Washington’s Dangerous Blockade of Iran (Cole at Tomdispatch)

My essay, “Why Washington’s Iran Policy Could Lead to Global Disaster,” is out at Tomdispatch.com Go to that site for Tom Englehardt’s powerful introduction.

Why Washington’s Iran Policy Could Lead to Global Disaster
What History Should Teach Us About Blockading Iran

By Juan Cole

It’s a policy fierce enough to cause great suffering among Iranians  — and possibly in the long run among Americans, too.  It might, in the  end, even deeply harm the global economy and yet, history tells us, it  will fail on its own.  Economic war led by Washington (and encouraged by  Israel) will not take down the Iranian government or bring it to the  bargaining table on its knees ready to surrender its nuclear program.   It might, however, lead to actual armed conflict with incalculable  consequences.   

The United States is already effectively embroiled in an economic war  against Iran.  The Obama administration has subjected the Islamic  Republic to the most crippling economic sanctions applied to any country  since Iraq was reduced to fourth-world status in the 1990s.  And worse  is on the horizon.  A financial blockade is being imposed that seeks to  prevent Tehran from selling petroleum, its most valuable commodity, as a  way of dissuading the regime from pursuing its nuclear enrichment  program. 

Historical memory has never been an American strong point and so few  today remember that a global embargo on Iranian petroleum is hardly a  new tactic in Western geopolitics; nor do many recall that the last time  it was applied with such stringency, in the 1950s, it led to the  overthrow of the government with disastrous long-term blowback on the  United States.  The tactic is just as dangerous today.

Iran’s supreme theocrat, Ayatollah Ali Khamenei, has repeatedly condemned the atom bomb and nuclear weapons of all sorts as tools of the devil, weaponry that cannot be used without killing massive numbers of civilian noncombatants.  In the most emphatic terms, he has, in fact, pronounced them forbidden according to Islamic law.  Based on the latest U.S. intelligence, Secretary of Defense Leon Panetta has affirmed that Iran has not made a decision to pursue a nuclear warhead.  In contrast, hawks in Israel and the United States insist that Tehran’s civilian nuclear enrichment program is aimed ultimately at making a bomb, that the Iranians are pursuing such a path in a determined fashion, and that they must be stopped now — by military means if necessary. 

Putting the Squeeze on Iran

At the moment, the Obama administration and the Congress seem intent on making it impossible for Iran to sell its petroleum at all on the world market.  As 2011 ended, Congress passed an amendment to the National Defense Authorization Act that mandates sanctions on firms and countries that deal with Iran’s Central Bank or buy Iranian petroleum (though hardship cases can apply to the Treasury Department for exemptions).  This escalation from sanctions to something like a full-scale financial blockade holds extreme dangers of spiraling into military confrontation.  The Islamic Republic tried to make this point, indicating that it would not allow itself to be strangled without response, by conducting naval exercises at the mouth of the Persian Gulf this winter.  The threat involved was clear enough: about one-fifth of the world’s petroleum flows through the Gulf, and even a temporary and partial cut-off might prove catastrophic for the world economy.

In part, President Obama is clearly attempting by his sanctions-cum-blockade policy to dissuade the government of Israeli Prime Minister Binyamin Netanyahu from launching a military strike on Iran’s nuclear facilities.  He argues that severe economic measures will be enough to bring Iran to the negotiating table ready to bargain, or even simply give in. 

In part, Obama is attempting to please America’s other Middle East ally, Saudi Arabia, which also wants Iran’s nuclear program mothballed.  In the process, the U.S. Department of the Treasury has even had Iran’s banks kicked off international exchange networks, making it difficult for that country’s major energy customers like South Korea and India to pay for the Iranian petroleum they import.  And don’t forget the administration’s most powerful weapon: most governments and corporations do not want to be cut off from the U.S. economy with a GDP of more than $15 trillion — still the largest and most dynamic in the world. 

