Tuesday, May 29, 2018

US Withdrawal From the Iran Deal Will Have An Economic Impact

By Genie Melamed

A stock image of stacked coins and piled ink pens, resting on what appears to be instructions for an official form.
This blog post was written for the course "Current Issues in Global and EU Affairs", which took place from February 12-April 30, 2018.

In the past few years the issue of oil has been on the rise in the United States. Only a select few countries have oil, and many of those countries happen to be in the Middle East, where there has been a lot of conflict occurring in recent years. The United States has certain allied countries in the Middle East, and adversaries as well. This has caused quite an issue in the past few years due to the fact that oil comes from some of the adversarial countries. In 2012 the Barack Obama administration imposed oil sanctions on Iran due to Iran’s nuclear program. These sanctions were done in an effort to make Iran stop its nuclear program. In addition to these oil sanctions, there are also primary sanctions, which restrict US companies from doing business with Iran (Turak). The oil sanctions led to Iran’s oil exports decreasing to about 1.5 million barrels per day (Turak). The sanctions were lifted in 2015 “as part of the multilateral deal that offered economic relief in exchange for curbs to Iran's nuclear program” (Turak). Today, Iran exports about 2.6 million barrels per day (Turak). Since the sanctions were lifted, Iranian oil exports grew from 2.8 million barrels a day in 2015 to 3.7 million barrels a day in 2018. However, Iran might be in trouble again given recent events.

On May 8, President Donald Trump announced that that the United States would leave this multilateral deal with Iran, previously known as the Joint Comprehensive Plan of Action (JCPOA) (Turak). This would drastically change oil prices and make the oil market very unstable. This would also have a significant impact on Europe and the European Union. This is because there are secondary sanctions, in conjunction with the primary sanctions, which “restrict US companies doing business with non-US companies who do business with Iran” (Jack). Airbus, a European multinational aeronautics corporation, could be negatively impacted from this. According to Simon Jack, “Airbus has a $20bn order from Iranian airlines for nearly 100 planes.” This could prove potentially fatal for Airbus if they cannot sell their planes to American companies. They also have a similar-sized order for Boeing planes. This is just one example of how these sanctions could economically hurt Europe and the EU, if applied aggressively. In addition, Total, a French oil company that does a lot of business with the US, recently signed a $5 billion deal with Iran (Jack). Due to this, Total is hoping that the French government will follow through with their intentions to challenge the US’s actions at the World Trade Organization (Jack). These are just two examples of how these secondary sanctions, in concurrence with the primary sanctions, could be detrimental to European businesses and the EU Single Market economy.

In this day and age of globalization and an increasing economic interdependence, sanctions like these can prove detrimental to countries’ economies. While it is important for countries to after their own national interests, it is also important to take into consideration what effects their policies could potentially have on other countries. The EU’s relationship with the US is one of the strongest relationships that the EU has, and these sanctions could threaten that. Like all relationships, relationships between countries evolve and have their ups and downs, but if the US-EU relationship were to fall apart, it would mean chaos for the global economy. Since Trump has become president many international relationships have been tested, and the future of US-EU relations is still very much up in the air. It will be years before we can see the true effects of Trump’s policies and actions. Still, we should still keep a close eye the developments of US-EU relations, especially in these important times.

Sources:

Turak, Natasha. “Iran Sanctions Will Create a ‘Disruption’ in the Oil Price and Uncertainty for Investments, ENI CEO Warns.” CNBC, CNBC, 13 May 2018, https://www.cnbc.com/2018/05/13/iran-sanctions-will-create-disruption-in-oil-price-eni-ceo.html.

Jack, Simon. “EU Hurt as US Flexes Sanctions Muscles.” BBC News, BBC, 9 May 2018, http://www.bbc.com/news/business-44052603.

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