US Pressure on Iran Starts to Bite as Sanctions and Oil Blockade Tighten

Iran’s rulers are facing a narrowing set of options as a US campaign targeting oil exports, sanctions evasion and access to foreign financing begins to strain the economy, three senior Iranian sources said.

Washington has intensified economic pressure in recent weeks, seeking concessions from Tehran in any future negotiations. Six months of conflict have so far failed to produce those concessions. The latest measures, however, have left Iran with fewer ways to obtain foreign currency or purchase goods, after decades in which its clerical leadership managed to work around sanctions.

The effort to cut Iran off from international financing networks in countries it has long used to keep the economy functioning presents an especially urgent threat, the sources said. Iran’s financial squeeze is also making it harder to pay the high premiums needed to evade sanctions illicitly. The US blockade has cut off Tehran’s main source of revenue from oil exports, while the economy was already suffering from a collapsing currency and spiraling inflation.

The rial has reached record lows in recent days. One senior source said Iran had only about two months of gasoline supplies left, despite its domestic oil production, because the country lacks sufficient refining capacity. The war has also generated a large bill for rebuilding damaged industry and infrastructure.

Iranian leaders are aware that an economic collapse could reignite nationwide protests that authorities suppressed in January, killing thousands of demonstrators, the sources said. Ali Ansari, a modern history professor at the University of St Andrews, said, “They are under very, very severe economic pressure. They're losing control of the Straits. It's really a question of if they choose to negotiate and I think they'll have to.”

Fighting erupted again this week after US attacks along Iran’s Gulf coast prompted Iranian strikes on Arab states. More energy is flowing through the Strait of Hormuz despite Iranian efforts to disrupt the route, but neither side has indicated that it is ready to accept the other’s demands. Iran hopes inflation will influence the US administration ahead of midterm elections in November, while the United States seeks to turn economic pressure into leverage at a key moment in the conflict.

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They are under very, very severe economic pressure. They're losing control of the Straits. It's really a question of if they choose to negotiate and I think they'll have to.