US sanctions on Iran pose multiple threats, including to travel, says Ian Taylor
US rejection of the 2015 nuclear deal with Iran is troubling, threatening intensified conflict in the world’s most-troubled region and enforcing misery on ordinary Iranians.
The Financial Times’ US correspondent Edward Luce went so far as to report: “Trump all but declared war on Iran.”
For travel and tourism, the consequences are likely to be four-fold.
First, there will be the obvious impact on Iran as a destination. Assuming the US follows up on its threat to impose sanctions on non-US firms which trade with Iran – and there is no reason to doubt it will – the country is finished as a destination, certainly from Europe, for the foreseeable future.
The impact will extend to the airlines which have begun operating to Iran since sanctions were lifted in 2015, to the hospitality companies which have opened properties and the tour operators which launched programmes.
That includes British Airways, Air France, the Lufthansa Group, Emirates, Qatar Airways, Turkish Airlines and so on.
Unless the EU is prepared to defy Washington, withstand financial sanctions and lose what bargaining power it has to resist US trade tariffs, expect all these services to end within months.
Second, there will be the impact on aircraft manufacturers Boeing and Airbus, with aircraft among the products covered by sanctions announced on Tuesday.
Boeing has orders from two Iranian airlines for 80 777 and 737 aircraft, signed in 2016-17 and together worth $20 billion. Airbus has Iranian orders for 98 aircraft valued at $27 billion.
The US Treasury has already said it will revoke existing licences for the sale of aircraft or parts to Iran – and Airbus uses a large proportion of US parts.
Without the aircraft and parts, Iran’s aviation sector will remain mired in the past and increasingly dangerous. The Tehran government has said it needs 500 new passenger aircraft.
A third impact will be on the oil price given the loss of 2.5 million barrels per day of Iranian oil to the world market – although China, which is in a position to defy the US, may simply take the lot.
The price of Brent crude, the benchmark for jet fuel production, rose to $77 a barrel in the immediate aftermath of President Trump’s confirmation of sanctions renewal, its highest since 2014.
Regardless of whether oil traders choose to ignore Washington, the Financial Times suggested: “The threat of secondary sanctions on non-US companies will have a chilling effect on international banks’ willingness to finance trades.”
A London-based broker noted: “People are already starting to change behaviour.”
The sanctions will come as global oil demand is forecast to hit a record 100 million barrels a day this year.
The US is reportedly in talks with Saudi Arabia, the world’s leading oil exporter and arch enemy of Iran, about raising oil production to counter the impact. But prices are likely to rise with the obvious impact on air fares and inflation more generally.
The UK, Germany and France have been quick to pledge to maintain their nuclear deal with Iran and European officials immediately began examining options to safeguard business links.
France suggested it would seek carve-outs for European companies. There is a suggestion of moves to counter US sanctions and/or extend EU credit lines to Tehran.
But the US administration appears in no mood to compromise. The US ambassador to Berlin, Richard Grenell, tweeted: “German companies doing business in Iran should wind down operations immediately.”
A former senior US Treasury official told the Financial Times: “You will see over-compliance [with sanctions]. That is true for the Europeans, Japan, South Korea.”
The Washington-based Brookings Centre for Middle East Policy criticised the US decision but confirmed: “If you are a major international company you just don’t want to get on the wrong side of the US Treasury department.”
The underlying threat is of secondary sanctions on non-US companies which trade with the regime.
The threat is not an idle one. Chinese telecom manufacturer ZTE announced it had ceased “major operating activities” in a filing to the Hong Kong stock exchange on Wednesday.
ZTE is the world’s fourth-largest maker of smartphones after Apple, Samsung and LG. Last month the US imposed a seven-year ban on the company obtaining critical parts from US suppliers after ZTE violated US prohibitions on the export of parts to Iran and North Korea.
The fourth impact will be on security, with a heightening of instability across the world’s most-volatile region, where Israel and Saudi Arabia are implacably opposed to Iran.
Trump’s recently appointed national security advisor John Bolton has long argued the US should launch air strikes on Iranian nuclear facilities.
Bolton and US secretary of state Mike Pompeo have openly championed ‘regime change’ in Iran, despite what has become of such efforts in Afghanistan, Iraq, Libya and Syria.
The irony is that the US move makes no sense from the standpoint of security.
The Islamic State group which terrorised Syria and Iraq, and al-Qaeda before it, developed from a fundamentalist variety of Sunni Islam rooted in Saudi Arabia.
Iran is a Shia Islamic state, and Shias are as much a target for IS terror as anyone from the West.
The world just became a whole lot more dangerous.
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