US reimposes sanctions on Iran: What does that mean?

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Sanctions signed off

US President Trump signed an executive order on August 5 aimed at piling financial pressure on Tehran to force a "comprehensive and lasting solution" to Iranian threats, including its development of missiles and regional "malign" activities. Trump warned that those who don't wind down their economic ties to Iran "risk severe consequences."

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Where's the money?

The first phase, which took effect on August 7, targets the Islamic Republic's access to US banknotes, making transactions in a US-dollar dominated financial world difficult. A ban on Iran purchasing precious metals including gold further serves as an attempt to cut the country off from global markets.

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Planes, cars and carpets

Phase one also hits key industries including the purchase of commercial planes, cars and carpets. Iranian imports of graphite, aluminum, steel, coal, gold and some software are also affected. German automaker Daimler called off the production and sale of Mercedes-Benz trucks in Iran indefinitely after the sanctions came into force.

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Fuel to the fire

A second phase of sanctions — which is due to take effect on November 5 and will block Iran's oil sales — is due to cause more damage. Several countries, however, including China, India and Turkey have indicated they are not willing to entirely cut their Iranian energy purchases.

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'Psychological warfare'

Iranian President Hassan Rouhani said that the United States had launched "psychological warfare" against Iran to create division amongst its people. But he insisted that Iran still can rely on its allies China and Russia to keep its oil and banking sectors afloat. He has also demanded compensation for decades of American "intervention" in the Islamic Republic.

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EU protection

European Union foreign policy chief Federica Mogherini said the bloc is encouraging small and medium enterprises to increase their business with Iran. She said Tehran has been compliant with their nuclear-related commitments. The EU issued a "blocking statute" to protect European businesses from the impact of the sanctions.

The Trump administration has reimposed the first tranche of sanctions on Iran, isolating Washington as much as Tehran. A second round of US sanctions in November will target Iran's energy sector.

The first round of renewed US sanctions on Iran entered into effect on Tuesday as part of Washington's strategy to apply "maximum pressure" on Tehran over its alleged malign activity.

US President Donald Trump took to Twitter to warn that "anyone doing business with Iran will not be doing business with the United States."

The unilateral US sanctions reimposed on August 7 prohibit Iran's purchase of US dollars and precious metals, part of a larger move that attempts to cut the country off from the international financial system. Broad sanctions on Iranian industry, ranging from carpets and health care to the automotive sector are also being reimposed.

Read more: Can Europe rescue Iran as Trump's sanctions loom?

In addition to prohibiting US persons and entities from doing business with Iran, the sanctions are also extraterritorial. This means that non-US firms and financial entities that do not comply with the sanctions could face fines and be cut off from the American-dominated global financial system. 

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The deal breaker

President Donald Trump announced on May 8 that he was pulling the United States out of the 2015 Iran nuclear deal, arguing that the international accord was not in America's "national interest." The decision threw a cloud of uncertainty over the future of the nuclear accord and raised tensions with US allies in Europe.

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Slap in the face

Britain, France and Germany lobbied the Trump administration and Congress to remain in the nuclear accord, arguing that the deal was working and a US violation without a follow up plan would be destabilizing. In European capitals, the Trump administration's withdrawal was viewed as a slap in the face of allies.

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A triumph of diplomacy

The Joint Comprehensive Plan of Action (JCPOA), better known as the Iran nuclear deal, was signed in 2015 by United States, China, Russia, France, Germany and Britain (P5+1) and Iran following years of negotiations. Under the international agreement, Iran agreed to dismantle its nuclear program and be subject to monitoring in exchange for the lifting on international nuclear related sanctions.

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Compliance and verification

The JCPOA includes a robust monitoring, verification and inspection regime carried out by International Atomic Energy Agency (IAEA). The UN watch dog has verified Iran's compliance with the deal in 12 quarterly reports. The JCPOA allows Iran to pursue a peaceful nuclear program for commercial, medical and industrial purposes in line with international non-proliferation standards.

