Iran Deal Reimagined: Underlying Influences of U.S. Sanctions
In an era of divisive national platforms, the Iran Nuclear Deal provides yet another example of the disparate foreign policy goals of the western world. Leaders in the European Union have recently approved a measure known as the Instrument in Support of Trade Exchanges, which will work to facilitate trade between the EU and Iran despite heavy U.S. opposition to such a move.
European nations have often been critical of the United States’ withdrawal, noting that freezing the assets of major private petroleum companies not only affects the oil industry, but also the quality of life of Iran’s working class, as over 60 percent of Iranian exports are related to the petroleum industry (The Observatory of Economic Complexity, 2019). The tax-related funds from this trade would likely have a sizeable “trickle-down effect” on the Iranian population, although the extent of this effect is debatable.
However, while it may seem strange that the United States and Europe have such different stances on Iran, a more subtle influence may be at play here: the petro-dollar. The concept, introduced by scholar William R Clark, suggests that the U.S. dollar’s status as a reserve currency is propped up by the oil trade, which is almost exclusively handled in U.S. dollars (Clark, 2005). Interestingly, Iran stopped trading its oil reserves with the U.S. dollar in March 2012, and instead moved to trade oil with Euros, Yuan, and other major currencies. Perhaps, then, the United States has no incentive to maintain positive trade relations with Iran, since such a move would not affect the strength of U.S. dollar and U.S. financial assets.
Meanwhile, the United States has shown no signs of imposing sanctions of the Saudi government, even after the killings of journalist Jamal Khashoggi have been connected to Crown Prince Mohammed bin Salman. In the eyes of many, this event was a clear signal of Saudi Arabia’s authoritarian and anti-humanitarian tendencies; however, sanctions were only placed on 17 officials after the incident. It is notable that Saudi Arabia trades oil in U.S. dollars, and the Saudi Royal Family convinced OPEC to conduct all oil trades in U.S. dollars during the 1970s—a policy that has continued to impact the oil trade to this day.
With such intense economic pressures, the petro-dollar may provide us with a valuable lens into the true motivations of U.S. foreign policy actions. In January, the United States imposed a new set of sanctions on the Venezuelan government, which it deems illegitimate. However, it is also useful to know that in October 2018 the Venezuelan government began using Euros in lieu of U.S. dollars for all international financial transactions. The economic consequences are difficult to determine with exactitude. Nonetheless, the petrodollar could be help shed light onto the underlying causes of these recent foreign policy moves.