Potential Qatari moves to become the first Gulf state to effectively abolish the region’s onerous kafala or labour sponsorship system, denounced as a form of modern slavery, could produce a rare World Cup that leaves a true legacy of social and economic change.
In a rare kudo, Qatar’s fiercest labour critic, the International Trade Union Confederation (ITUC), hailed a Qatari announcement that it was introducing far-reaching reforms as a “breakthrough.”
The ITUC and human rights groups have campaigned for labour reform and abolition of kafala since FIFA awarded Qatar the hosting rights for the 2022 World Cup in December 2010. Despite activists’ frustration at the slow pace of change in Qatar since then, Qatar’s response to the criticism amounted to the sporting event creating a legacy of change even before it was held.
Qatar became the first autocratic Gulf state to engage with its critics rather than refusing to talk to them and barring them entry to the country – a standard practice in most of the Gulf countries. It also acknowledged early on that the kafala system that puts migrant workers at the mercy of their employers needed to be change.
The ITUC was quick to claim credit for a Qatari announcement this week promising far reaching reforms. The reforms that have yet to be enshrined in law would include safeguards preventing employers from unilaterally changing labour contracts, abolish exit visas, introduce a minimum wage, and relieve employers of controlling workers’ documents.
The ITUC and human rights groups like Amnesty International and Human Rights Watch were crucial in pushing Qatar towards reforms that would put it in the lead of labour change in the Gulf. The timing of the promised reforms was however likely determined by Qatar’s need to fend off being penalized by the International Labour Organization (ILO) as well as the almost five month-old Gulf crisis that pits the Gulf state against an alliance led by the United Arab Emirates and Saudi Arabia.
The ILO had threatened to slap Qatar with one its harshest penalties if the Gulf state failed to credibly address criticism of its labour regime by the time the group meets in November. The announced reforms kill two birds with one stone. It no doubt will go to some length in satisfying the ILO while allowing Qatar to project itself internationally as a good international citizen at a time that the UAE-Saudi alliance have imposed a diplomatic and economic boycott in a bid to force it to adhere to their policies rather than chart an independent course.
In the first joint action since the feud erupted among the Gulf states, Qatar this week joined Saudi Arabia, the UAE and other members of the Gulf Cooperation Council (GCC) as well as the United States in imposing sanctions on several individuals and entities accused of supporting the Islamic State and al-Qaida in Yemen. By joining, Qatar ensured that it remained on the right side of US President Donald J. Trump and countered Gulf allegations that it supported militancy and political violence.
If implemented, the labour reforms would also weaken a covert UAE-Saudi campaign to persuade world soccer body FIFA to deprive Qatar of its World Cup hosting rights. Qatar’s detractors have used the labour issue in a pot is blaming the kettle campaign against the World Cup being held in the Gulf state. Dubai’s idiosyncratic police chief, Lt. Gen. Dhahi Khalfan, went as far as saying that the UAE and Saudi Arabia would lift their boycott if Qatar surrendered its hosting rights – a demand that was rejected by Qatar out of hand.
The labour reforms would also serve to deflect allegations of wrong doing in the Qatari bid for the World Cup. Nasser Al-Khelaifi, the head of Paris St. Germain and CEO of beIN Media Group, the Al Jazeera television network’s sports franchise, became the first Qatari official to be investigated for briberyof a FIFA official in Qatar’s bid for the World Cup hosting rights. Mr. Al-Khelaifi was this week grilled by Swiss investigators for seven hours. He has denied any wrong doing.
Claiming Qatar’s announced reforms as a trade union victory, ITUC general secretary Sharon Burrow said that “the new guidance from Qatar signals the start of real reforms in Qatar which will bring to an end the use of modern slavery and puts the country on the pathway to meeting its international legal obligations nation on workers’ rights. Following discussions in Doha there is a clear government commitment to normalise industrial protections for migrant workers.”
In contrast to the ITUC which was unequivocal in its praise of Qatar, human rights groups like Amnesty International extended a more cautious welcome to Qatar’s planned reforms.
An Amnesty International spokesperson suggested that it was too early to judge. “We are not able to assess the significance of these developments until we have seen the full details of the government’s commitments. However, today’s announcements have clear potential to have a positive impact on migrant workers’ lives, depending on how they’re implemented,” the spokesperson said.
