Domestic Economy

Sanctions on Iran's Metal Sector Seen Having Limited Impact

An executive order issued by Trump covers Iran’s iron, steel, aluminum and copper sectors, the Islamic Republic’s largest non-petroleum-related sources of export revenue and 10% of its export economy
Sanctions on Iran's Metal Sector Seen Having Limited Impact
Sanctions on Iran's Metal Sector Seen Having Limited Impact

It is widely believed that the new round of sanctions imposed by the administration of US President Donald Trump on Iran's industrial metals will have little impact in practice.
Trump ordered new sanctions on Iran on Wednesday, this time targeting the Islamic Republic’s export revenues from its industrial metals sector, and vowed to keep squeezing Tehran unless it “fundamentally alters” its policies, Reuters reported.
An executive order issued by Trump covers Iran’s iron, steel, aluminum and copper sectors, the Islamic Republic’s largest non-petroleum-related sources of export revenue and 10% of its export economy, a statement from the White House said.
The announcement was made on the anniversary of Trump’s unilateral withdrawal of the United States from a 2015 landmark deal between Tehran and world powers to curb its nuclear program in exchange for easing some sanctions and hours after Tehran said it would no longer fully comply with the accord.
Tensions were already high between Washington and Tehran when the Trump administration said last weekend that it was deploying a carrier strike group and bombers to the Middle East, in response to what it said were “troubling indications and warnings” from Iran.
Before Trump’s executive order for the sanctions, a senior White House official said Washington would impose more economic curbs on Tehran "very soon" and had warned Europe to stop doing business with the Islamic Republic.
“Today’s action targets Iran’s revenue from the export of industrial metals—10% of its export economy—and puts other nations on notice that allowing Iranian steel and other metals into your ports will no longer be tolerated,” Trump said in a statement.
“Tehran can expect further actions unless it fundamentally alters its conduct.”
The Trump administration says the nuclear deal, negotiated by his predecessor Barack Obama, was flawed as it is not permanent, and does not address Iran’s ballistic missile program among other things.
Leading Democratic lawmakers such as Chris Murphy, the top Democrat on the Senate’s Middle East subcommittee, said Iran’s halting compliance to some parts of the deal was “disastrous news” and accused Republican Trump’s administration of making America much less safe through its policies. House of Representatives Speaker Nancy Pelosi requested a briefing on Iran for members.


Iranian metals have been under sanctions before, with some major manufacturers included in the sanctions list, so the new round of sanctions is a kind of psychological warfare against Iran

Hours before the fresh US sanctions, Iranian President Hassan Rouhani announced Tehran was reducing curbs to its nuclear program with steps that for now stopped short of violating the 2015 accord. But it threatened more action, if signatories to the nuclear deal did not shield it from sanctions.
Spearheaded by national security adviser, John Bolton, the Trump administration has taken several unprecedented steps to squeeze Iran, such as demanding the world halt all Iranian oil imports and designating Iran’s elite Revolutionary Guards Corps as a foreign terrorist organization, which Iran has cast as an American provocation.
Washington’s European allies opposed Trump’s decision to withdraw from the nuclear deal and have failed so far to find ways to blunt the economic impact of new US sanctions.
“US sanctions on Iranian metals are against international norms,” Iran’s foreign ministry spokesman said on Thursday, warning that Washington would be responsible for Iran’s losses.
“This US measure is against the international commitments of this regime ... It is against international norms ... The United States will be responsible for the losses caused,” Abbas Mousavi was also quoted as saying by ISNA.



