Iran likely to turn to Russia, Turkey, and China to offset sanctions, not risk war over Hormuz

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Key Points

  • Iran is trying to consolidate politically and appease protesters to prevent sanctions from destabilising the country; this risks backfiring and reducing leadership cohesion.
  • Iran will turn to China, Russia, and Turkey to reduce the impact of sanctions, but all three countries are embroiled in complex negotiations with the US in which Iran is one bargaining chip.
  • Iran is extremely unlikely to take military action, while the US believes time is in its favour as it increases pressure on Iran to see what concessions it can extract and how hard to push.

Event

The United States on 7 August reintroduced sanctions on Iran that had been suspended as part of the Joint Comprehensive Plan of Action (JCPOA), affecting Iran’s ability to sell foreign debt, acquire gold and base metals, trade its currency for the US dollar, and trade in the automotive sector.

IHS Markit’s assessment is that the United States is not pursuing objectives identified in advance. Rather, the US is escalating on an opportunistic basis to see what it can get Iran to concede, and will reassess its position along the way, deciding whether to pursue sanctions and/or internal destabilisation efforts until it gains enough concessions from Iran, or even the creating an environment where regime change would be more likely. IHS Markit assesses that the minimum requirement for the US is for Iran to reduce the threat it poses to Israel and Saudi Arabia, through negotiating a new agreement on the nuclear issue that includes reductions to Iran’s ballistic missile programme, the reduction of support for the Houthi Movement in Yemen, and no further expansion of Hizbullah or similar organisations in Syria.

From the US perspective, the longer sanctions are applied, the greater the damage to Iran’s economy and, therefore, the less ability Iran has to pursue activities the US considers threatening, and the greater the perceived likelihood of government destabilisation.

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