Former Human Rights Watch Gulf expert Nicholas McGeehan noted that Qatar’s road towards labour reform has been littered with promises that were either partially kept or not fulfilled at all. “All we have today are promises, and promises have been broken before. I feel we need to put expressions of optimism on hold until we see full details, changes in the law where necessary, and a time frame for promised reforms to be implemented,” Mr. McGeehan said.
Against the backdrop of the Gulf crisis, Qatar has a vested interest in making good on its promises. Labour reform would project the state, despite being an autocracy, as a 21st century nation that embraces some degree of change not only for others in the greater Middle East, but also for itself. It potentially would position the 2022 World Cup as a rare mega-sporting event to have served as a catalyst of change. That would be a legacy that international sporting associations aspire to through major tournaments, but seldom achieve.
Shifting Middle Eastern sands spotlight diverging US-Saudi interests
A series of Gulf and Middle East-related developments suggest that resolving some of the Middle East’s most debilitating and devastating crises while ensuring that efforts to pressure Iran do not perpetuate the mayhem may be easier said than done. They also suggest that the same is true for keeping US and Saudi interests aligned.
Optimists garner hope from the fact that the US Senate may censor Saudi crown prince Mohammed bin Salman for the October 2 killing of journalist Jamal Khashoggi in Istanbul; the positive start of Yemeni peace talks in Sweden with an agreement to exchange prisoners, Saudi Arabia’s invitation to Qatar to attend an October 9 Gulf Cooperation Council (GCC) summit in Riyadh, and a decision by the Organization of Oil Exporting Countries (OPEC) to cut production.
That optimism, however, may not be borne out by facts on the ground and analysis of developments that are likely to produce at best motion rather than movement. In fact, more fundamentally, what many of the developments suggest is an unacknowledged progressive shift in the region’s alliances stemming in part from the fact that the bandwidth of shared US-Saudi interests is narrowing.
There is no indication that, even if Qatari emir Sheikh Tamim bin Hamad Al Thani decides to accept an invitation by Saudi king Salman to attend the GCC summit rather than send a lower level delegation or not attend at all, either the kingdom or the United Arab Emirates, the main drivers behind the 17-month old economic and diplomatic boycott of the Gulf state, are open to a face-saving solution despite US pressure to end to the rift.
Signalling that the invitation and an earlier comment by Prince Mohammed that “despite the differences we have, (Qatar) has a great economy and will be doing a lot in the next five years” do not indicate a potential policy shift, UAE Minister of State for Foreign Affairs Anwar Gargash insisted that the GCC remained strong despite the rift. “The political crisis will end when the cause behind it ends and that is Qatar’s support of extremism and its interference in the stability of the region.,” Mr. Gargash said, reiterating long-standing Saudi-UAE allegations.
Similarly, United Nations-sponsored peace talks in Sweden convened with the help of the United States may at best result in alleviating the suffering of millions as a result of the almost four-year old Saudi-UAE military intervention in Yemen but are unlikely to ensure that a stable resolution of the conflict is achievable without a lowering of tension between Saudi Arabia and Iran. Even humanitarian relief remains in question with the parties in Sweden unable to agree on a reopening of Sana’a airport to facilitate the flow of aid.
More realistically, with the Trump administration, backed by Saudi Arabia and Israel, determined to cripple Iran economically in a bid to force it to alter its regional policies, if not change the regime in Tehran, chances are the Yemeni conflict will be perpetuated rather than resolved.
To Yemen’s detriment, Iran is emerging as one of the foremost remaining shared US-Saudi interests as the two countries struggle to manage their relationship in the wake of Mr. Khashoggi’s killing. That struggle is evident with the kingdom’s Washington backers divided between erstwhile backers-turned-vehement critics like Republican senator Graham Lindsey and hardline supporters such as national security advisor John Bolton. The jury is out on who will emerge on top in the Washington debate.
The risks of the Saud-Iranian rivalry spinning out of control possibly with the support of hardliners like Mr. Bolton were evident in this week’s suicide bombing in the Iranian port of Chabahar, an Indian-backed project granted a waiver from US sanctions against the Islamic republic to counter influence of China that support the nearby Pakistani port of Gwadar.