Typically, the European Union, fearing Congressional sanctions, has agreed to cease taking new contracts on Iranian oil by July 1st, a decision that has placed special burdens on struggling countries in its southern tier like Greece and Italy.  With European buyers boycotting, Iran will depend for customers on Asian countries, which jointly purchase some 64% of its petroleum, and those of the global South.  Of these, China and India have declined to join the boycott.  South Korea, which buys $14 billion worth of Iranian petroleum a year, accounting for some 10% of its oil imports, has pleaded with Washington for an exemption, as has Japan which got 8.8% of its petroleum imports from Iran last year, more than 300,000 barrels a day — and more in absolute terms than South Korea.  Japan, which is planning to cut its Iranian imports by 12% this year, has already won an exemption.

Faced with the economic damage a sudden interruption of oil imports from Iran would inflict on East Asian economies, the Obama administration has instead attempted to extract pledges of future 10%-20% reductions in return for those Treasury Department exemptions.  Since it’s easier to make promises than institute a boycott, allies are lining up with pledges. (Even Turkey has gone this route.) 

Such vows are almost certain to prove relatively empty.  After all, there are few options for such countries other than continuing to buy Iranian oil unless they can find new sources — unlikely at present, despite Saudi promises to ramp up production — or drastically cut back on energy use, ensuring economic contraction and domestic wrath. 

What this means in reality is that the U.S. and Israeli quest to cut off Iran’s exports will probably be a quixotic one.  For the plan to work, oil demand would have to remain steady and other exporters would have to replace Iran’s roughly 2.5 million barrels a day on the global market.  For instance, Saudi Arabia has increased the amount of petroleum it pumps, and is promising a further rise in output this summer in an attempt to flood the market and allow countries to replace Iranian purchases with Saudi ones. 

But experts doubt the Saudi ability to do this long term and — most important of all — global demand is not steady.  It’s crucially on the rise in both China and India.  For Washington’s energy blockade to work, Saudi Arabia and other suppliers would have to reliably replace Iran’s oil production and cover increased demand, as well as expected smaller shortfalls caused by crises in places like Syria and South Sudan and by declining production in older fields elsewhere.  

Otherwise a successful boycott of Iranian petroleum will only put drastic upward pressure on oil prices, as Japan has politely but firmly pointed out to the Obama administration.  The most likely outcome: America’s closest allies and those eager to do more business with the U.S. will indeed reduce imports from Iran, leaving countries like China, India, and others in Asia, Africa, and Latin America to dip into the pool of Iranian crude (possibly at lower prices than the Iranians would normally charge). 

Iran’s transaction costs are certainly increasing, its people are beginning to suffer economically, and it may have to reduce its exports somewhat, but the tensions in the Gulf have also caused the price of petroleum futures to rise in a way that has probably offset the new costs the regime has borne.  (Experts also estimate that the Iran crisis has already added 25 cents to every gallon of gas an American consumer buys at the pump.)

Like China, India has declined to bow to pressure from Washington.  The government of Prime Minister Manmohan Singh, which depends on India’s substantial Muslim vote, is not eager to be seen as acquiescent to U.S. strong-arm tactics.  Moreover, lacking substantial hydrocarbon resources, and given Singh’s ambitious plans for an annual growth rate of 9% — focused on expanding India’s underdeveloped transportation sector (70% of all petroleum used in the world is dedicated to fuelling vehicles) — Iran is crucial to the country’s future.  

To sidestep Washington, India has worked out an agreement to pay for half of its allotment of Iranian oil in rupees, a soft currency.  Iran would then have to use those rupees on food and goods from India, a windfall for its exporters.  Defying the American president yet again, the Indians are even offering a tax break to Indian firms that trade with Iran.  That country is, in turn, offering to pay for some Indian goods with gold.  Since India runs a trade deficit with the U.S., Washington would only hurt itself if it aggressively sanctioned India.

A History Lesson Ignored

As yet, Iran has shown no signs of yielding to the pressure.  For its leaders, future nuclear power stations promise independence and signify national glory, just as they do for France, which gets nearly 80% of its electricity from nuclear reactors.  The fear in Tehran is that, without nuclear power, a developing Iran could consume all its petroleum domestically, as has happened in Indonesia, leaving the government with no surplus income with which to maintain its freedom from international pressures. 

