Iran will get as much as $7 billion in relief from economic sanctions over six months under the first-step agreement reached today in Geneva, the Obama administration said.
In return for Iran limiting its nuclear program, the interim agreement provides for the release of $4.2 billion in frozen oil assets and will let Iran continue exporting oil at current levels, rather than forcing continued reductions by buyers, as would be required under current law, according to a White House statement.
The accord also will “suspend certain sanctions on gold and precious metals, Iran’s auto sector and Iran’s petrochemical exports, potentially providing Iran approximately $1.5 billion in revenue,” the administration said.
Sanctions have cost Iran $120 billion in lost revenue since the U.S. and European Union started imposing strict penalties on energy, ports, insurance, shipping, banking and other Iran-related transactions in 2010, according to U.S. Treasury estimates. While almost all U.S. trade with Iran has been banned for decades, other than food and medical supplies, U.S. restrictions now apply to other countries that trade with the Islamic Republic.
The deal will permit $400 million in tuition payments to schools for Iranian students studying abroad over the six months, and it will give Iran access to civilian aircraft parts as well as help in providing humanitarian aid that isn’t banned by sanctions.
“But the broader architecture of sanctions will remain in place, and we will continue to enforce them vigorously,” President Barack Obama said in a televised address from the White House last night, shortly after the agreement was announced in Geneva. “And if Iran does not fully meet its commitments during this six-month phase, we will turn off the relief, and ratchet up the pressure.”
Iran’s crude exports have fallen 60 percent from two years ago, due to U.S. and European sanctions, according to the administration.
The agreement would ease European Union sanctions on insurance and transportation of Iranian oil, according to a Farsi-language copy of the deal.
The sanctions relief being provided isn’t “going to have a significant impact on the real balances of supply and demand for oil,” Ed Morse, the New York-based global head of commodities research at Citigroup Inc., said in an interview.
More Sanctions Sought
Israeli officials and some U.S. lawmakers have said sanctions should be tightened, not eased, to keep pressure on Iran. Rejecting those pleas, the U.S. and the five other countries negotiating with Iran have agreed to “not impose new nuclear-related sanctions for six months if Iran abides by its commitments under this deal, to the extent permissible within their political systems,” according to the White House statement.
The no-new-sanctions pledge will be tested when the U.S. Senate returns for legislative business on Dec. 9 after a Thanksgiving break. A group of 14 senators from both parties issued a statement last week pledging to “pass bipartisan Iran sanctions legislation as soon as possible.”
Critics of an interim accord in Congress and in Israel have predicted Iran would reap $20 billion or more in relief. U.S. officials have rejected such estimates and have said the accord won’t lift the most punishing sanctions -- those on oil sales and banking. The Obama administration estimated in its statement that Iran will continue to lose $4 billion a month in crude it otherwise would have exported.
“During the six-month period that the Iranians will be getting a maximum of $7 billion in total sanctions relief, they will be suffering a loss of $30 billion in oil revenues alone compared to what they earned from oil sales before sanctions were imposed -- and that doesn’t take into account losses from other sanctions,” said Robert Einhorn, a former member of the U.S. negotiating team who is now a senior fellow at the Brookings Institution in Washington.
Under U.S. sanctions that took effect Feb. 6, Iran’s six remaining crude buyers -- China, India, Japan, South Korea, Turkey and Taiwan -- can buy its oil only with their own currency, not dollars or Euros, and must bank those payments in accounts that Iran uses to purchase local goods from the trading partners.
The agreement won’t loosen financial restrictions that affect most Iranian banks and make it almost impossible for the government to access the global financial system, according to U.S. officials.
While Iran will be allowed to buy and sell precious metals, including gold, it will be barred from accepting them as payment for oil or any other sanctioned transaction, according to the officials, who asked not to be identified discussing the details.
Iran has purchased gold as a hedge against a balance-of-payments crisis threatened by the decline in its exports and tight limits on its access to hard currency.
Before the U.S. ban on all Iranian trade in gold was imposed in July, the country’s imports of the precious metal rose to a high of more than $1.5 billion a month in mid-2012 as Iranians bought gold to safeguard against inflation and its declining currency, the rial.
The administration calculates the lifting of auto sanctions could let Iran earn $500 million in exports. Iran’s customs data show $519 million in auto exports in the year ending March 2012, before sanctions were imposed.
The package would temporarily lift White House executive orders of July 2012 and June 2013 that imposed penalties on countries that trade petrochemicals with Iran. Those sanctions squeezed more than $3 billion in the last year from Iran’s previous annual revenue of about $9.6 billion before sanctions, according to the administration officials.
Iranian customs reported $6.3 billion in exports in chemical industries and related fields in the year ending March 2013, after sanctions.
The agreement pledges help in facilitating humanitarian exports to Iran, including food and medicine. Such exports have been held up by banks wary that they’ll get in trouble for doing business with Iran.
Mark Dubowitz, who has advised U.S. lawmakers and foreign governments on ways to tighten sanctions, rejects the administration’s estimates of the relief, calling them greatly undervalued.
Based on research for the Foundation for Defense of Democracies, he puts a price tag of $20 billion on the potential benefits to Iran, between unfrozen assets, recouped petrochemical and auto sales and an array of illicit trade that he predicts Iran will finance with payments in gold. U.S. lawmakers wary of negotiating with Iran and Israeli officials have widely cited his calculations.
“A significant sanctions relief windfall of billions of dollars in repatriated hard cash, combined with a moratorium on new congressional sanctions that de-escalates the economic pressure, is exactly what Iran needs to enhance its negotiating leverage in the run up to any final agreement,” Dubowitz, who is among the most visible sanctions advocates and researchers in Washington, said in an interview.