Iranian officials, including Foreign Minister Mohammad Javad Zarif and Revolutionary Guards spokesman Brigadier General Ramadan Sharif suggested without providing evidence that Saudi Arabia was complicit in the attack that targeted the city’s police headquarters, killing two people and wounding 40 others.
Iran’s semi-official Tasnim news agency, believed to be close to the Guards, said the attack was the work of Ansar al-Furqan, an Iranian Sunni jihadi group that Iran claims enjoys Saudi backing.
Iran’s allegation of Saudi complicity is partly grounded in the fact that a Saudi thinktank linked to Prince Mohammed last year advocated fuelling an insurgency in the Iranian province of Sistan and Baluchistan that incudes Chabahar in a bid to thwart the port development while Mr. Bolton before becoming US President Donald J. Trump’s advisor called for US support of ethnic minorities in Iran.
In a bid to create building blocks for the fuelling of ethnic insurgencies in Iran, Pakistani militants have said that Saudi Arabia had in recent years poured money into militant anti-Iranian, anti-Shiite madrassas or religious seminaries in the Pakistani province of Balochistan that borders on Sistan and Baluchistan.
The divergence of US-Saudi interests, agreement on Iran notwithstanding, was on display in this week’s defeat of a US effort to get the UN General Assembly to condemn Hamas, the Islamist group that controls the Gaza Strip. Saudi Arabia, despite the kingdom’s denunciation of Hamas as a terrorist organization and its demand that Qatar halt support of it, voted against the resolution.
The vote suggested that Mr. Trump may be hoping in vain for Saudi backing of his as yet undisclosed plan to resolve the Israeli-Palestinian dispute that is believed to be slanted towards Israel’s position.
Saudi ambassador to the UN Abdallah Al-Mouallimi said the defeated UN resolution would “undermine the two-state solution which we aspire to” and divert attention from Israel’s occupation, settlement activities and “blockade” of territories occupied during the 1967 Middle East war.
Saudi Arabia’s changing status and the divergence of longer-term US-Saudi interests was also evident in this week’s OPEC meeting in Vienna.
To get an OPEC deal on production levels, the kingdom, once the oil market’s dominant swing producer, needed an agreement with non-OPEC member Russia on production levels as well as Russian assistance in managing Iranian resistance, suggesting
The agreement, moreover, had to balance Mr. Trump’s frequently tweeted demand for lower prices, and the kingdom’s need for higher ones to fund its budgetary requirements and Prince Mohammed’s ambitious economic reforms and demonstrate that the Khashoggi affair had not made it more vulnerable to US pressure.
The emerging divergence of US-Saudi interests in part reflects a wider debate within America’s foreign policy community about what values the United States and US diplomats should be promoting.
With some of Mr. Trump’s ambassadorial political appointees expressing support for populist, nationalist and authoritarian leaders and political groups, the fact that some of the president’s closest Congressional allies back the anti-Saudi resolution illustrates that there are red lines that a significant number of the president’s supporters are not willing to cross.
All told, recent developments in the Middle East put a spotlight on the changing nature of a key US relationship in the Middle East that could have far-reaching consequences over the middle and long-term. It is a change that is part of a larger, global shift in US priorities and alliances that is likely to outlive Mr. Trump’s term(s) in office.
Qatar’s decision to leave OPEC
The Emirate of Qatar will leave OPEC as from January 1, 2019.
The primary reason for this choice is the Emirate’s project to become the world leader in the natural gas market, raising its production from 77 million tons per year to 110 million tons. However, there is obviously also a geopolitical and energy decision underlying Qatar’s current choice.
This is the Emirate’s final response to the boycott and blockade imposed by Saudi Arabia on Qatar in June 2017, with the support of the United Arab Emirates, Bahrain, Yemen, Maldives, the Libyan GNA, Egypt and Jordan – based on Saudi Arabia’s generic accusation whereby Qatar was supposed to sponsor and support “terrorism” on its own.
