Tensions between the U.S. and Iran are on the rise. Iran has filed a complaint with the United Nations over what it says was a U.S. violation of its airspace. The U.S. claims Iran shot down a drone in international airspace. Announcement from Iran today that it has breached another limit set by the 2015 nuclear deal. Iran now pushing back on President Trump’s assertion that the United States shot down an Iranian drone. Iran has released new footage they say shows their forces taking over a British tanker. Iran is claiming that it has arrested 17 Iranian nationals who are acting as spies for the CIA. A big factor behind all of this is the Iranian economy. Decades of U.S. sanctions have decimated it. And in 2019. Iran appears more and more desperate. Here’s why. When it comes to trade policy, sanctions are the most used tool in the U.S.’s tool box. Stephanie Segal, a senior fellow at the Center for Strategic National Studies, explains. They’re there as part of the toolkit to incentivize certain behaviors. One criticism is that they’ve used, been used more in a punitive sense. So rather than incentivizing kind of forward looking action, they’ve been used to punish past behaviors and there are particular concerns about that because the reason that our sanctions policy can be so potent is because we have the dollar at the center of the international system. The U.S. first started imposing oil sanctions in 1979 to respond to growing terrorism concerns from the country. From the mid-1980s through the 1990s, the U.S. continued imposing sanctions that focused on U.S.-Iranian imports and entities that did business with the country. We actually don’t have much of a bilateral economic relationship with Iran. So the only way that we can actually use an economic tool to influence Iran’s behavior is through third countries. Then in August 2003, the International Atomic Energy Agency found traces of enriched uranium at one of Iran’s nuclear power plants. To the United States and its allies, it looked like Iran was inching closer to producing nuclear weapons. In June 2005, President Bush signed Executive Order 13382, which froze assets and transactions of individuals involved with growing the supply of weapons of mass destruction in Iran, North Korea and Syria. The United States and other allies tried to negotiate with Iran to limit the amount of uranium produced, but Iran insisted its actions were peaceful. Five years later, President Obama enacted the Comprehensive Iran Sanctions Accountability and Divestment Act. It expanded on sanctions from the Clinton and Bush administrations to who could face sanctions, new restrictions for financial institutions and eliminate exemptions on Iranian imports. Our concept at the time was you start small, you start with the really toxic stuff, the nuclear weapons program and missile programs, and then you use that as a way of essentially building a wedge between Iran and the rest of the international community, you could use to develop other sanctions tools in the future. That’s Richard Nephew. He was in charge of developing and executing the U.S.-Iran sanctions strategy from 2011 to 2013. The U.S. continued to focus sanctions on Iran’s service-based industries, but it realized it had to switch tactics to have a bigger impact on Iran’s economy. Initially, we really took what the Iranians gave us. They exposed themselves to a broader range of sanctions and targets by attempting to evade the sanctions in place. But over time, we started to see that momentum and the impact of those sanctions was lessening. We started going after what you would call the tendons of Iran’s international business activity, things like transportation, things like insurance, all those sorts of services you need to be part of the modern global economy. Nephew also advised the Obama White House on the 2015 nuclear deal or Joint Comprehensive Plan of Action. The deal would lift secondary sanctions on Iran and help boost the country’s economy. The U.S., China, France, Germany, Iran, Russia and the U.K. agreed on the plan in July 2015. But in May 2018, President Trump announced that the U.S. would be pulling out of the 2015 nuclear deal. We had the JCPOA, not a perfect document, it allowed a number of exceptions. Iran continued to test fire new missiles. There were time limits on Iranian commitments under the JCPOA that would expire after an extensive period of time. By November 2018, President Trump reinstated sanctions on Iran’s most important economic sectors like energy and shipping, but granted six-month waivers to eight countries that purchase Iranian oil. The sanctions have really hurt Iran’s GDP over the years. The IMF predicts that Iran’s GDP in 2019 will shrink by six percent. Iran’s GDP per capita on 2018 was 5037 U.S. dollars. That’s less than a tenth of the US’s. The U.S. aimed to target Iran’s oil industry. But everyday Iranians have felt the effects of the sanctions. In February 2019, the World Bank reported Iran’s inflation rate had grown 42 percent from the previous 12 months, driving food prices up almost 63 percent. It’s also leading to shortages in food and medicine. There are no restrictions on the U.S. export of foods and medicines to Iran. Financial institutions don’t know exactly who they’re dealing with in Iran and are worried that they may be dealing with a sanction entity or institution or a company or person that would make the provider of the food and medicine liable to U.S. sanctions for violating the policy. Companies remain hesitant to invest in Iran amid the prospect of more U.S. sanctions. That’s making it harder and harder for Iran to keep up with oil powerhouse Saudi Arabia. Iran needs capital for its aging oil infrastructure. The Iranian government still relies on oil sales to help fund its government, but it’s been trying to wean itself off. In 2009, about 60 percent of government revenue came from the petroleum sector. For Iran’s 2019 budget, about 30 percent of revenue is expected. When the U.S. expanded sanctions in 1995, Iran was exporting almost six percent of the world’s petroleum. As of 2018, that number has been cut down to less than three percent. And it could be even less. Iran has stopped reporting its production numbers to the Organization of the Petroleum Exporting Countries. Out of all the OPEC countries, Iran still holds the third largest oil reserves. The United States, though, now produces more oil than any other country, pumping out almost 11 million barrels of crude oil per day in 2018. In comparison, Iran produced 3.5 million barrels. Iran appears to be hurtling toward a tipping point. Will it become another North Korea using a nuclear weapons program and aggression as bargaining chips on the world stage? Or could it become the next Venezuela, a once oil rich country now in political and economic turmoil. In Venezuela, corruption crippled the country’s energy industry and without money to finance the maintenance of it, investors left in droves. Venezuela’s economy has collapsed, and now it’s seeing a political struggle between its current president and a U.S. backed opposition leader. Iran’s political situation remains static despite the immense pressure on its economy. One of the things that’s affecting the Iranian economy right now is this kind of stillborn effort at reform. And it’s something that President Rouhani still wishes to engage in. A lot of his senior advisers and cabinet people wish to engage in, but they haven’t gotten as much traction as they could and they want to get, especially with international investment. The World Bank predicts that Iran’s economy will shrink by more than 2 percent in the next two years. Iran faces a dwindling number of options and the clock is ticking.