Europe Dissolves INSTEX Mechanism For Trade With Iran

News about more sanctions usually leads the rise of the US dollar on the local market. Since September the dollar and other currencies have doubled their exchange rate against Iran’s currency, leading to a serious economic crisis and inflationary pressure.

At the same time, Hamid Hosseini, the chairman of the Iran-Iraq chamber of commerce claimed that the United States has allowed Iraq to release $500 million of its debts to Iran.

Iraq imports electricity and natural gas from Iran and owes Tehran more than $10 billion, because US banking sanctions do not allow dollar transfers to Iran. However, Hosseini said that Iraq's debt has reached $18 billion.

The US, however, has allowed the money blocked in Iraq to be used for importing goods not banned under American sanctions. These are generally food, medicine and medical supplies. Hosseini’s claim about the release of $500 million, if true, could have been an action within this framework.

After dropping to a low of 600,000 to the US dollar, the rial has regained some of its value and is now trading at around 500,000 against the dollar, but that is still half of its value compared to one year ago. A three-day religious holiday has kept the currency market in check in this week.

US Department of the Treasury’s Office of Foreign Assets Control (OFAC) Thursday announced sanctions on 39 entities, including many based in the United Arab Emirates and Hong Kong, for helping Iran evading sanctions as well as designating a network of five companies and one individual for supporting Iran’s unmanned aerial vehicle (UAV) procurement efforts.

The Biden administration has accelerated its sanctions campaign against Iranian individuals and entities since September for three reasons. First, nuclear talks lasting 18 months reached a deadlock last September, exactly when popular protests erupted in Iran and were met with deadly force by the government. In addition to these factors, Russia began using killer drones provided by Iran, which alarmed the United States and its European allies.

Describing Thursday’s sanctioned entities as a "shadow banking" network that moves billions of dollars, Washington said the companies facilitate the Islamic Republic’s access to the global financial system. It added that those targeted had granted companies previously slapped with Iran-related sanctions, such as Persian Gulf Petrochemical Industry Commercial Co (PGPICC) -- which was sanctioned for aiding Revolutionary Guard’s Khatam al Anbiya construction base in 2019 -- and Triliance Petrochemical Co Ltd, access to the international financial system and helped them hide their trade with foreign customers. 

In 2022 alone, PGPICC marketed millions of dollars of high-density polyethylene (HDPE) produced by Mehr Petrochemical Company (Mehr) to third-party buyers for delivery to Turkey and Asia. UAE-based Bavi General Trading CO L.L.C (Bavi General) and Iran-based Kambiz Nabizadeh and Partners Exchange (Nabizadeh Exchange) play a key intermediary role in these transactions. Late last year, a $170 million apparent embezzlement case left Mehr Petrochemicals, which produces the highest-grade polyethylene in the Middle East, in serious trouble.

"Iran cultivates complex sanctions evasion networks where foreign buyers, exchange houses, and dozens of front companies cooperatively help sanctioned Iranian companies to continue to trade," said Deputy Treasury Secretary Wally Adeyemo, adding that the new measures showed the US "ability to disrupt Iran's foreign financial networks, which it uses to launder funds."

Among those designated on Thursday were two Turkey-based entities, as well as Iran-based Mehr Petrochemical Company. Brian O'Toole, a former Treasury Department official, said Thursday's action would put a dent in Iran's ability to keep moving oil and get paid for it. "This is a pretty big deal, because this kind of thing should have an impact on what Iran is able to sell," he said.

The Treasury Department's top sanctions official, Brian Nelson, traveled to the UAE earlier this year, where he planned to warn officials about "poor sanctions compliance", a department spokesperson said at the time.

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Also on Thursday, OFAC designated entities for supporting Iran’s UAV procurement efforts. This People’s Republic of China-based network is responsible for the sale and shipment of thousands of aerospace components, including components that can be used for UAV applications, to the Iran Aircraft Manufacturing Industrial Company (HESA), it said. HESA – designated on September 17, 2008, by the US for being owned or controlled by Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) and for having provided support to the IRGC -- has been involved in the production of the Shahed-136 UAV model that the Islamic Republic has used to attack oil tankers and has exported to Russia. 

“Iran is directly implicated in the Ukrainian civilian casualties that result from Russia’s use of Iranian UAVs in Ukraine,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “The United States will continue to target global Iranian procurement networks that supply Russia with deadly UAVs for use in its illegal war in Ukraine.”

Amid a deep economic crisis, commentaries about the impact of foreign policy, meaning isolation and sanctions, on the country’s well-being have become more frequent.

Mohammad Hossein Adeli told Ham-Mihan Daily that by using these networks, Iran circumvents US sanctions. "As long as we are doing this, our situation is not normal. This is a costly way that entails high inflation for Iran."