The blockade was imposed two days after President Trump had met as many as 55 Heads of Arab and Muslim countries to build a sort of NATO equivalent, always against “terrorism” – an alliance to be set up immediately to counteract, above all, the Shiite and Iranian danger.
Let us leave aside the twenty-eight pages taken from the report of the US Senate on September 11, which would definitively prove the connection between those Al-Qaeda operatives and the Saudi regime – as well as the many multiannual reports of private and public funding to the jihadists and finally the lines of credit opened again by eminent citizens of the Wahhabi Kingdom in favour of Al Baghdadi’s Syrian-Iraqi Caliphate.
The Saudis, however, are too rich not to be believed, especially by the USA – hence the great blockade on Qatar succeeded also with the support of some Western countries.
For the whole Middle East, their troops, like the US ones, reported to CENTCOM, at the Al Udeid base having its headquarters precisely in Qatar.
The strategic characteristics of Qatar, which today wants to build its autonomous natural gas organization – independent of the oil one of OPEC, which does not deal with gasand is, however, dominated by Saudi Arabia – are many and particularly interesting: firstly, the Qatari people are probably the richest citizens in the world.
If we assume that the Americans’ average income is 100, that of Qatari citizens is 187.4.
Just about the size of the Falkland Islands, the Emirate has 1.9 million residents, with a very high and growing share of immigrants.
From 2000 to 2010 the Emirate’s economy grew by a 12.9% average per year.
Its future growth up to 2022 is expected to be 18% higher than the current one.
There is also an interesting geopolitical sign: Qatar participated – with great commitment – in the Western operations against Gaddafi by supporting, in particular, the black market of Cyrenaica’s oil, together with the Turkish intelligence services.
Nevertheless Qatar supports also some “rebel” jihadist Syrian groups against Assad, thus doing half a favour to US allies – while hosting, since 2013, a political office of the Afghan Taliban, which is well known and also frequented by the US intelligence service operatives.
Qatar’s global industrial and financial investments, however, are manifold.
Through its sovereign fund, the Emirate owns significant shareholdings of the Agricultural Bank of China – and certainly the Qatari decision to leave OPEC has been blessed by China. It also has shareholding in the Airbus Group; the London Stock Exchange (15.1%); Volkswagen (17%); Lagardère, a large and diversified media and publishing company; the Paris St.Germain football club; the Virgin megastore; the HBSC, one of the largest banking groups in the world; Credit Suisse (5.2%) and Veolia, a French water and gas utility and service company.
Not to mention the countless real estate operations: Porta Nuova in Milan; Westin Excelsior in Rome; Gallia in Milan; Costa Smeralda in Sardinia; Deutsche Bank; Barclay’s; Royal Dutch Shell; Tiffany; Siemens; the Heathrow airport; Walt Disney and the Empire State Building.
In addition to many other shareholdings not mentioned in this paper.
However, it has also a 3% shareholding of Total, which for Italy is an extremely important sign; a majority shareholding of the Miramax entertainment and movie company, as well as shareholdings in Rosneft, the Russian giant of natural gas and raw materials, and in the big five-year project for liquefied petroleum gas (LPG) in Germany and in the EU – a 30 billion US dollar project, of which 10 invested for Germany alone.
Therefore, between Qatar and Saudi Arabia, in the fight between oil producers and natural gas extractors, there is a real war for the hegemonic conquest of technologically advanced areas and of Europe, in particular, with a view to definitely acquiring markets and using their diversification opportunities.
Moreover, Qatar is at least as rich in natural gas as Iran (and, together with the Shiite Republic, it participates in the exploitation of the South Pars II marine field), but also as the Russian Federation.
The new Qatar-centred “gas OPEC” means, therefore, that there is no longer the US-friendly Sunni oil OPEC, precisely the one that organized the great petrodollar recycling started after Egypt and Syria’s Yom Kippur war against Israel in 1973.
Oil recycling at a “high” price against the US dollars which, after the end of the Bretton Woods agreements, led to the new hegemony of the US currency and its inappropriate exchange rate, despite its internal fundamentals.
“The dollar is our currency, but it is your problem”, FED Governor Paul Volcker said to his fellow Governors of the European Central Banks.
At that time, there was not yet the weak and irresolute timidity of the Euro to make the picture more complex.
