On January 7, 2020, Iranian ballistic missiles hit two U.S. bases in Iraq, destroying several structures but causing no fatalities. Iranian officials declared the bombardment to be their country’s response to the U.S. killing of Maj. Gen. Qassem Soleimani in a drone strike at the Baghdad airport on January 2.[1]

In response to the Iranian strike, the United States imposed a collection of sanctions directed against entire sectors of Iran’s economy. These sanctions consisted of three parts: a Treasury Department designation of specific entities under existing statutory authorities aimed at Iran’s metals sector; a State Department determination pursuant to a 2012 counter-proliferation law; and a new executive order targeting the construction, mining, manufacturing, and textiles sectors. The measures, which were announced on January 10, 2020, build on a series of actions by the United States against heavy industries in Iran. Given the long-standing embargo on U.S. trade with Iran, the impact of the measures will largely be felt by parties outside the United States.

1. Treasury Department Sanctions

In the first action, the Treasury Department’s Office of Foreign Assets Control (OFAC) designated eight senior Iranian military and government officials, 17 Iran-based metals companies, and several trading and shipping companies located in other countries (Reference Table 1). The individuals are barred from entering the United States and any assets held in the United States by the individuals or companies are frozen; anyone doing business with these entities is exposed to secondary sanctions.

The eight individuals were designated pursuant to Executive Order 13876 of June 24, 2019, which targets Iranian officials appointed by the Supreme Leader.[2] The direct impact of this action on those officials, which include the Secretary of Iran’s Supreme National Security Council and the commander of the Basij militia, is likely to be limited as senior members of Iran’s government and armed forces usually do not hold U.S. assets or travel to the United States. The risk of secondary sanctions may, however, make it more difficult for the Supreme Leader’s network to raise funds abroad.[3]

The companies were designated pursuant to Executive Order 13871 of May 8, 2019, which targets Iran’s metals sector in order to deny revenue for proliferation of weapons of mass destruction, among other goals.[4] Most of the Iranian firms listed are steel producers. One of them, Mobarakeh Steel Company, is the biggest steel manufacturer in the Middle East and produces more than half of Iran’s steel exports, according to OFAC.[5]

The sanctions also took aim at companies based in China, Oman, and the Seychelles that are involved in metals trading with Iran, signaling that the United States is willing to enforce secondary sanctions on foreign firms.

Oman and China are important export markets for Iran, particularly for industrial goods. In 2017, Oman purchased 92% of its semi-finished iron imports from Iran, according to United Nations (U.N.) trade statistics.[6] Customs data kept by the Tehran Chamber of Commerce show that Iran’s total trade with Oman between March 2018 and March 2019 nearly doubled compared with the same period the year before.[7] This increase contrasted with other countries, whose trade volumes with Iran generally decreased as a result of the re-imposition of U.S. sanctions that year. It could indicate that Oman served as a transshipment point for materials smuggled to and from Iran.

China was also a major destination for Iranian metals exports prior to the re-imposition of U.S. sanctions. In 2017, it purchased 97% of Iran’s refined copper exports, 84% of copper ore exports, and 99.1% of iron ore exports, although those purchases amounted to a small part of China’s overall imports of these materials (2% or less for each).[8]

2. State Department IFCA Determination

In the second action, the State Department made a determination pursuant to the 2012 Iran Freedom and Counter-Proliferation Act (IFCA). This law prohibits the export of “raw or semi-finished metals” used in connection with Iran’s nuclear, military, or ballistic missile programs. The new determination specifically lists 74 metals (Reference Table 2) that, if traded with Iran, expose foreign firms to U.S. sanctions.[9]

This action builds on an October 31, 2019 determination by the State Department which restricted trade with Iran in four specific materials (Reference Table 3) that have nuclear, military, or missile applications, regardless of end use or end user. (Previously, sanctions targeted only trade with entities on the U.S. blacklist.)[10] One of those materials, manganese brazing foil, is also on a U.N. list of items that all countries are prohibited from providing to North Korea.[11]

