How can Iran bypass US sanctions?

US Secretary of State Pompeo said Trump administration ‘fully prepared’ to counter Iran’s effort to circumvent hurdles.

Iranian rials, U.S. dollars and Iraqi dinars are seen at a currency exchange shopÊin Basra, Iraq November 3, 2018. Picture taken November 3, 2018. REUTERS/Essam al-Sudani
Iran remains a signatory to the 2015 multilateral nuclear deal, which President Trump abandoned earlier this year [Essam al-Sudani/Reuters]

With the second round of sanctions against Iran, US President Donald Trump’s threat to impose the “toughest ever” punitive measures against the Islamic Republic is in full force, a reversal from his predecessor Barack Obama’s rapprochement towards Tehran.

In August, sanctions targeted Iran’s aviation industry, currency and even carpets. Now, except for a few countries, the rest of the world is cut off from Iran’s oil and gas market as well as its financial system. 

Iran remains a signatory to the 2015 multilateral nuclear deal and UN inspectors say Tehran continues to adhere to its obligations. Trump unilaterally abandoned the agreement in May, paving the way for the imposition of US sanctions amid international opposition.   


Now that the US sanctions are in place, experts said the two old adversaries would be engaged in a cat and mouse game, with Washington trying to enforce Trump’s order as rigorously as it can, and Tehran finding creative ways to bypass it.

US Secretary of State Mike Pompeo himself acknowledged that it would be “unsurprising” if Iran tried to bypass the sanctions.

Ali Sarzaeem, an economics adviser at the Center for Strategic Studies under the office of President Hassan Rouhani, said that there are several measures being considered to counter the US restrictions. 

“The US is doing whatever it can to punish Iran, and we are doing whatever we can do to confront them,” Sarzaeem, who teaches at Tehran’s Allameh Tabataba’i University, told Al Jazeera.

So what steps can Iran take to bypass the US sanctions?


Iran has continued to do some business with other countries in spite of the sanctions through waivers obtained by its trading partners.

On Monday, Pompeo named the countries granted waivers to buy Iranian oil and gas after November 5: China, India, Italy, Japan, Greece, South Korea, Taiwan and Turkey.

Pompeo did not say how long the waivers will last but said they were granted to ensure oil prices are not destabilised if supply from Iran is abruptly removed from the international market.

In a press statement, the South Korean foreign ministry said the waiver is good for 180 days, with the possibility of renewal thereafter.  

The US government announced on Monday the eight countries receiving sanctions waivers [AP]
The US government announced on Monday the eight countries receiving sanctions waivers [AP]

Pompeo said that since Trump announced the sanctions in May, more than one million barrels of Iranian oil were removed from the market and that Tehran lost more than $2.5bn in oil revenues.

Trump boasted he would drive Iran’s revenue down to zero. But Iran said the granting of US waivers is a win for Tehran, as it allows it to sell oil beyond the deadline. 

In September, Iran sold between 1.7 million and 1.9 million barrels per day of crude oil, according to a CNBC analysis. That number was down 800,000 bpd from May, when the sanctions were announced. But the loss in volume was partially offset by the rise in oil price.      

Special Purpose Vehicle

On September 24, the European Union  announced that it is setting up a new mechanism, the Special Purpose Vehicle (SPV).

EU Foreign Policy Chief Federica Mogherini said the SPV “will allow European companies to continue to trade with Iran in accordance with EU law and could be open to other partners in the world”.

The EU, alongside the United Kingdom, Russia, Germany, France, China, the US and Iran were the original signatories of the 2015 deal, which is also known as the Joint Comprehensive Plan of Action (JCPOA).

Europe’s decision to create the SPV was seen as an act of defiance against Trump.

Essentially, the SPV acts as a clearinghouse, handling payments from European companies to and from Iran, while avoiding the US sanctions that prohibit direct payment through the regular payment system.

For example, if a European energy company buys oil and gas from Iran, the payments are directed to the SPV. In turn, Iran will use the payments deposited in the SPV to buy permitted items from Europe.

It is not yet clear how the final SPV structure will look. Whether or not European companies would avail it also remains a question. Many European corporations, such as Total, have profitable operations in the US and could get slapped with US sanctions if they insist on trading with Iran.

On Monday, Iran’s Foreign Ministry spokesperson Bahram Qassemi counselled patience in implementing the SPV, adding that the establishment of the new financial mechanism is “complicated and time-consuming”.  

The SPV is seen as another victory in Iran as it indicates Europe’s willingness to stand up to Trump.

European blocking statute

In August, the EU also updated the Blocking Statute, thereby shielding European companies from Trump’s sanctions, while allowing them to continue operating in Iran.

It also allows companies to recover damages arising from punitive sanctions, in this case, from the US.

The sale of US dollars and purchase of Iranian rials are also prohibited under US sanctions [Reuters]
The sale of US dollars and purchase of Iranian rials are also prohibited under US sanctions [Reuters]

The law also allows EU persons to not comply with such sanctions, protecting them from US penalties, which cannot be applied unless exceptionally authorised by the European Commission.

While it could work for small businesses with no links to the US, the statute could have limited use in Iran, particularly among major European companies with global operations. Those companies are automatically exposed to possible US sanctions in the event they deal with Iran.

Iran stock exchange trading

In late October, Iran announced that it had started offering oil for sale via its stock exchange, selling as much as 280,000 barrels of crude oil just minutes after the opening bell.

The idea of selling oil in the stock market first came up in 2000, during the previous sanctions, but is only being implemented now.

According to Tasnim news agency, 280,000 barrels were traded in the Iran Energy Exchange (IRENEX) at $74.85 per barrel. On the first day of trading, a total of one million barrels of crude oil were eventually sold.

Essentially, private buyers from within Iran or abroad buy the crude oil. In turn, the buyers can sell the same product to the world market with less traceability.

The US Treasury’s Office of Foreign Assets Control (OFAC) maintains a list of sanctioned companies and individuals linked to Iran. But a new company not listed by OFAC can “legally” buy oil from Iran.

‘Unofficial’ measures

Mohammad Eslami, a Tehran-based sanctions expert, said that there are other measures that the Iranian government is taking to circumvent the US sanctions. 

Tehran is reluctant to discuss those measures openly as it does not want to compromise them, he said.

“All these structures that the Iranians have built to confront these new sanctions, are unofficial,” said Eslami.

He noted that the measures included currency swaps with other countries, and even cryptocurrency trading, adding that some entities are “already using it”.

Rouhani has denounced Trump for reimposing sanctions lifted after the 2015 nuclear deal [Anadolu]
Rouhani has denounced Trump for reimposing sanctions lifted after the 2015 nuclear deal [Anadolu]

Iran’s partners, such as Russia and China, also “would not be willing to talk about the alternatives”. 

Russia, which has not been included in the US waiver, has denounced the sanctions, terming them “illegal”. There have been suggestions that Moscow would help Tehran bypass the sanctions by buying Iranian oil, then reselling it in refined form to Europe.  

Pompeo had already issued a warning, saying the Trump administration “is fully prepared to do all that we can” to prevent efforts to bypass the sanctions. 

Trump’s new sanctions would face more complexities now compared with the time of the Obama administration, said Eslami.

He said that while Trump’s sanctions are “more measured”, the US president failed to build a global consensus against Iran, as he “could not establish a powerful group of supporters for his policy”.

“Gradually, the structure of sanctions will be less powerful.”

Source: Al Jazeera