Sanctions on Iran will Never Produce Real Change

After the announcement of the alleged Iranian plot to assassinate the Saudi ambassador in Washington, D.C. (a case that, on the basis of what has been released so far, sounds as phony as a three dollar bill), President Obama pledged to tighten international sanctions further on Iran.

There is no doubt that US and international financial sanctions against Iran are hurting it in some ways, as AFP argues. The measures have scared off big oil and gas companies such as Shell and Total S.A. from making major investments in developing Iran’s petroleum and natural gas fields. Especially in the area of natural gas, a lot of sophisticated expertise and equipment is now needed, and Iran can’t do the work on its own. Shell, e.g., is a leader in liquified natural gas, which allows easy shipment of the fuel. Iran is having to barter its oil for goods because of the difficulty it faces in currency transfers, which in turn is creating cash flow problems for state agencies. AFP estimates that Iran needs $10 billion in foreign investments each year to maintain its economic progress, but is getting only $3 billion because of sanctions.

But at the end of the day, the sanctions mainly create opportunity costs for Iran, not real hardship. Iran’s economy could expand faster, its oil and gas fields could be developed more expertly, and it could have more prosperity if the sanctions were lifted. But the sanctions cannot overthrow the government or convince it to change course.

First of all, the sanctions are partial. They affect certain Iranian banks and other companies, and the ability of Iran’s banks to interface with other banks elsewhere in the world. But they do not forbid petroleum exports.

Since it can freely export its petroleum, Iran will likely make $100 billion from oil exports this year because of relatively high oil prices. That kind of income is a huge windfall for the central government (which reaps the profits), and acts as a cushion, allowing the regime to dole out favors to constituencies. Iran also will have $35 bn. or so in non-oil exports this year.

Given how thirsty rising powers in Asia are for energy, it is highly unlikely that the Obama administration can orchestrate a boycott of Iranian petroleum, as opposed to a boycott of Iranian banks. Nor would such an attempt likely succeed, since petroleum is easily smuggled.

Second, the US cannot get key countries to play ball in implementing the sanctions, which after all would often hurt Tehran’s trading partners as much or more than they hurt the ayatollahs. China and Iran will likely do $45 bn. in trade this year, up 50% from last year. There are plans to more than double that figure to $100 bn. in the short term.

Russia is helping Iran with mining and other ventures.

Turkey and Iran do $11 billion in licit trade a year, up from only $5 bn. just a few years ago. In addition, it is estimated that smuggling between the two countries amounts to $4 bn. a year, some of it such as to allow Iran to get around UN sanctions. While the US is going all out to pressure allies to get tougher on Iran, it is hard to see what leverage Washington has with Ankara in this regard. Turkey for its part is dedicated to expanding its trade with the Middle East.

Although India’s Central Bank kicked Iran off the South Asia bank exchange in response to US pressure, India has paid Iran for its substantial petroleum imports through a Turkish bank that interfaces with both countries, and India is now setting up relationship with Iran’s Central Bank. Were all that to become difficult, Iranians look to Russia as a country whose banks will play ball. India is an industrializing society in desperate need of petroleum, and the likelihood that India would comply with an American-led oil boycott against Iran strikes me as low.

Iran is also a key trading partner for Iraq, and the two countries did $10 bn. in trade last year.

As relations between the US and Pakistan have soured, some Pakistani officials have become bolder in urging Islamabad to buck US pressure, and to expand Pakistani trade and cooperation with Iran.

My guess is that one reason the Obama administration decided to peddle the shaky assassination story to the world is that it is just plausible enough to perhaps convince some of the countries doing business with Iran to cease doing so. Obama is in a race against time to prove that sanctions are biting and are causing Iran’s nuclear enrichment program to languish, since if he cannot reassure the Israelis on this score, they may very well attack unilaterally.

But sanctions alone just are unlikely to do the trick. An oil regime can cushion itself from the effects of the sanctions, as the one in Iraq in the 1990s did (it was the Iraqi people who suffered, including an estimated 500,000 deaths among Iraq children).

Obama came into office convinced that the negotiating table was the only plausible way to deal with Iran. He should go back to that.

