PoliticsThe Risk Radar

July 2019: Iran crisis

Last month was marked by major triggers of a worsening relationship between Iran and the Western world. Tehran had signaled its intention to retaliate for the UK’s apprehension of an Iranian tanker off Gibraltar earlier in July, as it considers Britain’s seizure of the ship a violation of the 2015 nuclear deal. On July 19th, Iran seized a British oil tanker in the Strait of Hormuz. The very same day, the Pentagon announced deployment of about 500 U.S. troops to Saudi Arabia, one of the U.S.’ allies in the Middle East. The U.S. is leading a maximum pressure campaign against Iran. Its sanctions aim to curb Iranian expansionism in the Middle East and have already proved devastating for the Iranian economy – Iran’s national currency, the rial, has lost more than 60% of its value since last year and food prices have also risen by 85%. The U.S. wants international support for this hardline approach towards Iran, but Europe is still committed to preserving the Iran nuclear deal. Meanwhile, Iran is pushing the international community to decide, as the Iranian Deputy Foreign Minister Abbas Araghchi has told journalists “we will continue to reduce our commitments to the deal until Europeans secure Iran’s interests under the deal.”

Besides international developments, recent domestic events have also negatively affected the stability of the Iranian regime, with civil unrest in Iran reaching a tipping point last month. Anti-government demonstrations are taking place across the country, as part of the broader “Green Movement”, a political movement focusing on the democratization of social, cultural, and political life in Iran. But most Iranians blame their leadership for their country’s poverty and isolation. The economy was already sluggish before the Trump administration imposed the crippling sanctions on the country. However, the sanctions have exacerbated the economic troubles and thus give the regime an excuse to blame the U.S. sanctions for the national problems.

Implications:

  • As the authoritarian government’s right to power is challenged, violence will intensify and force the regime to legitimate its leadership.
  • The question is at what price Europe will defend the nuclear deal, for instance, as the UK’s priority lies with Brexit, it remains to be seen how willing it will be to defend the nuclear deal.
  • Global Risk Insights writes that, if the situation continues to escalate, the U.S. and Iran will resort to warring via proxies, especially if the U.S. continues to send troops into the Middle East. However, the first implication will not be a conflict but rather the U.S. urging its oil-producing allies to ramp up production and pressing the international community further to pick sides.

RISKS MARKED ON THE RISK RADAR AS NUMBER 1: Tensions throughout the Middle East

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