Adeli who was the governor of Iran's Central Bank under President Akbar Hashemi Rafsanjani and the country's ambassador to several key countries under the reformist government of President Mohammad Khatami, said Iran is a country that cannot remain isolated.

He maintained that although some “revolutionaries” advocate isolation as a way of growth, they need to know that even China owes its growth to foreign investment and a $760 billion per annum trade with the United States. Adeli added that "isolation will drag Iran into collapse and instability and its economic development depends on national power and stable and intelligent interaction with the world. That is how China, India, Indonesia, Brazil, South Africa and Vietnam have successfully survived and their economies grew."

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Adeli further stressed that economic sanctions cause a bigger loss for Iran than any war. He added that Iran is under the pressure of a series of deep and complicated sanctions. The added cost of domestic and international trade under sanctions disrupts Iran's economy and increases the cost of everything.

"People are in trouble for their everyday livelihood and the country cannot develop. When there is no prospect for future, people lose their hope. As a result, law breaking becomes a norm and social relations are disrupted. That, eventually causes revolt in the country," Adeli said.

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Meanwhile, a commentary in the moderate news website Faraz daily maintained that IAEA Director General Rafael Grossi's visit to Tehran quickly helped Iran’s currency to rise after the media quoted a few lines from his statement about agreement over cooperation. The commentary asked whether this would bring the government in Tehran to its senses and encourage it to recognize the link between foreign policy and people's livelihood.

According to Faraz Daily, this development clearly highlighted the importance of foreign policy on the country's economy, while Iranian officials have been insisting that their isolationist foreign policy has no impact on the people's livelihood.

At the same time, the commentary observed, that not interacting with the world during several years of economic sanctions has led to a crisis for Iran's people and government.

There are indications that at least some politicians in Iran who are usually trusted by Supreme Leader Ali Khamenei are encouraging the government, and in fact Khamenei, who single-handedly makes all decisions on all matters including the economy and foreign policy, to be more flexible in their interactions with the West and particularly the United States.

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Iran's former nuclear chief Ali Akbar Salehi said on Tuesday that Iran should show flexibility in its negotiations with the West in order to end its international isolation.

Salehi said during a speech at the Iranian Foreign Ministry, "Resistance should come along with prudence. When we face serious obstacles, we need to show intelligent flexibility in order to end our isolation." This, Salehi said, is a wise reaction. He also warned Iranian diplomats, "not to create political or diplomatic deadlocks."

The Headquarters for Enjoining Right and Forbidding Evil in Iran, and its head official Mohammed Saleh Hashemi Golpayegani have been responsible for women, highlighted by the deaths of at least 66 women since protests began in September, according to rights group HRANA.

It follows the launch of a new Foreign Commonwealth and Development Office (FCDO) Women and Girls Strategy - announced on International Women’s Day - which sets out plans to tackle gender inequality across the globe.

Those sanctioned on Wednesday also include Major General James Nando, who commanded the South Sudan People’s Defence Forces, the main perpetrators of sexual and gender-based violence in Tambura County in 2021.

Additionally, the list included Mahamat Salleh Adoum Kette, in Central Africa Republic (CAR), who has overseen rape and other forms of sexual and gender-based violence committed by Front Populaire pour la Renaissance de la Centrafrique (FPRC) and Coalition of Patriots for Change (CPC) fighters.

Amjad Youssef, a member in ‘227 Region Branch’, who has been involved in repressing the civilian population in Syria, including through systematic rape and killing of civilians, was also listed.

The UK’s Foreign Secretary James Cleverly said: “These sanctions send a clear message that the perpetrators of abhorrent gender-based violence must be held accountable.

“We are increasing our efforts to stand up for women and girls, and will use all the tools at our disposal to tackle the inequalities which remain.”

"There is a growing consensus towards this decision. There are practical and legal issues that need to be sorted out but I think we might be getting there," he told American News Website Axios on Friday.

"We didn’t expect, as European Union, to have Iran knocking on our door. We thought it is a Middle East issue that we need to keep an eye on but what we are seeing now is that there is growing cooperation between Iran and Russia. Iran is coming closer to us. We need to have a reaction about that," he said.

Iran has supplied hundreds of kamikaze drones to Russia that have been used against Ukraine’s civilian targets.

Meanwhile, the Washington-based news magazine Foreign Policy quoted five US and NATO officials as saying that Iran is doubling down on military support for Russia in a series of new military deals that could prolong the war in Ukraine and offer sanction-battered Tehran new economic and defense lifelines.

EU Foreign Policy Chief Josep Borrell has said the European Union cannot list Iran's IRGC as a terrorist entity until an EU court has determined that they are.

The European Parliament has called on the EU to list the Revolutionary Guards as a terrorist entity, blaming it for the repression of domestic protests and the supply of drones to Russia.