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New U.S. Sanctions On Iran Metals Target Jobs, Not Government Revenue

By Esfandyar Batmanghelidj (source: Bourse & Bazaar)

The Trump administration has announced a new wave of sanctions on Iran's steel, aluminum and copper industries. A statement from President Trump declares, "Today's action targets Iran's revenue from the export of industrial metals-10 percent of its export economy-and puts other nations on notice that allowing Iranian steel and other metals into your ports will no longer be tolerated."

Steel plant in Hormozgan, Iran
(2012 file phot by ISNA)

It is true that Iran's metals exports are an important source of foreign exchange revenue. But to put the overall value in perspective, Iran's finished metals industry accounts for the same share of exports as Iran's vegetable industry. The largest product group in metals exports, semi-finished iron (USD 503 million), earns Iran less than the largest product group in the food industry, nuts (USD 649 million).

Moreover, it is important to recognize that Iran is already struggling to repatriate foreign exchange revenues due to the severe sanctioned-related constrictions on international banking channels. So the notion that additional sanctions were necessary to constrain this particular source of foreign exchange is dubious at best. Had cutting access to foreign exchange been the specific aim, a waiver system like that formerly in place for oil exports, in which Iran's earnings would accrue in tightly controlled escrow accounts, would have sufficed.

So why is it so important for the Trump administration to target the metals and mining industry? The answer is that the metals and mining industry is perhaps the single most important employer in Iran's economy. Metals and mining companies directly employ over 600,000 workers. The country's automotive sector, the largest consumer of Iranian steel, directly employs a further 1 million workers. Combined, the two sectors account for 6 percent of the country's total labor force.

Workers at Iran Khodro plant in Tehran
(2012 file photo by ISNA)

The new sanctions will likely hit the earnings of Iran's major metals companies, such as Mobarakeh Steel or the National Iranian Copper Industries Company. But any impact on government revenues will be secondary. Foremost, a disruption to earnings will further deteriorate the balance sheets of Iran's heavily indebted metals and mining companies. Even if the government steps in to prevent bankruptcies, the likely disruptions to cash flow will lead to wages going unpaid and the prospect of layoffs. Furthermore, a disruption in steel output-whether through shortages or price increases-could also impact output within Iran's automotive sector, where production has told an audience of Iranian blue collar workers that they are on the "on the front line" of an economic war.

In April, Donya-e-Eqtesad, Iran's leading financial newspaper, ran an in depth report on prospects for Iran's steel exports. The report observed that already significant disruptions in exports were contributing to "the cessation of production and the unemployment of thousands."

Creating the conditions for mass unemployment-especially among the blue collar workers employed by state-owned enterprises who form the backbone of Iran's economy-is the likely aim of the Trump administration's latest round of sanctions. Last month, Mark Dubowitz, a principal advisor on the Trump administration's Iran policy,

About the author:

Esfandyar Batmanghelidj has spent the last 5+ years working on projects related to "business diplomacy" between the West and Iran. He is the founder of the Europe-Iran Forum, the leading annual gathering for business, government and civil society leaders committed to Iran's economic development. He is also Founder and Publisher of Bourse & Bazaar, a digital business publication with a focus on Iran. He is a graduate of Columbia University. Follow him at @yarbatman.

... Payvand News - 05/10/19 ... --

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