Not so tough?

While Iran has had a history of facing sanctions, the latest round courtesy Trump has been hyped up to be harshest of them all. Previously countries like India could not import oil without restrictions but they could continue importing if there was a demonstrable trend of lowering of oil imports by 20 percent.

In effect this meant that while Iran's imports decreased as a percentage of total oil imports by India, in volume oil imports increased as India's oil needs rose. This, coupled with the pseudo barter system of rice and payments in local currency allowed India to continue importing oil from Iran. Other countries had their set of loopholes to allow for Iranian imports.

As a result, even at its worst periods of sanctions, Iran's BoT was significantly in the positive. Trump vowed to end that and impose sanctions that would prevent all oil exports of Iran to cripple its economy. Thus there was trepidation in the world regarding global oil prices as the deadline of midnight, November 5 approached. (Incidentally, this date was set to coincide with the siege of US embassy on 4 November 1979 on which the critically acclaimed movie Argo was based)

However, it appears that Trump has lost steam along the way. While details are as yet sketchy and more will be revealed going forward, it appears that eight countries have been granted waivers to purchase oil from Iran. These countries include China and India which have been historically the biggest buyers of Iranian oil. Turkey has also been granted waivers along with Japan and South Korea but the softening doesn't extend to most European countries. However, countries like UK, Germany, and France are still committed to the nuclear pack and have set up an alternative payment mechanism to help companies trade without facing US penalties. The mechanism is not functional as yet.

That is not to say that Iran's oil exports have not been hit. As yet, France and South Korea have halted purchases since June, followed by Spain and Japan in September. Turkey and India have reduced purchases while China has told at least two state oil companies to avoid buying oil from Iran.

There are also hurdles of payment as the Brussels-based Swift network for making international payments is expected to cut off links with targeted Iranian institutions. Payments to Iran will be held in escrow accounts in the purchasing countries.

Inflation has spiraled up and riyal's value has spiraled down. Travelers to Iran share anecdotes that a mere $100 in the top Iranian hotels is worth a lavish meal for several people, far more so than a few months back, highlighting Iranian need for US dollars. While some are standing behind Khamenei, many others are chaffing at the re-imposition of the sanctions and blame the Iranian government for it.

However, as the graph shows, Iran is an export-oriented economy with nearly 80 percent of exports consisting of oil or its downstream products such as petro-chemicals. Despite sanctions, their exports have not fallen below $20 billion over almost two decades. An interview with Novozymes, a Danish MNC with deep trade links in Iran indicated that over the years Iran has become fairly self-sufficient when it comes to import-substitution hence do not need to depend on world economy.

Iran seems willing to weather another storm rather than change for a US leader that may be gone in two years. While the fresh wave of sanctions have been touted as the death of Iran's oil exports as yet it appears that they are not tough enough to do the job.