US sanctions are causing further global regionalization and have boosted Iranian-Russian relations.
According to a report by Israeli political analyst Dana Weiss, the Israeli Ministry of Foreign Affairs has a secret document that describes Russia’s plan to aid Iran in subverting the incoming US Sanctions on the Islamic Republic’s oil exports.
According to Weiss, Iran will transfer its crude oil to Russian refineries on the Caspian Sea. After that Russia would present and sell the oil as Russian and reimburse Iran on the sales. According to the secret document, the plan was made together by Turkey, Russia and Iran during their summit on September 7th. In the summit the leaders of the three countries discussed avoiding an escalation in Idlib.
Iran will transfer crude oil to Russian refineries on the Caspian Sea, the Russians will then sell the oil as Russian and reimburse Iran on the sales
— Dana Weiss (@danawt) October 14, 2018
The document also said that European parties may be complacent in allowing Iran to circumvent US sanctions in order to trade oil with Asia. This would make sense, since the EU signatories on the Iran Nuclear Deal are interested in keeping Iran in the deal and upholding it. After all, the EU has made steps towards assisting Iran deal with the sanctions.
According to Weiss, this is worrying for Israel because Iran would avoid an economic collapse, which will also be reinforced by this new way of circumventing US sanctions.
Furthermore, Hadashot news reported on the same document and said that the mechanism underlines the alliance of interests between Moscow and Tehran, and is therefore of relevance, as Israel seeks to prevent Iran deepening its military presence in Syria.
On October 14th, Iranian President Hassan Rouhani downplayed US sanctions and said that after being enforced on November 4th they “will have no effect.” The reasoning behind his claim is that “the US has already done what it wanted to do.”
Rouhani said the current U.S. administration is the “most hostile” ever toward Iran, but that his country will overcome the sanctions through “unity and integrity.” He said his administration has allocated some $15 billion to purchase basic goods in the current Iranian year, which ends next March.
Turkey also in August said that it would continue buying natural gas from Iran despite the sanctions. However, Turkey’s oil refiner, Tupras, already has begun decreasing its crude oil purchases from Iran in anticipation of the measures’ November effective date. Turkey’s Ziraat Bank also arranged for a currency swap with Iranian Bank Melli that will enable $1.4 billion worth of trade between the two countries. Even prior to the 2015 Iran Nuclear Deal, Turkey was assisting Iran in dealing with the sanctions.
The EU also initiated its blocking mechanism, prohibiting EU countries from adhering to US sanctions. Despite that many companies withdrew from the Iran, namely Total, which backed out of a $4.8 billion oil project. Total’s stake was purchased by a Chinese state-owned oil company.
On September 25th, EU Foreign Policy Chief Federica Mogherini announced that France, Britain, Germany, Russia and China have created a new mechanism to allow countries to transact with Iran and avoid US Sanctions. Called the “special purpose vehicle” (SPV), this mechanism would aim to “assist and reassure economic operators pursuing legitimate business with Iran,” according to the joint statement.
“This will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world,” Mogherini said.
This is a development in what German Foreign Minister Heiko Maas called for in August 2018. He called for a system that would be separate from the US-dominated “neutral” SWIFT.
A way to circumvent the SWIFT system, which performs transfers in USD is to trade in national currencies. This has been seen in Chinese-Turkish, Russian-Turkish and Russian-Indian as well as Chinese-Iranian relations. This is a way of slowly, but surely establishing regional economic clusters that are invulnerable to US sanction pressure.
The outcome of US sanctions is that the global regionalization would continue. The US is undermining its global grip by itself and is being excluded from many of the matters it deems within its interest.