CONTENT PREVIEW
Country Risk

Iran likely to increasingly rely on China as major trading partner to withstand strengthening US sanctions

25 May 2018

Key Points

  • Pompeo’s speech makes clear that the US seeks a fundamental change in Iran’s behaviour, emphasising that Iran’s failure to do so has the potential for internal collapse, not least given widespread public dissatisfaction with the Islamic Republic’s economic performance.
  • Although there is domestic consensus in Iran to avoid provocative actions that could jeopardise securing sanctions relief from Europe, Russia, and China, strengthening US sanctions will reduce Iran’s available options, contribute to expanding divisions within the political establishment over economic management and foreign policy, as well as embolden economically driven protests.
  • Iran will probably become increasingly reliant on China, its largest trading partner; Chinese companies will likely be supported by the Chinese state in legally obviating US sanctions for Iranian business deemed strategically important.

Event

On 21 May, United States Secretary of State Mike Pompeo delivered a speech outlining the US policy toward Iran in the aftermath of US withdrawal from the Iran nuclear agreement (Joint Comprehensive Plan of Action – JCPOA).US Secretary of State Mike Pompeo speaks at the Heritage Foundation 21 May 2018 in Washington, DC. He addressed the topic of ‘After the Deal: A New Iran Strategy’. (Win McNamee/Getty Images)US Secretary of State Mike Pompeo speaks at the Heritage Foundation 21 May 2018 in Washington, DC. He addressed the topic of ‘After the Deal: A New Iran Strategy’. (Win McNamee/Getty Images)

In his speech, Pompeo reiterated President Donald Trump’s willingness to negotiate another agreement with Iran, and also outlined 12 US requirements before a ‘new’ deal could be implemented including, Iran agreeing to never pursue plutonium reprocessing, halting all development of nuclear-capable missile systems, essentially giving the International Atomic Energy Agency (IAEA) unrestricted access to verify implementation, as well as retracting all support for US-designated ‘terrorist’ groups in the Middle East region, which includes Iran’s most capable proxy non-state armed group (NSAG), the Lebanese militant group Hizbullah. In exchange for meeting these demands, the US would end its web of sanctions, which drastically narrow Iran’s access to the global financial system, as well as allow the Iranian government to re-establish normal diplomatic and commercial relations with the rest of the world, and receive financial and other support to modernise the Iranian economy, including liberalising the transfer of advanced technology.

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