Bloomberg | David Wainer and Glen Carey: The U.S. and Iran have lived in a state of hostility for decades. But rarely have relations been as tense as in recent months. The U.S. is trying to deprive Iran of oil revenue, the lifeblood of its economy; Iran has responded by exceeding limits it agreed to on its nuclear program, and it’s been accused of attacking Saudi oil facilities and sabotaging oil tankers in the Persian Gulf. An attack on the U.S. embassy complex in Baghdad on the final day of 2019 stemmed from hostilities between U.S. forces and those of an Iran-backed militia in Iraq. A miscalculation could lead to a war that neither the U.S. nor Iran say they want.
1. What happened in Baghdad?


Dozens of Iraqi militiamen and their supporters stormed the embassy complex before the unrest was contained. They were protesting deadly U.S. airstrikes days before against Kataieb Hezbollah, one of a number of Iraqi militias armed by Iran that nominally fall under the command of the Iraqi armed forces. (It fought Islamic State alongside the Iraqi army and a U.S.-led coalition. At the same time, the militia is helping Iran ferry weapons to Syria to prop up troops loyal to President Bashar al-Assad, an Iranian ally.) The U.S. strike on Kataieb Hezbollah, a rare direct assault by the U.S. on an Iranian proxy, came after a rocket assault on an Iraqi installation hosting U.S. personnel that killed an American contractor and wounded several U.S. service personnel. Such attacks have occurred since the fall. U.S. President Donald Trump said in a tweet that Iran “will be held fully responsible” for the embassy assault as well the killing of the U.S. contractor.
2. What’s the history between the U.S. and Iran?


Discord between the two countries is rooted in U.S. backing for the 1953 coup ousting Iran’s nationalist prime minister and re-installing the monarch, Shah Mohammad Reza Pahlavi, who was sympathetic to the West. When Islamic revolutionaries took over Iran in 1979, forcing the shah to flee to the U.S., militants seized the U.S. embassy in Tehran and held 52 Americans hostage for more than a year, demanding the shah’s return. The U.S. severed relations and began to impose sanctions, which grew over the years. The U.S. has listed Iran as a state sponsor of terrorism since 1984. In April, it named the Revolutionary Guard Corps, Iran’s premier military force, a terrorist organization, the first time it has applied that designation to a state institution.

Iran’s History of War and Weapons



Key events in the development of Iran’s nuclear work and diplomacy





3. What caused the U.S.-Iran conflict to escalate?


In May 2018, President Donald Trump withdrew the U.S. from a 2015 international agreement in which Iran agreed to limits on its nuclear work in exchange for relief from economic sanctions imposed by countries worried it was trying to develop a nuclear bomb. Trump argued he could get a better deal from Iran and began reimposing old sanctions and adding new ones. In May 2019, the U.S. stepped up the pressure by letting waivers expire that had permitted eight governments to buy Iranian oil. The Trump administration’s aim is to drive Iran’s oil exports, which account for almost half the country’s sales abroad, to zero.
4. Why does Trump oppose the nuclear deal?


He objects that its constraints are due to expire over time and says he wants to ensure Iran is prevented from having a nuclear weapon “forever.” He also complains that the accord does not address what he sees as Iran’s malign behavior in the Middle East, its support for terrorism or its ballistic missile program.
5. What’s been the impact on Iran?


Iran is producing oil at the slowest clip since 1986, making the sanctions one of the biggest challenges confronting its economy since the 1979 revolution overthrowing the monarchy and installing clerical rule. The sanctions have fueled inflation and undermined domestic support for President Hassan Rouhani’s government, which negotiated the nuclear deal. A surge in gasoline prices sparked protests in late 2019 that authorities put down with force that may have resulted in more than 1,000 deaths, according to U.S. officials. Iranians feel duped. The nuclear deal was supposed to yield economic advantages for Iran, but renewed U.S. sanctions have shattered that expectation.
6. What has Iran done in response?


It’s confirmed that it surpassed agreed caps on its stockpiles of enriched uranium and exceeded the allowable level of purity. U.S. and Saudi officials have asserted that Iran was behind Sept. 14 attacks on two Saudi crude oil production plants that created the single biggest disruption in supply on record. Iran denies it. (The attacks were claimed by Yemen’s Iran-backed Houthi rebels, who are battling the government of President Abdurabuh Mansur Hadi, which is backed by the Saudis.) The U.S. blames Iran for a spate of vessel attacks in the Persian Gulf, which Iran also denies. Iran seized a British oil tanker in July and held it for two months after a ship loaded with Iranian crude was impounded for a time off Gibraltar on suspicion it was carrying oil to Syria in violation of European Union sanctions.
7. How does the U.S. stop others from trading with Iran?


As with other sanctions campaigns, U.S. leverage rests with the central role American banks -- and the U.S. dollar -- play in the global economy. Any country, company or bank that violates the terms of the U.S. sanctions could see its U.S.-based assets blocked or lose the ability to move money to or through accounts held in the U.S. In essence, the Trump administration has bet that nations, banks and businesses worldwide would rather do business with the U.S. than Iran -- a wager that has proven correct, as major European companies have mostly stayed away.
8. What have European countries done about that?


European parties to the Iran nuclear deal devised a special mechanism to facilitate trade with Iran that would circumvent the global financial system largely dominated by the U.S. The idea basically comes down to using a barter system in which Iran would accrue credits for its exports to Europe which it could then use to purchase goods from European businesses. But Instex, as the vehicle is known, has offered limited relief.