The European currency is not a lender of last resort, but it plays the game of the global currency as an alternative to the US dollar, with the operational results we can imagine.
It is therefore no mere coincidence that the only strategic uses of the Euro were the minimum Iranian ones, in the oil Stock Exchanges of the islands in the Persian Gulf, or the more paraded than real ones by Saddam Hussein.
In essence, reverting to the geopolitical sense of the very recent Qatari decision to leave OPEC, this means that the 600,000 barrels/day of oil extracted from Qatar are considered fully marginal by it and certainly can never compete with Saudi Arabia’s 11 million barrels/day of Saudi Arabia.
Qatar plays the game with its natural gas – it does not play its oil cards.
The current Qatari operation, however, implies a strategic choice in the near future, which could be the creation of a “gas OPEC” with Russia and Iran, in view of a doubling of the LPG prices in 2019, with China becoming the world’s LPG top consumer and the USA the world’s top oil extractor, albeit with the new and expensive shale techniques, which generate profits only with high oil barrel prices.
Or an economic and financial alliance between Qatar, China, Japan and Russia, which could marginalize the dollar area by reducing it to oil.
At geopolitical level, this will certainly mean greater instability – not necessarily fully peaceful – between the Emirate and the Saudi Kingdom, while the former will invest – also within the EU – in the industrial processing of LPG, which mainly regards plastics, resins and all synthetic products from hydrocarbons.
If Russia – which also plays on the Saudi table – will be able to control its oil production, in line with the Sunni OPEC, the Qatari operation will be successful, but only for the creation of the new LPG market, and Qatar will not affect the positions already reached by Saudi Arabia and its allies.
Conversely, if Russia and Iran increase oil production, the pro-Saudi OPEC will definitely collapse and the African, Indonesian and South American production areas shall look for other regional cartels and, hence, for other geopolitical axes.
Furthermore, the bilateral relationship between the USA and Saudi Arabia will be put to an end, given the new US production and oil power, its global exporting capacity and, finally, its autonomy from the Middle East political and financial cycles.
Moreover, according to the Emir’s policy lines, the Qatari economy is focused on attracting and accumulating foreign investments, especially after the 2017 blockade, which has attracted much capital from Asia and the Middle East itself, in addition to the opening of new ports and the creation of new Special Economic Zones.
Both Saudi Arabia and Qatar have used the so-called Arab “springs” to broaden their personal power and create strong competition among the Gulf countries.
Moreover, Qatar has used the phase following the Arab “springs” to redefine its traditional expansion axes: the special relationship with the Muslim Brotherhood and its traditional link with Iran.
The Emirate, in fact, believes that the Muslim Brotherhood is the central axis of Arab politics and, hence, intends to support it.
While all the others repress it, in line with Saudi Arabia.
Even after the fall of the “Muslim Brotherhood” regime in Egypt – with the coup organized by Al Sisi in 2013 against Mohammed Morsi – Qatar keeps on supporting the fraternal Ikhwan or also Hamas and all the other organizations that have integrated into the global network of the Muslim Brotherhood.
The Saudi tension with Qatar also results from the Qatari geo-economic link with Iran and, above all, from Iran’s economic growth after the 2014 JCPOA agreements on the Iranian nuclear capacity. Saudi Arabia wants to avoid said agreements leading to the economic, oil and military recovery of the Shiite Iran.
Furthermore it cannot be ruled out that, in the near future, Saudi Arabia – possibly supported by the USA, which now believes in every “counterterrorist” storytelling – even organizes a coup against Al-Thani and the current Qatari ruling elite.
The sequence of attempted and failed coups is already long.
It would be a geopolitical suicide, but it may happen.
Pakistan, Bangladesh and other countries are now dependent on the remittances sent from Qatar by their fellow citizens to their homeland, even if, as countries, they sided with Saudi Arabia during the blockade imposed on Qatar in 2017.
Since the beginning, however, Tunisia refused to condemn Qatar (and Italy should be more careful to these infra-Islamic shifts), while Turkey – which operated with Qatar during the Libyan jihadist uprising – does not accept the Saudi diktat. The same obviously holds true for Iran and – probably less intuitively – for Oman.