Iran is particularly jealous of its independence because in modern history it has so often been dominated by a great power or powers.  In 1941, with World War II underway, Russia and Britain, which already controlled Iranian oil, launched an invasion to ensure that the country remained an asset of the Allies against the Axis.  They put the young and inexperienced Mohammed Reza Pahlevi on the throne, and sent his father, Reza Shah, into exile.  The Iranian corridor — what British Prime Minister Winston Churchill called “the bridge of victory” — then allowed the allies to effectively channel crucial supplies to the Soviet Union in the war against Nazi Germany.  The occupation years were, however, devastating for Iranians who experienced soaring inflation and famine.

Discontent broke out after the war — and the Allied occupation — ended.  It was focused on a 1933 agreement Iran had signed with the Anglo-Iranian Oil Company (AIOC) regarding the exploitation of its petroleum.  By the early 1950s, the AIOC (which later became British Petroleum and is now BP) was paying more in taxes to the British government than in royalties to Iran for its oil.  In 1950, when it became known that the American ARAMCO oil consortium had offered the king of Saudi Arabia a 50-50 split of oil profits, the Iranians demanded the same terms.

The AIOC was initially adamant that it would not renegotiate the agreement.  By the time it softened its position somewhat and began being less supercilious, Iran’s parliamentarians were so angry that they did not want anything more to do with the British firm or the government that supported it. 

On March 15, 1951, a democratically elected Iranian parliament summarily nationalized the country’s oil fields and kicked the AIOC out of the country.  Facing a wave of public anger, Mohammed Reza Shah acquiesced, appointing Mohammed Mosaddegh, an oil-nationalization hawk, as prime minister. A conservative nationalist from an old aristocratic family, Mosaddegh soon visited the United States seeking aid, but because his nationalist coalition included the Tudeh Party (the Communist Party of Iran), he was increasingly smeared in the U.S. press as a Soviet sympathizer.

Continue reading at Tomdispatch.com

18 Responses

  1. Those advocating blockade, which really bears most on the least affluent, should reflect upon the results of the [primarily] British driven blockade of Germany after WWi and what it led to politically within 10 years… [some would call it 'The Holocaust']

  2. Few things that are interesting here to see are

    a) Israeli paranoia on Iran is clearly not based on any evidence of Iranian nuclear weapons or any attempt to build them now. It may be a clear indication of the weakness of the Israeli regime and its fear on its long term viability . It is a regime that doesn’t seem to be able to survive without a real or imagined enemy. They don’t seem to have any other interest other than promoting the next war. Even with all the financial and military backing of US, question is how long can they keep this up?

    b) The current embargos on Iran shows that US and West is not really interested in free markets. Market forces clearly are not working, or your demands are so unreasonable, when you have to constantly put sanctions to achieve political goals. At the same time, it tells the rest of the world that what appears as free market is nothing more than a market place completely controlled by the west. When US can cut the Iranian banking system from the global banking system, it says there is a monopoly control on the banking transactions. Such that one or a small group of countries can prevent financial transaction.

    So all the talk of free markets is nothing more than the hypocrisy used when it is convenient. It reamins to be seen how this will play out in Greece, Spain,…. where population is being asked to put their trust in free market capitalism!

  3. Always picking up the biggest hammer in the drawer, when there’s not a nail in sight. Just because a bunch of war wimp chicken hawk talking heads do blah-blah-blah on the Ridiculous Rodeo Circuit. Why not try hammering the heads of that batch of nails, for a change? What’s wrong with us, or at least our Beloved Leaders?

  4. i don’t believe israel would attack iran. are they equipped enough to fly all the way over to iran and bomb and then run back to defend israel from retaliatory strikes from hezbollah and such?

    and the US, i don’t believe, would chance putting US military troops stationed abroad at risk for retaliatory strikes by iranian proxies in afghanistan and iraq.

    but just for hypothetical sake, let’s imagine israel did strike. that would instantly cause israel to be regarded internationally as a pariah state that would make it difficult for even the US to defend. israel would be so weakened, that its ability to shape the public narrative would be incredibly hampered.

    it’s in such a weakened position would the liberation of palestine be be possible. one could envision israel bombing iran could jump start a series of events, creating a domino effect, that could lead to a free palestine.

    consider the irony: israel so desperate to demonstrate its power, winds up weakening itself. israel preemptively bombing iran out of a misguided act of self defense – would end up seeding its own destruction.

