Workers at the Iranian Khodro car manufacturing plant make Iranian car models Scott Peterson/Getty Images

How Iran Will Respond to New Sanctions

Even before US President Donald Trump began threatening to re-impose sanctions on Iran, foreign investors looking to do business there were wary. Iranian President Hassan Rouhani failed to get his pro-market agenda off the ground, and now international political developments are playing into Iranian hardliners' hands.

PRINCETON – Since December 2017, Iran’s currency, the rial, has lost one-third of its value. And on April 10, the exchange rate’s rapid depreciation prompted the government to halt domestic foreign-exchange transactions and outlaw foreign-currency holdings of more than €10,000 ($12,000).

This government’s move represents a radical change of course, following three decades of relatively liberal economic policymaking, during which the authorities have permitted private-sector foreign-exchange transactions and even capital flight. Iran is not just anxious about the reinstatement of US sanctions after May 12, when US President Donald Trump is expected to make good on his campaign promise to withdraw from the 2015 Iran nuclear deal. Rather, the country is already adapting to a new world in which the prospect of rapprochement with the West is fading.

With the threat of renewed US sanctions having already created a rial crisis, the Trump administration is using the nuclear deal, formally known as the Joint Comprehensive Plan of Action, to try to force Iran to accept more restrictions on its nuclear program, as well as on its ballistic missile program. Given that Iran came to the table to negotiate the JCPOA less than a year after an earlier exchange-rate collapse – by 200% as of October 2012 – it is not entirely unreasonable to believe that the government will bow to Trump’s demands.

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