3. Executive Order 13902

In the third action, President Donald J. Trump signed Executive Order 13902, which broadens sanctions to encompass four entire sectors of the Iranian economy: construction, mining, manufacturing, and textiles. The order’s stated purpose is to deny revenue for Iran’s nuclear and missile programs, as well as for terrorism and other malign activities. No companies have been designated pursuant to the order as of January 31, 2020; it includes a 90-day wind-down period for transactions in the named sectors.[12] The order also confers discretionary authority on the Secretary of the Treasury to sanction additional economic sectors, which could facilitate the expansion of sanctions on Iran’s already beleaguered economy.[13]

Executive Order 13902 formalizes and builds upon another part of the State Department’s October 31 IFCA determination, which found that Iran’s construction sector is controlled by the Islamic Revolutionary Guard Corps (IRGC). IFCA prohibits the supply of metals used in any sector of the Iranian economy determined to be controlled “directly or indirectly” by the IRGC. Combined, the October determination and the more recent executive order underscore that a foreign firm supplying metals to any part of Iran’s construction sector is vulnerable to secondary sanctions.

Overall Impact

All three of the January 10 measures are part of a series of sanctions aimed at Iran’s heavy industries that were imposed beginning on May 8, 2019, one year after the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA). On that date, President Trump signed Executive Order 13871, which sanctioned four industries within Iran’s metals sector: steel, iron, copper, and aluminum. The order asserts that those industries contribute directly to Iran’s nuclear and missile programs, and also generate revenue for proliferation, terrorism, and regional aggression.[14]

The metals sector and other sectors related to it – including mining, manufacturing, and construction – are crucial to Iran’s struggling economy. Prior to May 2019, steel mills employed 50,000 workers in Iran, and roughly 2.2 million workers – 10% of Iran’s workforce – were employed in related sectors, according to an Iranian parliamentary report cited by the Associated Press.[15] Iran, a major steel producer, made $4.2 billion in revenue from steel exports in 2018, according to the U.S. Department of Commerce.[16] The latest available U.N. trade data indicate that industrial metals comprised roughly 6% of Iran’s total exports in 2017,[17] making plausible the White House’s claim that by May 2019 – as oil exports declined – the sanctioned metals made up 10% of Iran’s export economy.[18] A further contraction of these sectors could exacerbate Iran’s already dire economic and fiscal situation.

U.S. enforcement of secondary sanctions related to the metals sector – demonstrated by OFAC’s designation of specific foreign firms – might also serve to further deter foreign trade with Iran. Countries such as China and Oman that still have some economic relations with Tehran can expect the pace and breadth of sanctions enforcement to increase once the 90-day wind-down period for Executive Order 13902 expires on April 9, 2020. Any decline in trade with those countries would reduce Iran’s export revenue and hinder its ability to obtain materials abroad.

The immediate effect of the January 10 measures is likely to be limited, however. Much of Iran’s domestic industry is dominated by state-owned firms, which the Iranian government can subsidize in order to prevent mass layoffs that would intensify civil unrest. Moreover, broad sanctions in the financial sector and on the IRGC – which is deeply enmeshed in Iran’s industrial economy – have already deterred most large foreign companies from doing business with Tehran.[19] Thus, rather than prompting a sudden shock, the recent U.S. actions will add incrementally to Iran’s economic and fiscal strain.
 

Reference Table 1: Entities Designated by the U.S. Treasury Department on January 10, 2020

Source: “Treasury Targets Iran’s Billion Dollar Metals Industry and Senior Regime Officials,” U.S. Department of the Treasury, January 10, 2020, https://home.treasury.gov/news/press-releases/sm870, accessed January 17, 2020.

Reference Table 2: Metals Listed by the U.S. State Department on January 10, 2020

Source: “This Week in Iran Policy, January 6-10,” U.S. Department of State, January 10, 2020, https://www.state.gov/this-week-in-iran-policy-january-6-10/, accessed January 17, 2020.

Reference Table 3: Metals Listed by the U.S. State Department on October 31, 2019

Source: “Findings Pursuant to the Iran Freedom and Counter-Proliferation Act (IFCA) of 2012,” U.S. Department of State, October 31, 2019, https://www.state.gov/findings-pursuant-to-the-iran-freedom-and-counter-proliferation-act-ifca-of-2012/, accessed January 17, 2020.