Five things to know about US sanctions on Iran

The United States on Monday enforced the most debilitating part of its sanctions programme on Iran, targeting the Islamic republic's main source of income: oil. 

Any country, except for the eight given a waiver by the US, that buys Iranian oil or trade with blacklisted Iranian entities, could face financial penalties.

Iraq, which uses Iranian gas to generate as much as 20 percent of its electricity, has not been granted the waiver despite fears that the cut in energy imports could create problems for Baghdad. 

The US has added some 700 Iranian entities to the sanctions list, which makes it nearly impossible for them to conduct foreign trade through the international financial system. 

Here are five things to know about the sanctions. 

Hit them where it hurts

Iran, a member of the Organisation of Petroleum Exporting Countries (OPEC), depends on oil exports to sustain its economy. 

Oil makes up two-thirds of its export earnings and nearly half of government revenue. 

The US sanctions make it difficult, if not impossible, for Iran to sell its oil on the international market. 

Even before the sanctions came into effect, some of Iran's leading buyers, such as Japan and South Korea, had stopped placing new orders.

Iran's oil exports have dropped by 800,000 barrels per day (bpd) to two million bpd between April and September this year, according to the Institute of International Finance. 

Even though some countries, such as Turkey - which imports gas from Iran - have been given exemptions, the sanctions are still expected to have a significant fallout on the Iranian oil industry.

On the other hand, Russia says it will continue to trade with its close Iranian ally and help it sell the oil on the open market.

Kenneth Katzman, an Iran expert at the Congressional Research Service (CRS), says the sanctions won't have any severe impact on the Iranian economy. 

"Iran's economy will probably go into a modest recession but then stabilise. It will not collapse because there are a lot of buyers for Iranian oil who are not really cooperating with the US," he told TRT World. 

Impact on the wider Iranian economy

Throughout his campaign for the presidency, Donald Trump criticised the 2015 Iran nuclear deal negotiated by the Obama administration and five world powers including Britain, China, France, Germany and Russia. 

Under the deal, Iran was to curtail its nuclear programme in exchange for the lifting of sanctions. 

All the other signatories, specifically European Union member states, have insisted that Iran is keeping its part of the deal, which basically means it's not trying to make nuclear weapons.

It is something which the International Atomic Energy Agency (IAEA), the global watchdog, has verified an unprecedented 12 times. 

But Trump is not having any of it. And so starting in August, he authorised the reimposition of sanctions, targeting Iran's automobile and other sectors first and then moving toward its oil exports.

The sanctions make life harder for ordinary Iranians who are already reeling from high inflation and a shortage of necessary daily-use items, such as imported medicines.

"A lot of medicines for specialised treatments such as blood clotting and cancer are imported into Iran," says James Miller, Managing Director of the Oxford International Development Group, who has worked closely with Iranian doctors for a decade.

"These are patented drugs, and Iran doesn't produce them. Secondary sanctions mean the Western pharmaceutical companies would be reluctant in selling them these medicines," he told TRT World in an interview in September.

Miller says since the banks were unsure about how far the US Treasury was willing to go, the financial institutions did not facilitate the trade of even humanitarian goods. 

How do the sanctions work? 

Of all the military and economic weapons in the US arsenal, the most powerful, arguably, is the US dollar, which is used in international trade. 

Every dollar transaction that involves cross-border trade and the banking system goes through the US financial system in New York.

If Washington decides to lock out any entity or individual from its banking system, then it becomes impossible for a third country to do anything about it. 

That's why businesses are skeptical about the European Union's efforts to block the impact of the US sanctions. 

Total, the French oil giant, and Germany's Siemens are among the many European companies that have walked out of business deals in Iran as they don't want to risk business in the much bigger American market. 

What’s the US endgame?

The Trump administration has not defined any clear policy endgame behind its sanctions or even how it wants to achieve them.  

US Secretary of State Mike Pompeo has put forward a wishlist of demands which include asking Tehran to end its ballistic-missile programme, pulling out militias from Syria, withdrawing support for the Houthis in Yemen and stopping the support Hezbollah in Lebanon. 

That's asking Iran change its entire foreign policy outlook. 

Previous sanction programmes, which were backed by the United Nations, didn't cripple the Iranian economy or weaken the hold of the clerics over government institutions. 

In the face of the sanctions and US trade embargo, Iran has built an indigenous arms industry and produces more cars than neighbouring Pakistan. 

"The goals of the US policy are to deny Iran the revenue to exercise influence in the region, or to develop strategic weapons programme or to satisfy the needs of its population," says Katzman of CRS. 

"But my assessment is that the US sanctions have never effected Iran's regional influence and will not materially effect Iran's regional influence now." 

Fallout in Iran

On Monday, the Tehran Times, an English-language Iranian newspaper, carried a picture on its front page that showed people burning US dollar notes along with an American flag. 

But that anger shows just one side of the picture. In the last few months, thousands of protestors have taken to streets in nearly all the 31 provinces of the country, demanding jobs and lower prices. 

Rial, the Iranian currency, has lost value against the dollar and added to inflation, which is already running in double digits. 

Iran's President Hassan Rouhani, a moderate who promoted the nuclear deal as a way to end economic hardship, could come under fire at home. 

And analysts fear that the sanctions could end up strengthening the hardliners who have opposed the nuclear deal all along.