“Economic War” and the U.S. imposes the “toughest sanctions ever” on Iran.

The Trump administration officially imposed a second round of economic sanctions on Iran, describing them as “the toughest sanctions” ever slapped on Tehran, effective as of November 5. Washington had already slapped sanctions on Iran in August.

The package of economic sanctions on Iran is considered the most significant step in U.S. – Iran relations since Trump’s decision last May to abandon the Iran Nuclear Pact, or the Joint Comprehensive Plan of Action (JCPOA)  signed in 2015. Trump called the agreement “a disaster.”

JCPOA was aimed at halting Iran’s nuclear programs, and despite a statement from the International Atomic Energy Agency (IAEA) that Tehran was still in compliance with the JCPOA, Washington insisted that JCPOA was not effective in preventing Iran from developing its nuclear programs. The European Union (EU), Russia, China, France and Germany (all fellow signatories of the JCPOA) confirmed that they still stick to the deal with Iran.

Iran’s oil, expedition and banking sectors will be the hardest hit, and the country’s weakening currency may slump even further due to the sanctions aimed at stopping Iran’s alleged unacceptable behavior in the Middle East.

“Treasury’s imposition of unprecedented financial pressure on Iran should make clear to the Iranian regime that they will face mounting financial isolation and economic stagnation until they fundamentally change their destabilizing behavior,” said U.S. Treasury Secretary Steve Mnuchin in a statement.

The sanctions are imposed on 50 banks and their subsidiaries, more than 200 people and vessels, Iran’s national air carrier and more than 65 of its aircraft.

Last September, U.S. National Security Adviser John Bolton said that there could be additional sanctions imposed on Iran in the near future. When asked the next target of the upcoming sanctions, he only replied, “There are other things we can do in the terrorism and counterterrorism area.”

Iran’s Reaction

Iran’s leader Hassan Rouhani labeled the U.S. sanctions ‘economic warfare’ but was confident that his country would survive.

“The sanctions have had no impact on our economy because America had already used all the weapons at its disposal and there was nothing new to use against us,” Rouhani said in remarks aired on state-owned television.

“This is an economic war against Iran but… America should learn that it cannot use the language of force against Iran … We are prepared to resist any pressure,” Rouhani also said.

“US bullying is backfiring… The US — and not Iran — is isolated,” said Iran’s Foreign Minister in a tweet.

Europe Opposes the Sanctions

The EU opposed Washington’s move, saying that the JCPOA is still effective in controlling Iran’s nuclear program and maintaining peace. Brussels also urged the U.S. to lift sanctions on Iran.

“We continue to believe that the Iran nuclear deal makes the world a safer place,” British Prime Minister Theresa May’s spokesman said.

The 28-nation bloc is also working for ways to allow global companies to maintain business with Iran, despite the U.S. sanctions. Brussels confirmed that its members would not follow the Trump administration’s suit but instead implement a special purpose vehicle (SPV) to continue transactions with Iran.

The Sanction’s Impact on Oil and Gas

Oil is Iran’s export mainstay, but it is important for the U.S. to hit Tehran’s oil sector without harming the global oil market, as a total ban on Iran’s oil export will be politically and economically dangerous.

Washington has granted waivers for eight countries: Italy, China, India, Turkey, South Korea, Taiwan, Greece and Japan, who are Iran’s biggest oil buyers. They are allowed to import oil from Iran for 180 days. Those eight countries account for 75 percent of Iran’s oil export, as Reuters reported.

Ahead of Iran’s second round of sanction, the price of Brent oil for the January 2019 shipment dropped 2.9 percent to $72.50 per barrel on Thursday (November 1).

On November 7, the price of Brent oil slumped $1.02 or  1.42 percent to $72.12 per barrel. During the trading session, the price was under pressure and fell to $71.18 per barrel, the lowest since August 16, 2018.

The price of West Texas Intermediate (WTI) crude also fell $0.89 or 1.41 percent to $62.21 per barrel ahead of the sanction (November 2). The WTI price once slipped to $61.31 per barrel, the lowest since March 16, 2018.

However, the sanctions alone will not drive up the oil price without the role of other factors such as a significant production cut in OPEC or a fall in the U.S. dollar.

“While the Iranian sanctions should still be viewed as a latent bullish consideration capable of limiting much additional price slippage, it would appear that the Iranian factor alone will not be capable of spurring higher prices without major assistance from a renewed strengthening in the equities, sustainable weakening in the U.S. dollar or a significant cut back in OPEC production,” Jim Ritterbusch, president of Ritterbusch & Associates said.