14 Responses

  1. The last para made me realise that negotiation is something at which Obama seems to have been singularly unsuccessful, at least in the international sphere

    Nine months after he took office he was awarded the Nobel Peace Prize because he had “… created a new climate in international politics.”

    I believe the actual decision to give him the prize was made in February 2009, a month after he took office!!!! So what’s the record – off the top of my head

    Iran – zip
    North Korea – zip
    Israel Palestine – zip
    Iraq new SOFA – zip
    Russia Strategic Arms – START extended, nothing new coming
    Climate Change – chin wags in Copenhagen & Cancun – yawn
    Free Trade – Doha dead, new FTA zip **

    NATO Missile Defense – Radar in Turkey & Aegis Missile Ships in Spain. Radar in Poland & Missiles in Romania. This is the only “gain” I can think of, 4 weapons deployment treaties.

    ** I think the SK, Col & Pan FTA’s recently ratified by the US Senate were drawn up by the previous administration.

  2. To my paranoid mind the administration seems to be preparing the ground for air strikes against Iran, in a wag-the-dog scenario to start during the 2012 election campaign. Obama is more than capable of this sort of thing.

  3. The US has made itself irrelevant (or its influence highly diminished) with its complete subjugation to the Zionist cause and its egregious double standard in the Middle East.

    You need a certain moral high ground if you want to dominate world politics. Imposing crippling sanctions against Iran,a NPT signatory, while declaring “the unshakable bond” with Israel and ignoring its nuclear arsenal is not something that is lost on people throughout the world and many countries are not willing to kowtow to US demands anymore.

    This is another adverse effect of AIPAC as Walt and Mearsheimer have noted.

  4. While I don’t doubt sanctions are having economic effects on Iran, how are politics changing as a result, if at all? Are the sanctions only going to hurt poor Iranians? Are Iranians seeing/going to see a substantial decrease in their standard of living? Is any economic decline manifesting itself in more or less support for the regime? None of those questions seem to have obvious answers to me, but those answers are in my opinion, the key to understanding whether or not sanctions are an appropriate policy.

  5. Let me understand this…the sanctions are placed on Iran even though there is no proof they have a nuclear weapons program and because Israel and the US went in their ususal Aunt Tilly fainting routine when a laughable bogus intelligence, Curveball like scam, was released to the public? That’s setting the bar pret-ty low!

    We all know the real reason is because Iran will not be a patsy for the neocons PNAC, and because Iran is sitting on a “sea of oil” as Wolfowitz would say.

  6. “Obama came into office convinced that the negotiating table was the only plausible way to deal with Iran. He should go back to that.” He’d surely do that if he was his own agent.

  7. At this wonderful historical moment when we are made aware of the struggle between the 99% and 1% it is vital to remember that the non-stop war mongering against Iran is cranked out by even less than 1% – the Zionists and their constant need to have anyone who opposes their project silenced or subjected to cruise missiles.

  8. Did not Obama campaign on the premise that he would negotiate with Iran? IIRC he drew harsh criticism from Clinton because he said that he would meet with Iran’s leadership “without preconditions” and she spouted some nonsense that doing so would seriously weaken the United States.

    • Well yes, the subsidy cuts have reduced consumption through the glorious method of allowing the poor to consume less…..and with the currency growing ever more worthless, the poor in Iran will soon be able to consume just about nothing at all

      leaving plenty more for the IRGC.

  9. Dear professor Cole,
    Thank you for a good analyse of the present situation. As an European I have also been wondering what this is all about. As you mentioned Iran is sole depended inexport of oil and gas plus some other commodities like copper. As we all know USA has had allredy for several years a a covering embargo against Iran. Also the federal Reserve seem to have a significant budget to convince the interntional banks and other companies to join such kind of actions against Iran, that really are not according the UN resolutions or EU regulations. This seems to be very natural tu US as a worl police.
    But as you mentioned the export of Iran is sole depended on oil and gas plus some other commodities. Main importers seem to be China and India.
    What I have been wondering is why not block these commodities? Naturally it woud increase the international oil price by may be more than 10 %, but anyhow it might be a reasonable price for awoiding a war or some limited military action.
    Best regards,
    Tero

  10. Sanctions are just one small part of regime change policy, ;Bringing down the Syrian dictatorship is BIG.

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