Though the U.S. and Iran have lived in a state of hostility for decades, 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’s been accused of responding by sabotaging oil tankers in the Persian Gulf. With the U.S. stepping up its military presence in the region, and Iran exceeding limits it agreed to on its nuclear program, the risk is that a miscalculation could lead to a war that neither the U.S. nor Iran say they want.

1. How did the escalation begin?

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.

2. 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. Iranians feel duped. The nuclear deal was supposed to yield economic advantages for Iran, but renewed U.S. sanctions have shattered that expectation.

3. What’s Iran done in response?

Iran has said that it won’t sit idly by as its economy is punished by the U.S. It’s confirmed that it has surpassed agreed caps on its stockpiles of enriched uranium and exceeded the allowable level of purity. In addition, the U.S. blames Iran for a spate of vessel attacks in the Persian Gulf, an accusation Iran denies. Iran seized a British oil tanker in July after a ship loaded with Iranian crude was impounded off Gibraltar on suspicion it was carrying oil to Syria in violation of European Union sanctions. The second ship was released in mid-August, prompting the U.S. to threaten sanctions against any party doing business with it.

4. 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.

5. 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.

6. 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 complaints 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.

7. 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, militants seized the U.S. embassy in Tehran and held 52 Americans hostage for more than a year, demanding the U.S. return the shah, who had fled there. In response, the U.S. severed relations and began to impose sanctions on Iran, 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.

8. What’s at stake in the conflict now?

The stability of the Middle East. European officials frequently cite their inability to prevent U.S. President George W. Bush’s administration from starting the Iraq war in 2003 as a key reason for trying to salvage the Iran deal. U.S. and Iranian leaders have said they are not seeking war, but experts worry that a miscalculation could quickly lead to an escalation. For instance, in June the U.S. was on the brink of launching airstrikes against Iran in retaliation for its downing of a U.S. Navy drone it said invaded its airspace, but President Trump says he decided to call off the operation because it would have led to about 150 deaths.

--With assistance from Nick Wadhams.

To contact the reporter on this story: David Wainer in New York at dwainer3@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Lisa Beyer

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