs to provide those goods to Iran.”
Proponents of Mr Trump’s maximum pressure policy said the Swiss Humanitarian Trade Mechanism allowed Iran to import medical and agricultural goods.
So far, it has only enabled one humanitarian transaction with Iran, on behalf of a Swiss pharmaceutical company.