After an ambiguous phase, even the Russian Federation – which had not well foreseen the internal conflict on Qatar within the Gulf Security Council in 2017 – has gradually linked itself to the Emirate, even without questioning its ties with Saudi Arabia.
Moreover, the United States has even discovered it still has a large military base in Qatar and hence cannot afford a worsening of the infra-Arab conflict and, above all, of the infra-Wahhabi conflict between Saudi Arabia and Qatar.
Obviously the issue of relations between Qatar and “terrorism”, or the link between Qatar and Iran, is a completely uncertain and widely manipulated issue.
The Emir’s speech that expressed support for Iran and Hamas and criticized the other governments of the region – a speech that allegedly was to be held on May 23, 2017 – was never delivered. There had been announcements widely publicized by the Saudi and Emirates’ news agencies, but the Emir’ speech had never been delivered.
In this regard, the official Qatar’s news agency in Doha talked about the hacking of Qatari websites, but not even this is certain.
There is also the issue of the one billion US dollars paid as a ransom to “bandits” in Iraq by some members of the Emir’s family.
It is ascertained that part of that money arrived at the Syrian Al-Qaeda “section”, Jabhat Tahrir al Sham, with a share of funds that – not too strangely – later reached the Iranian government.
Certainly there is also the already-mentioned support for the Muslim Brotherhood and there are now ascertained links between the Ikhwan and some Iranian financial and political-military networks.
Everything is possible in the Middle East.
In Doha there is also a “historical” office of the Palestinians and also one of Hamas, which has always been an integral part of the Muslim Brotherhood, while it is certain that large amounts of money were sent by Qatar to the Egyptian Brotherhood during Morsi’s government and that the Ikhwan militias from every part of the Middle East were trained in Qatar.
Obviously, at least initially, the guerrilla warfare in Libya after Gaddafi’s fall was a clash between the forces supported by the Qatari intelligence services and those organized by the other Emirates, with a specific role played by Turkey – a loyal ally of Qatar – above all at economic level.
Westerners’ stupidity did the rest.
Moreover, Qatar also sent its troops so that the Sunnis could regain control in Bahrain during the 2011 Shiite uprising.
Nor should we forget that, apart from the Al Udeid US base in Qatar, Turkey itself is building its base in Qatar for as many as 5,000 soldiers – a base located in Tariq bin Ziyad, south of the capital city.
However, how does the Gulf Cooperation Council (GCC) – the instrument of confrontation between Saudi Arabia and Qatar – work?
Is it not affected – like OPEC – by an internal weakness that blocks it for any relevant decision?
The GCC was founded in 1981. However, the monetary union, which has been gradually abandoned by Oman and the Emirates, has never been reached.
And the GCC still regards Iran as an “imperialist” factor of radical destabilization of the Arabian peninsula, especially with the organization of Shiites in Saudi Arabia and in other areas of the Emirates.
The Shiites within the Saudi regime account for 15-20%, especially in the major oil extraction areas. Obviously the Saudi regime does not want to destabilize these areas and, above all, it does not want to break the link between the USA and the Sunni world of the Arabian Peninsula – a break that, in the near future, would lead to the victory of the Iranian Shiites.
Iran: Which way to go?
The US withdrawal from the Joint Comprehensive Plan of Action (JCPOA), seriously hampered the chances for keeping the landmark accord in place.
The accord, signed in 2015 by the P5+1 group of countries — China, Germany, France, Russia, the United Kingdom and the United States — with Iran, requires Tehran to maintain a peaceful nuclear program in exchange for sanctions relief.
According to the IAEA, Iran strictly abides by the terms of the JCPOA, while the international community is unable to do the same, no matter how much politicians in the EU and other countries would like to stick to its provisions – all because of US pressure.
Sadly, the United States has financial and economic levers to punish not only Iran, but also foreign companies doing business with the Islamic Republic. Given the choice of either maintaining business relations with the US and the rest of the world or with Iran alone, there is little wonder which of the two options they will go for. This doesn’t necessarily mean that they will do this under US pressure. Business always goes where the money is and sticking with the US looks a more profitable way to go. This is exactly what business-savvy Donald Trump is staking on.
