A cleric and a woman walk past an anti-U.S. mural painted on the wall of the former U.S. embassy in Tehran on May. 8, 2018. President Donald Trump followed through on his campaign threat to pull out of the landmark nuclear accord with Iran.Vahid Salemi/The Associated Press
Sanctions are economic warfare, but they are blunt instruments. In the highly interconnected global economy, the repercussions of sanctions against one country, especially a big one, can be felt everywhere. What was meant to be a targeted measure can result in widespread yet unpredictable consequences.
So it is with Iran, a country theoretically big enough to squeeze into the lower ranks of the Group of Seven (Iran’s population is more than twice Canada’s). On Tuesday, Donald Trump pulled the United States out of the international nuclear pact with Iran and restored what he called “the highest level of economic sanctions” against it.
At the same time, one country’s pain can be another country’s gain. Here is a rundown of the sanctions’ economic and business winners and losers.
Loser
The aircraft makers
Feb. 5, 2018: A Boeing worker reaches out to touch a Boeing 737 MAX 7, the newest version of Boeing's fastest-selling airplane, in Renton, Wash.Elaine Thompson/The Canadian Press
Owing to sanctions that have been in place, and progressively tightened, since the fall of the Shah in the 1979 Iranian Revolution, Iran has one of the world’s most decrepit fleets of passenger jets; crashes are horrifyingly frequent by Western standards. When the sanctions were largely lifted in 2015, the year the nuclear deal was struck, Boeing and Airbus rushed to Iran and signed orders worth almost US$40-billion (list price).
Those orders are now nothing but a sweet memory. U.S. Treasury Secretary Steve Mnuchin on Tuesday revoked the licences granted to Boeing and Airbus to export planes to Iran (Airbus is European, but since it has American subsidiaries and manufacturing and deals with American banks, it has no choice but to comply with the sanctions).
Bombardier could be affected, as well. While it had not signed any Iranian deals for aircraft or trains, it was talking to some Iranian airlines. A recent Iranian media report said Qeshm Air, a Persian Gulf airline, was considering the purchase of 10 Bombardier aircraft.
Winner
Saudi oil
A Saudi oil-company official watches progress at a rig at the al-Howta oil field near Howta, Saudi Arabia.The Associated Press
The Trump-inspired sanctions make Saudi Arabia a triple winner. Saudi Arabia is thrilled the sanctions were restored because it and Iran are archenemies; both countries are trying to carve up the Middle East and, so far, Iran has come out ahead (note the gains made by the Iran-backed Hezbollah party in Sunday’s Lebanese election).
The second win comes from the sharp rise in oil prices since Mr. Trump announced the American withdrawal from the Iranian nuclear deal. On Wednesday, oil prices climbed 3 per cent, taking them to their highest level since 2014, on the prospect of the gutting of Iran’s oil exports, which now stand at 2.5 million barrels a day, equivalent to 3 per cent of global demand. Saudi Arabia’s economy is almost entirely dependent on oil exports and rising prices make it easier to fill its gaping budget hole.
The third win comes from the suddenly improved prospects for Saudi Aramco’s initial public offering. State-owned Aramco is the world’s biggest oil producer and the Saudis have suggested the IPO could value it at US$2-trillion – a fantasy figure, according to some analysts. With oil prices now up 57 per cent in the past year, Aramco can move closer to that valuation.
Loser
European industry
A worker controls a tapping of a blast furnace at a ThyssenKrupp AG factory in Duisburg, Germany.Ina Fassbender/Reuters
The European Union’s biggest industrial companies are in a foul mood. Iran is a potential market as big as Italy or Spain, perhaps bigger. Or was until Mr. Trump cranked up the sanctions machine. The EU is not required to impose American-style sanctions on Iran, but is trapped by so-called secondary sanctions – sanctions that target international banks and companies that do business with Iran. In effect, these sanctions will force European industry to choose between doing business with the United States and with Iran. Guess who wins?
If there is a way for the Europeans to get around the U.S. sanctions, it’s not immediately obvious. Many of the EU’s biggest industrial names, including German engineering giant Siemens, French auto maker Groupe PSA and Italian oil-pipeline company Saipem, each of which was eyeing multibillion-dollar deals in Iran, may now have to kiss Iran goodbye. To drive the message home, Richard Grenell, the U.S. ambassador to Germany, used a tweet to say that “German companies doing business with Iran should wind down operations immediately.”
Winner
Russian oil and planes
Russia's President Vladimir Putin gives a speech at a session of the State Duma in Moscow on May 8, 2018.YURI KADOBNOV/Getty Images
Russia, as with Saudi Arabia, is an oil economy. Russia and Saudi Arabia have joined forces to trim oil production to raise prices and the gambit has worked, making Russian President Vladimir Putin happy. He does, after all, have to finance his little war in Syria in support of the regime of Syrian President Bashar al-Assad.
At the same time, the Iranian passenger-jet void left open by Boeing and Airbus will need to be filled. Iranian airlines have reportedly been signing deals for Russian Sukhoi SSJ-100 jets, which are a bit smaller than the new Bombardier C Series. Sukhoi has been clever. It has found ways to reduce the jets’ U.S.-made components to less than 10 per cent, all the better to get around any sanctions.
Winner (potentially)
China National Petroleum Corp.
A Chinese flag flies in front of the Great Wall of China.David Gray/Reuters
Before Mr. Trump’s sanctions announcement, Total SA, the French oil biggie, was hoping to insulate itself from any sanctions by ring-fencing its Iranian project, which would see it and its partners develop an enormous Iranian offshore gas field. Dow Jones reported that Total has been working hard to minimize the American content in the project, known as South Pars, by ensuring no U.S. software nor U.S. citizens are involved. If that strategy doesn’t work, Total is reportedly willing to transfer its 50.1-per-cent stake in the project to China National Petroleum Corp., currently a minority partner in South Pars. Were that to happen, China would be a big player in the world’s biggest gas field, whose ownership is shared by Iran and Qatar.