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Obama's achievement

The Iran nuclear deal was President Barack Obama's signature foreign policy achievement. Seeking to undo nearly every Obama administration legacy, Trump came into office calling it the "worst deal ever." The Trump administration argues the nuclear deal doesn't address other unrelated issues such as Iran's ballistic missiles, regional influence, support for "terrorist" groups and human rights.

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Iranians approved

The nuclear deal and lifting of punishing nuclear related international sanctions created optimism in Iran after years of economic isolation. However, even before Trump pulled the US out of the deal, Tehran blamed the US for holding back international investment and not fulfilling its end of the bargain due to the uncertainty created by Trump's threats.

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The opponents

After eight years with Barack Obama, Israeli Prime Minister Benjamin Netanyahu found the US president he wanted in Donald Trump. The Israeli leader repeatedly slammed the deal despite his own military and intelligence chiefs' assessment the that JCPOA, while not perfect, was working and should be maintained. Saudi Arabia and the UAE are the other main opponents of the nuclear deal.

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Who's left?

The EU-3 (Britain, France, Germany) are scrambling to ensure that Iran receives the economic benefits it was promised in order to avoid Tehran pulling out of the deal. As EU businesses face retaliation from the US for doing business with Iran, many are opting to avoid Iran. This would likely be a present to Chinese and Russian businesses.

The Trump administration pulled out of the 2015 nuclear deal signed between Iran and world powers in May, despite the UN repeatedly confirming that Tehran is living up to the accord.

Under the terms of the deal known as the Joint Comprehensive Plan of Action (JCPOA), punishing international sanctions on Iran were lifted in exchange for Iran dismantling its nuclear program and subjecting it to international inspections.

Read more: What is the Iran nuclear deal?

The Trump administration's decision to pull out of the nuclear deal despite European entreaties has added strain to trans-Atlantic ties. In July, the US rejected a request from European allies for waivers and exemptions for companies doing business with Iran in sectors including health care, finance, automotive and energy.

Read more: US rejects EU request for Iran sanctions relief

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The EU has sought to shield its companies from extraterritorial sanctions, but so far its actions have failed to stem a steady withdrawal of major companies from the Iranian market.

A second tranche of US sanctions on Iran's oil and gas sector are set to go into effect on November 4. This second round is likely to have a bigger impact on Iran's coffers, with insurers reportedly already halting cover for shipments.

Among others, Turkey, India, China and EU states are seeking waivers or ways around the energy-related sanctions — including alternative payment mechanisms. China and Turkey have flat out said they will not comply with US energy sanctions.

Read more: Could Iran really close the Strait of Hormuz?

US Secretary of State Mike Pompeo has vowed to "enforce the sanctions," putting Washington on a collision course with Europe and other countries with close economic ties with Iran.

Even before the US announcement to leave the JCPOA in May, the threat had started to be felt in the Iranian economy. That process has since sped up since May, with the rial, the Iranian currency, plummeting, inflation rising, and average Iranians feeling the pinch. The situation has sparked protests and complaints over the government's economic mismanagement and corruption. Some Iran analysts point out protests in Iran are nothing new. 

The Trump administration strategy appears intent on forcing Iran to capitulate to its long list of demands, or foment instability with a goal towards regime change. 

"It was never just the nuclear question alone that was important to the Americans," Henning Riecke from the German Council on Foreign Relations told DW. "The Trump administration is hoping the regime in Tehran will collapse under the economic pressure ... it is a very risky and naive policy."

Read more: Pompeo unveils US Iran plan: Economic strife, break with EU

However, unilateral US sanctions are unlikely to be as punishing as the international sanctions imposed on Iran before the 2015 nuclear deal.

Even if the EU is unable to fully protect its businesses, countries like China, India, Turkey and Russia are likely to be able to provide Iran with enough breathing space.

Indeed, with a trade conflict between Washington and Beijing in full swing, China appears to be looking to extend cooperation with Iran.