Iran has cut its reliance on the dollar by selling oil for euros and other currencies, but that doesn’t offer much protection after Donald Trump pulled the U.S. from the nuclear deal.
The U.S. president announced his decision this week, the culmination of years of criticism during which Trump derided the 2015 Obama-era agreement as “a disgrace” and “insane.” Once the withdrawal takes effect, U.S. financial penalties on buyers of Iran’s crude oil will be reimposed.
In a bid to protect its economy from currency turmoil in the run-up to the decision, Iran sought to curb its dollar usage. But most of the early steps were symbolic. However, it now receives payment for most oil sales in euros, with some shipments to China and South Korea being paid for in those countries’ currencies, said Hossein Zamaninia, Iran’s deputy oil minister for international and commercial affairs.
But since Trump went after Iran’s oil sales, “the type of currency Iran receives can’t save its export volumes,” said Sara Vakhshouri, head of Washington-based consultancy SVB Energy. “Receiving payments in euros only partially immunizes Iran’s oil exports from U.S. sanctions.”
OPEC’s third-largest oil producer is exporting about 2.5 million barrels of crude and condensate daily, more than double the volume it sold when sanctions were at their tightest from 2012 through 2015.
By tightening sanctions, banks will have to stop issuing letters of credit for oil contracts, or enabling payments for crude to be hedged against fluctuations in the euro-dollar exchange rate.
Existing U.S. economic sanctions have already hobbled the Iran deal, putting off many investors who fear running foul of the penalties. That’s dented support for the accord in Iran, presenting conservative opponents of President Hassan Rouhani with a line of attack. An American withdrawal will embolden them. European nations — along with other agreement signatories Russia and China — have vowed to defend the hard-won diplomatic achievement but that won’t be easy.
— With assistance by Golnar Motevalli