  5. doesn’t israel itself have a history of skirting sanctions? if memory serves, something like 70% of israel’s own oil comes from iran which they purchase in europe using third party cutouts.

  6. Excellent!
    Unfortunately needs the history and the big words removing, and making into a cartoon strip for some Washington morons to follow it.
    The “Why?” is the starvation diet of oil supplies to Israel so that it needs a take over of Syria and the hiatus of the Iran situation is cover for this move to be under the UN with Arab, Saudi Kuwait, support.

  7. I’m confused. Nuclear, wind and solar, at least in the US and France,don’t replace the use of oil or gasoline, which primarily provide the energy for transportation while the former methods create electricity for homes and industry. So why would the Iranians need nuclear power to save their petroleum?

    • Brian- have a look at wikipedia- link to en.wikipedia.org.
      Most Iran’s primary energy is from gas, then oil, then hydro (2%). In other words, a lot of gas/oil is used to provide stationary energy.

      The economics of the energy sector is complicated by large-scale subsidies, ie the government loses potential revenue when it provides domestic subsidies to oil and gas consumption. If these products could be exported, they would earn the Iranian Government money, ie there is massive revenue foregone.

  8. It was the still extant Henry Kissinger who suggested to the Shah that Iran should invest in nuclear energy for its future.Iran was part of Eurodif and paid into this European consortium. It has never been repaid.
    The cruel counterproductive measures, even without further attacks, are a disgrace to the USA which has instigated them and forced others to join.

  9. Dear Professor Cole:

    Please write more about the ongoing war crimes in Syria. Yes, Bahrain’s situation is important. However, its doesn’t deserve more coverage and commentary from you than Syria’s ongoing chaos and war crimes. Using tough word (e.g., murderous dictator)to describe what the Damascus’ butcher is doing is something that would be greatly appreciated from a respected/well-know intellectual like yourself. Please keep in mind that Bahrain is 1/2 the size of Aleppo, and the incidents of Bahraini killings/descrution is a fraction of what is happining in Syria. Yes, cover Bahrain and advocate for its democracy; but it is a great injutice to minimize the situation in Syria! Your Website’s front page, which does not give a proportional/fair coverage to Syria’s inspiring revolt, seems comparable to CNN’s front page that you rightly criticize! Peace!
    P.S.: Although I support Bahraini freedom, I am suspicious of Ali Salman and al-Wifaq after seeing an interview with him and did further research on this shia party. I see him as a Hasan Nasrallah in-waiting, which is very scary given the Hasan’s support/defense of Syria’s tyrant. This support has not only hurt his popularity in the Arab World, but it has-unfortunately-icreased Sunni/Shia sectrian tensions and diverted attention away from Israeli occupation/colonization/war crimes.
    P.S.2: Why does al-Wifaq keep complaining about the “naturalized” in Bahrain? Is it because they are mostly Sunni Muslims, many of whom were born in Bahrain? My parents immigrated from pre-1967 Palestine. They became U.S. citizesn. I was born in Chicago, and naturally I am a U.S. citizen. Why cannot immigrants in Bahrain, Saudi Arabia, etc. enjoy the same rights? Can you imagine if I couldn’t be a U.S. citizen? I would be stateless!
    Would al-Wifaq have complained about the “naturalized” had they been Shias from southern Iraq, or southern Lebanon? Does this hide their true intentions and raise Sunnis’ fear that Ali Salman is hiding behind al-Taqiah التقيه?
    Nobody in the Arab World and the M.E. (non-Arab Iran/Turkey) is completely perfect. There are flaws and blames on all sides. However, while validly criticizing Saudi authoritarianism, please be fair and criticize Iran for politically/economically/militarily supporting what is now the worst Arab regime, the regime of the Syrian murderous dictator (Bashar).

