Trevor Dobbs, Staff Writer
Secretary of State Mike Pompeo has signaled that the United States Treasury Department will soon discontinue its sanction exemptions for Turkey, China, India and others as a part of the Trump Administration’s increasingly tough stance on Iranian sanctions.
Until recently, the Trump administration has allowed for a select number of countries to obtain exemptions from these sanctions with the assumption that they would eventually phase off their trading with Iran. The idea of this strategy is to put “maximum pressure” on the Iranian regime in the same way that is currently being done in North Korea. While the endgame goal of the administration is still unclear to some extent, the stated goal seems to be to get Iran to disarm its nuclear capabilities. Throughout his campaign, Trump has been an extremely vocal critic of the Iran Nuke Deal championed by President Barack Obama and has repeatedly called such a deal “one of the worst in history.” The reactions received from the countries that lost their exemptions are exactly what many would think that it would be: an increasing amount of tension between the United States and everyone that had business undertakings as well as trade relationships with Iran.
The United States has a unique position not only as a strategic military power but also as a global economic power, and Trump has used this power to his advantage in gaining the foreign policy he desires. Being the world’s largest economy, having the most powerful military, being in a strong position with the global SWIFT system and having the most used reserve currency has positioned the United States in such a way that they are able to act unilaterally in such matters and to ultimately “get their way” when initiating sanctions around the world. In short, because almost all oil is traded in USD and because Trump is threatening countries that do not comply with the sanctions with loss of access to the U.S. market, firms across the world are complying with the policy direction of the Trump administration, despite what their countries leadership is signaling them to do.
Last year, the European Union thought that they might be able to bypass these exemptions by insisting that Iran trade its oil in euros as opposed to American Dollars. The U.S. has the most used currency in the world, and this status gives the United States its position as a global leader; threatening to bypass this system by using a different currency is much more serious than it actually sounds. If another currency were to be traded for oil in Iran, this could theoretically cause a domino effect to many other countries, although it is unclear what stance Saudi Arabia and other allied Gulf states would take. Of course, had this happened, this would have increased diplomatic and economic tensions between the United States and many other countries if this plan proceeded. The United States losing large shares of the global currency market via the dumping of dollars for euros could dramatically strengthen the euro and weaken the dollar, causing major inflationary concerns in the United States market as well as putting into question the U.S. bond market and thus the deficits that the United States spends on its social programs and military programs that ensure NATO’s continuity.
Overall, the situation seems to be getting very serious in domestic markets and international markets alike. Iran is a major supplier of oil, and suddenly cutting off a large amount of oil supply from global hegemons such as China and India have the potential to trigger those countries to stockpile huge amounts of oil. The overall effect that this may have is a huge rise in oil prices this summer; with inverted yield curves and an increasingly rising amount of public as well as private debt. The fate of the U.S. and international consumers is definitely going to be in question in the months ahead.