This week, the United States has taken further actions to impose sanctions on Russia and entities based in other countries as part of ongoing efforts to restrict Moscow’s access to financial resources and products that support its invasion of Ukraine. Companies located in Kyrgyzstan, the United Arab Emirates, and Serbia now face penalties for their involvement in aiding Russia’s war efforts.
According to former Ambassador to Poland Daniel Fried, Russia is building its own web of alliances around the world, with the exception of China. These alliances primarily consist of countries regarded as outcasts on the global stage. Iran is a prominent supporter of Russia, forging an alliance of convenience with the country. Iran has been assisting Russia in its war efforts by supplying drones, and the two nations have been working to alleviate the economic strain caused by sanctions by linking their banking systems.
Given that Iran’s largest source of revenue comes from oil exports, the country has resorted to illicit trafficking to sustain its income since the reimposition of economic sanctions by the United States. Surprisingly, Iran’s oil output has reached new highs despite the added pressure. Behnam Ben Taleblu, a senior fellow with the Foundation for Defense of Democracies, notes the lack of active enforcement of sanctions and the desire for diplomacy and de-escalation with Iran as contributing factors to risk-tolerant actors purchasing Iranian oil.
Iran has employed various tactics to evade international tracking systems and disguise its ships while at sea. This includes changing ship names and identification codes, and conducting secret ship-to-ship transfers to deliver oil to tankers owned by other countries like China and Syria. Taleblu emphasizes that Iran has vast experience in sanctions evasion, and it is sharing its knowledge with Russia.
The shadow banking system in Iran has provided sanctioned Iranian entities with cover to disguise their business dealings with foreign customers. The United States has recently imposed sanctions on this financial network. Representative Mike Lawler has stressed the need for strong unity among the US and its allies in pushing back against Iran’s actions, which include producing and distributing petroleum and undermining imposed sanctions.
The US first implemented sanctions on Iranian oil imports in 1979 during the Iran hostage crisis. Since then, additional restrictions have been introduced and lifted as Iran attempts to circumvent US and allied measures. Representative Jared Moskowitz points out that sanctions need constant adjustments because those subjected to them continually seek ways to exploit loopholes.
Iran has shown aggressive responses to sanctions, with the US Navy reporting that the regime has harassed, attacked, or seized almost 20 internationally flagged merchant vessels in recent years. Taleblu explains that Iran has regarded oil as a weapon for decades, threatening that if it cannot export oil, no other country in the region will be able to do so peacefully.
Despite the regime’s efforts in the oil market, sanctions continue to impact Iran. The country’s inflation rate stands at around 40%, and it faces a $6.5 billion trade deficit for non-oil trade. Iran’s currency has also weakened.
Russia’s economy has faced its own challenges, with a 2.1% drop in GDP in 2022 and a predicted further decline of 2.5% this year, according to the Organization for Economic Cooperation and Development. The sanctions imposed on Russia aim to exert economic pressure and force a change in behavior, but Representative Lawler notes that the unified blowback against Russia’s invasion of Ukraine was unexpected.
Experts believe that although Iran and Russia have managed to find ways to evade sanctions, the economic pressures on their respective economies continue to mount. Sanctions do not need to be airtight to be effective; their purpose is to cause economic stress, even if there is some cheating involved.
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