In 2018, some 100 foreign companies, including big ones as Shell, Volkswagen, Daimler, Peugeot, Airbus, Total, PSA, Siemens, and Russia’s LUKOIL and Zarubezhneft, started pulling out of Iran even before the US sanctions, announced by President Trump in May, actually took effect. However, although bending under Washington’s pressure, the authors of the 2015 Iran nuclear deal (Russia, China, Britain, France and Germany) as well as the European Union as a whole and many other countries around the world are still interested in keeping the nuclear accord alive. Why?
First, the JCPOA is a truly historic document which, possibly for the first time ever (not mentioning, of course, the Treaty on the Non-Proliferation of Nuclear Weapons – NPT) has curbed the nuclear ambitions of a particular country and put its nuclear program strictly in line with international laws and IAEA requirements. This is a vivid example of the world countries’ effective diplomatic work, which created a precedent of genuine confidence of the parties for the sake of preserving the nuclear non-proliferation regime.
Secondly, Iran a leading player in the volatile region of Western Asia, which incorporates the Middle and Near East, the Caucasus, the Caspian Sea zone, and Central Asia.
Thirdly, it should be borne in mind that Iran is a powerful source of hydrocarbons, and that its territory is an important transit route for oil, natural gas and other products to the world market. A well-educated population and a relatively developed industry and agriculture attract the attention of world business. In addition, the 70-million-strong Iran, which boasts one of the world’s biggest militaries, is an important factor in West Asian and world politics.
What needs to be done to resist US sanctions and, thereby, save the JCPOA?
To solve this complex task, Iran and all countries willing to preserve the accord, above all Britain, France, Germany and the EU as a whole, should work together. This is already being done now with the direct and active participation of Russia and China.
Today, the main priorities are:
Providing legal assistance to companies doing business with Iran. The practical implementation of the EU-declared blocking statute, which declares null and void US sanctions against Iran on its territory, prohibits European companies from observing them, as well as implementing any decisions by foreign stemming from these sanctions. The blocking statute also allows European organizations to take legal action to make up for the losses incurred as a result of the implementation of sanctions at the expense of persons who caused these losses (meaning the US government).
It is also necessary to establish an independent payment system that would safeguard European businesses against US sanctions on Tehran (a special purpose vehicle, SPV, to facilitate financial transactions with Iran) with the possible involvement, among others, of the French and German central banks.
The EU is creating a special legal entity to carry out transactions with Iran. Other participants will be able to join in, which will allow European companies to work with Iran in keeping with European legislation – something like the SWIFT banking system, only on a European scale and based on the euro.
This will be an extremely difficult task for Europeans, both from “political” (a real challenge to the US) and technical standpoints. EU foreign policy chief, Frederica Mogherini, said: “The involvement of the Finance Ministers of the E3 [France, Germany, UK] is of key importance at this stage. They are working hard to finalize it. I cannot tell you a date, but I can tell you that work is continuing and is progressing in a positive manner.”
In his turn, Russia’s Deputy Foreign Minister Sergei Ryabkov said that this was fraught with problems.
“We need to redouble our efforts here and this is what we are doing now with both Europeans and Iranians.”
Meanwhile, the Iranians, who have so far been strictly implementing the terms of the 2015 nuclear accord, are losing faith in the EU’s ability to resolve the problem. Therefore, it may take several months to see whether this plan is really working.
Speeding up the process of shifting to the use of national currency in trade with Iran (primarily by Russia, China, India, Turkey, which have done this before) would be of much help to Tehran.
In order to move around the financial and banking hurdles erected by the United States, it would be advisable to enlist the help, whenever possible, of Islamic banks in Muslim countries for cash transactions to and from Iran. The Islamic banking system has its specific features that are hard to destroy from the outside, even by a financial superpower like the United States.
The same is true about small and medium-sized companies in Muslim countries used as intermediaries in financial transactions with Tehran. Moreover, it is small and medium businesses, and not necessarily in Muslim countries alone, that can play the main role in maintaining trade and other economic relations with Iran.