  10. It should be noted that MI-6, the British intelligence service, recruited the Central Intelligence Agency to overthrow Dr. Mossadegh, who was widely respected in Iran by its people. Allen Dulles oversaw Operation Ajax, which was planned by the CIA’s Near East chief Kermit Roosevelt.

    Dr. Mossadegh’s “offense” had been his expropriation of the Anglo-Iranian Oil Co. He remained under house arrest until his death in the late 1960s.

    His demise culminated in the cycle of oppression and violence that commenced with the creation of SAVAK, the Shah’s secret police, and the Shah’s regime’s eventual overthrow by Muslim fundamentalists while the nation was ruled by President Bani-Sadr in the 1970s. The Shah and SAVAK enjoyed an intimate relationship with U.S. intelligence, particularly CIA Director Richard Helms, who later became the American ambassador to Iran under the Nixon and Ford administrations.

    The continued existence of anti-American fervor in Iran can be traced to the CIA coup of 1953.

  11. No one has yet commented on Russia sending and upgrading forces on Iranian border. This could be something on the order ov “The Law of Unintended Consequences”

    • Historically, Iran has had a lot more to fear from Russian (read “Soviet”) adventurism than from the United States. After World War II, the USSR occupied a large swath of northern Iran, withdrawing only under pressure from the United States and Great Britain.

  12. Juan

    What’s moved on is financial technology.

    The Saudis have been using Enron style prepay contracts via J P Morgan Chase to keep the oil price supported using ‘inflation hedging’ money from investors. Current oil prices have got nothing whatever to do with speculators, who will be among the victims.

    This macro manipulation is again breaking down, as it did before in 2008, when it was BP and Goldman doing it.

    There is no reason in theory why Iran could not sell its production forward to (say) the Chinese on precisely the same basis and thereby monetise inventory exactly as the Saudis did.

    The next month or two should be very interesting. In my view, the US/Saudi plan is to defuse the Iran problem, and massage the US gas price down below $2.50/gallon during the next few months, and their entire strategy has been built around this ‘macro’ manipulation of the market.

    But frankly, I don’t think the market will go along with it, and our friends will be unable to catch the falling knife.

    If the Chinese and Indians (much of demand is for physical hedging/reserves as for consumption) decided they’d rather pay less than $60/bbl than $120/bbl for reserves the market would collapse overnight.

  13. The United States stopped exports of scrap metal and oil to Japan when it refused to get out of China and Manchuria. Pearl Harbor was the result.

    • The United States stopped exports of scrap metal and oil to Japan after it invaded and occupied all of Vietnam, including the southernmost part, Cochin China. Japan was using its conquests in order to take the prize, the Netherlands Indies (today’s Indonesia) with its oil fields.

      Japan attacked Pearl Harbor, not because of the U.S. scrap metal and oil embargo, but because it wanted to knock out the U.S. capacity to deliver a counter-blow to Japan’s aggression. Japan’s plans to knock out the U.S. at Pearl Harbor long pre-dated the U.S. embargo against Japan.

      • Of course, there is a lot of debate about the whole imbroglio between US and Japanese interest-declarers and government leaders, as I recall, and a lot of opinion, and even scholarship, at odds with the “US good-Japs bad” versions. Of course, it’s all just about power, resources and dominion — resolved and resolving in many random ways.

        Pearl Harbor planning “long predated” the August 1941 embargo? By what, a couple of months? An action facilitated by US negotiating behavior that let Tojo ascend? But let us stay with the comfortable explanations… easier on the conscience.

        By the way, I see CNN is touting the possibility that The Iranian Navy May Threaten The US East Coast!!!!! Oooooooh! link to youtube.com And maybe of more concern, if the US/Israel consortium does get something started, or if by the inadvertences that sometimes “start things” in situations like this, might be that maybe our vaunted technological and firepower superiority might not “git ‘er done” before the equivalent of a Pearl Harbor’s worth of US Navy ships, including carriers this time, ends up making new habitat on the bottom of the Persian Gulf. Which ought to concern even all the “patriots” who could give a rat’s a$$ less about all the other, “lesser” people that might get killed and maimed, as stakes in this hand of Great Game Poker.

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