U.S. TO PULL OUT OF IRAN NUCLEAR DEAL
U.S. President Donald Trump has decided to scrap an internationally brokered nuclear deal with Iran and reimpose sanctions
Uranium mines
Reactor
Uranium enrichment
Military
Fordow: Under deal, fuel enrichment halted for 15 years. Facility converted for medical isotope research only
1
Arak: Heavy water reactor redesigned to prevent production of weapons-grade plutonium
2
Centrifuges at Natanz and Fordow cut from 20,172 to 6,104. Uranium enrichment limited to 3.67%
3
0
400
Caspian Sea
KM
Ramsar
IRAN
Bonab
Tehran
1
3
Karaj
Parchin
2
Natanz
Isfahan
Saghand
IRAQ
Ardakan
IAEA* to monitor uranium mining for 25 years
Bushehr
Gachin
Persian
Gulf
SAUDI ARABIA
2013: Hassan Rouhani
(left) elected Iran’s
president, replacing
hard-line Mahmoud
Ahmadinejad
Nov. 2013: Iran agrees to
pact withU.S., Britain, China,
France,Germany and Russia
to curbnuclear work in return
for sanctions relief
Jan 2016: Iran nuclear deal – JCPOA** – enacted. Iran receives $100-billion of its assets frozen in foreign banks
2015: Congress passes Iran Nuclear Agreement Review Act – INARA – which allows U.S. President to reimpose sanctions
Sep 2017: IAEA says Iran
is in compliance with JCPOA.
U.S. and EU say missile tests
violate UN resolution 2231
which is part of deal
May 8, 2018:
Trump announces
U.S. pulling
out of Iran
nuclear deal
*International Atomic Energy Agency
**Joint Comprehensive Plan of Action
THE GLOBE AND MAIL, SOURCE: GRAPHIC NEWS
U.S. TO PULL OUT OF IRAN NUCLEAR DEAL
U.S. President Donald Trump has decided to scrap an internationally brokered nuclear deal with Iran and reimpose sanctions
Uranium mines
Reactor
Military
Uranium enrichment
Fordow: Under deal, fuel enrichment halted for 15 years. Facility converted for medical isotope research only
1
Arak: Heavy water reactor redesigned to prevent production of weapons-grade plutonium
2
Centrifuges at Natanz and Fordow cut from 20,172 to 6,104. Uranium enrichment limited to 3.67%
3
0
400
TURKEY
Caspian Sea
KM
Ramsar
IRAN
Bonab
Tehran
1
3
Karaj
Parchin
2
Natanz
Isfahan
IRAQ
Saghand
Ardakan
IAEA* to monitor uranium mining for 25 years
Bushehr
Gachin
Persian
Gulf
SAUDI ARABIA
2013: Hassan Rouhani
(left) elected Iran’s
president, replacing
hard-line Mahmoud
Ahmadinejad
Nov. 2013: Iran agrees to pact
with U.S., Britain, China, France,
Germany and Russia to curb
nuclear work in return for
sanctions relief
Jan 2016: Iran nuclear deal – JCPOA** – enacted. Iran receives $100-billion of its assets frozen in foreign banks
2015: Congress passes Iran Nuclear Agreement Review Act – INARA – which allows U.S. President to reimpose sanctions
Sept. 2017: IAEA says Iran
is in compliance with JCPOA.
U.S. and EU say missile tests
violate UN resolution 2231
which is part of deal
May 8, 2018:
Trump announces
U.S. pulling
out of Iran
nuclear deal
*International Atomic Energy Agency
**Joint Comprehensive Plan of Action
THE GLOBE AND MAIL, SOURCE: GRAPHIC NEWS
U.S. TO PULL OUT OF IRAN NUCLEAR DEAL
U.S. President Donald Trump has decided to scrap an internationally brokered nuclear deal with Iran and reimpose sanctions
Uranium mines
Uranium enrichment
Military
Reactor
TURKEY
Caspian Sea
Ramsar
Centrifuges at Natanz and Fordow cut from 20,172 to 6,104. Uranium enrichment limited to 3.67%
Fordow: Under deal, fuel enrichment halted for 15 years. Facility converted for medical isotope research only
Bonab
Tehran
Karaj
Parchin
IRAN
Natanz
IRAQ
Isfahan
Saghand
Arak: Heavy Water Reactor redesigned to prevent production of weapons-grade plutonium
Ardakan
IAEA* to monitor uranium mining for 25 years
Bushehr
Gachin
Persian
Gulf
0
400
SAUDI ARABIA
KM
2013: Hassan Rouhani
(left) elected Iran’s
president, replacing
hard-line Mahmoud
Ahmadinejad
Nov. 2013: Iran agrees to pact with
U.S., Britain, China, France,
Germany and Russia to curb
nuclear work in return for
sanctions relief
Jan 2016: Iran nuclear
deal – JCPOA** – enacted.
Iran receives $100-billion
of its assets frozen in
foreign banks
2015: Congress passes
Iran Nuclear Agreement
Review Act – INARA –
which allows U.S. President
to reimpose sanctions
Sept. 2017: IAEA says Iran
is in compliance with JCPOA.
U.S. and EU say missile tests
violate UN resolution 2231
which is part of deal
May 8, 2018:
Trump announces
U.S. pulling
out of Iran
nuclear deal
*International Atomic Energy Agency **Joint Comprehensive Plan of Action
THE GLOBE AND MAIL, SOURCE: GRAPHIC NEWS
Eric Reguly