Therefore, it would be equally desirable for the EU to provide legal and financial assistance to small and medium-sized companies in Europe, which are willing to do business with Iran, and to shift the main load from big companies to medium and small firms for financial transactions with Iran in Euros. Even though they will hardly be able to completely replace the giant companies, small and medium-sized firms have all they need to offset at least part of the losses. According to Iranian estimates, Tehran hopes to establish business relations with many of the 23 million or so small and medium-scale enterprises in Europe in order to circumvent US sanctions. Moreover, Iran has good experience in getting around tough sanctions between 2012 and 2016.
What can Tehran do under these circumstances? First and foremost, it should establish a business triangle of Iran-EU, Islamic banks and Islamic small and medium-sized businesses, build close trade and economic partnership with European and other small and medium-sized businesses. This is quite feasible because the Americans will find it hard to keep an eye on a huge number of enterprises, much less trace their transactions in Euros, especially if the European Union contributes to such cooperation with Iran.
Iran’s Supreme Economic Coordination Council recently allowed the country’s private sector to sell crude oil abroad as a way of circumventing US sanctions. This is the first time the Iranian private companies have been granted permission to trade in oil. Tehran should avail itself of this opportunity as soon as possible.
As for Iran’s time-tested methods of tackling sanctions like, for example, the use of “ghost” oil tankers, which switch off their automatic identification system (AIS) transmitters not to disclose their route and destination, as well as selling “unrecorded” oil at reduced prices, I can assume that these methods have been used before and are being used today.
It seems that, in view of the situation at hand, Tehran should also recall its oil-for-goods project with Russia, prepared back in 2014, whereby Iran supplies oil to Russia (at least 100,000 barrels per day – about 5 million tons a year) in exchange for industrial equipment and machinery. Four years ago, the plan was never implemented in full because Iran, already withdrawing from the sanctions regime in keeping with the JCPOA, was no longer interested in it.
There was only one shipment made in November 2017, to the tune of 1 million tons. The project could be revived now. Russia’s Promsyryeimport, which is part of the Russian Energy Ministry and was created expressly with this project in mind, will implement the Russian side of the deal.
A program of developing two Iranian oil fields, Aban and Peydar, by Promsyryeimport (which replaced Zarubezhneft) and Iran’s Dana Energy Company, could also be considered.
Overall, the across-the-board cooperation between Russia and Iran against US sanctions could contribute very significantly to minimizing their impact.
Tehran will certainly put to maximum use the great potential of the Islamic Revolutionary Guard Corps (IRGC), which proved so effective during the period of hard-hitting sanctions of 2012-2016 and which controls between 25% and 35% of the country’s economy and 25% of all its capital.
In 2012-2016, the IRGC set up a large-scale system of circumventing the sanctions by controlling considerable “gray” financial flows to, through and out of Iran. IRGC intelligence was gathering information abroad about the “weak” spots in the sanctions system, about the most effective ways of circumventing sanctions, and was also obtaining data on new technologies Iran was not allowed to buy.
Iran and countries opposed to US sanctions against it are looking for ways to ease their impact. Even though completely neutralizing the negative effect of these sanctions will hardly be possible, a certain let-up is quite possible.
Well, the Iranian response to the US sanctions could at times be controversial, but Washington’s exit from the JCPOA and the US sanctions themselves are by no means legal either.
In October, President Hassan Rouhani warned that the previous four months had been a difficult time for the Iranians and that the coming few months would be equally hard. He said that the government would make every effort possible to tackle the situation. Meanwhile, Tehran says it will stick to the terms of the JCPOA as long as its other signatories (save for the US, of course) do the same. Can they do this?
The situation is complex and unpredictable. For Iran, much will depend on whether the JCPOA is kept alive without the US, if Tehran is able to maintain, albeit limited, financial and economic cooperation with foreign countries, primarily with small and medium-sized businesses, and whether it is satisfied with the results of this cooperation.
How will the sanctions, and especially the fall in oil production and exports, affect the national economy and the life of ordinary Iranians? A good question, given the impact the internal political situation can have on the alignment of political forces in the country.
The outcome of this struggle may not take too long coming. Maybe six months, when a European mechanism against Washington’s unlawful withdrawal from the JCPOA and the resumption of its sanctions on Iran is already in place and the deadline set by President Trump for the eight importers of Iranian oil has expired.
First published in our partner International Affairs
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