Exports to Continue

The US imposition of new sanctions on Iran's metals and minerals trade may change little in the short run for Iran's steel exporters or their customers abroad, in a trade environment that has already been restricted by existing secondary sanctions and anti-dumping actions, according to Iranian and European steelmaking sources surveyed on Thursday. 
Steel imports into Iran are, however, expected to continue to take a hit, S&P Global Platts reported.
The Iranians will attempt to continue exporting to neighboring countries in the Middle East and North Africa in the case of steel products and to trade partners, including China and India, in the case of iron ore products, Iranian steel and iron ore sources said.
Despite the US imposition of secondary sanctions since August 2018 on supply and trade of steel, aluminum, graphite and coal with Iran, "the [Iranian] steel industry has maintained its position in both production and export in the MENA, although we can't ignore the role of sanctions on technology transfer and cooperation of Iranian companies with their foreign partners," said Reyhaneh Sarlak, an Iranian steel market specialist.
"Iranian metals have been under sanctions before, with some major manufacturers included in the sanctions list, so the new round of sanctions is a kind of psychological warfare against Iran," said Amir Hossein Kaveh, secretary of Iran's Syndicate of Steel Pipe and Profile Manufacturers. 
"In the face of previous sanctions, Iranian manufacturers have developed new markets in Southeast Asia and exports to neighboring countries have been increasing since then."
According to Asian sources, the secondary sanctions hit mainly trade of Iranian steel for use in the oil industry abroad. However, Trump signed an executive order to impose more sweeping sanctions on Iran's iron, steel, aluminum and copper sectors, which he described as Iran's "largest non-petroleum, related sources of export revenue".
The US International Trade Administration's Globe Steel Trade Monitor report, published a year ago, classified Iran as the world's 18th biggest steel exporter. 
The Iranian Steel Producers' Association put steel products exports at 7.9 million tons in the last Iranian year (ended March 20, 2019), a decrease of just 7.1% on the previous year, despite the secondary sanctions.
While some difficulties may now occur in transportation, including increased freight and insurance costs for those shipping companies that will still serve Iran, these are likely to be offset "by the high quality and cheap nature of Iranian products", Kaveh said.
Weakness of the rial since the secondary sanctions were imposed has reportedly aided exports.
Tommaso Sandrini, the head of the steel group of Italy's Assofermet, said the metals trade group was "very concerned" about the effects of Trump's new wave of sanctions against Iran. 
"As far as steel is concerned, the effects of the sanctions will be quite limited: AD [anti-dumping] duties already in place on HRC [hot-rolled coil] make Iran not a viable option for EU buyers, regardless of the new sanctions. Iran is already out of the import game for the most important steel product category," Sandrini said. 
“Despite that, the new sanctions will depress even more the global economic scenario, relegate Iran out of the growth path of the emerging markets and reduce confidence and trust. The sanctions themselves are not devastating for steel, but they will contribute to dry up other business opportunities with a country that has always been a close partner for Italy."



Impact May Be Bigger on Imports

Pipemaker Kaveh noted that Iranian manufacturers and consumers are likely to be impacted by the decline in steel imports that may come with the new sanctions and that has already occurred as a result of the secondary sanctions. 
“Imported products have benefited Iranian manufacturers' efficiency,” he said.
"Before the sanctions, we used to import about 3 million tons of steel sheet annually and export the same amount but now this process has stopped and self-sufficiency is a necessity," he said. 
Late last year, Iran's total steel exports were put at 4 million tons per year of products, lower than traditional levels.
ArcelorMittal, the world's biggest steelmaker, noted in its 2018 US Securities and Exchange Commission 20-F form that its Europe segment stopped selling steel flat products, coated and coated, alloy steel plates, sections, wire rod and seamless pipes both directly and indirectly for projects in Iran from June 2018, after generating $9.8 million in general sales revenue and an additional $2.54 million from automotive sector revenue from these sales in January-June 2018.
ArcelorMittal's Dubai-based trading subsidiary, ArcelorMittal International FZE, AMID, has not had any direct or indirect sales to customers in Iran since November 2018, it said. 
AMID's sales to customers in Iran had generated $66.2 million in revenue in 2018, amounting to 4% of its total sales last year. 
The company said its risk of doing business with Iran is not mitigated by the EU Blocking Regulation, passed by the European Parliament in August 2018 to protect EU citizens and governments from the impact of US secondary sanctions.

Add new comment

Read our comment policy before posting your viewpoints