India, China Defy US Congress’ War on Iranian Oil

The US House of Representatives approved a bill at the beginning of this month aimed at completely closing off Iranian petroleum exports. Not since President Roosevelt told Japan in July 1941 that he was going to cut it off from American petroleum has the United States threatened to use oil to strangle a country so completely. And FDR’s threat caused the Japanese to decide to take Indonesia away from the Dutch, which required crippling the US Pacific Fleet at . . . Pearl Harbor.

The bill is intended as a slap in the face of the incoming president, Hassan Rouhani, who has pledged more cooperation with nuclear inspectors and says he will allay the anxieties of the West concerning Iranian enrichment.

Among the more effective lobbies for this Congressional war on Iranian oil (which is arguably an act of war in international law) is the uber-hawkish, pro-Israel “Foundation for Defense of Democracies”, the three biggest funders of which are Sheldon Adelson, Home Depot CEO Herman Marcus, and hedge fund billionaire Paul Singer, all of them also big backers of Republican politicians. In other words, the US financial blockade of Iranian petroleum is being pursued for purposes of Israeli security. Congress is attempting to punish Iran economically into mothballing its civilian nuclear enrichment program, which Israel and the US Israel lobbies maintains is aimed at producing a nuclear weapon (there is no firm evidence that Iran has a nuclear weapons program and the International Atomic Energy Agency inspectors continue to affirm that no uranium has been diverted to military uses). Israel itself is estimated to have as many as 400 nuclear warheads, as many as China, but unlike Iran, Israel does not permit IAEA inspections and it refuses to sign the Nuclear Non-Proliferation Treaty.

Congressional sanctions have already in the past 12 months reduced Iranian petroleum exports by half from an average of 2.2 million barrels a day last year. They succeeded by threatening importing countries with third-party US Treasury Department sanctions if they did not reduce their oil imports from Iran. (I’m not sure these threats are legal under the World Trade Organization’s rules).

There is some evidence that Congress is over-reaching and that not only is its new goal of zero Iranian petroleum exports not attainable but that Iranian exports may rebound somewhat. Some of the fall in exports this year is unrelated to the US, for instance in late winter Iran was engaged in a dispute over prices with China, its number one customer. Exports increased in July to 1.16 mn barrels a day up from 960,000 in June.

A further US financial blockade on Iranian oil would likely cause world gasoline prices to rise, hurting global economies and eliciting howls of outrage from American allies. In part because of the missing million barrels a day from Iran, Brent crude is around $108 / barrel, which is historically very high. Problems with North Sea production and oil workers strikes in Libya have taken some other production off line and raised prices. The world produces roughly 86 million barrels a day of petroleum, but the high prices suggest that it wants more than that. Some governments may be secretly buying up petroleum to increase their strategic reserves.

India looks set to defy the US by increasing its imports of Iranian petroleum. Those imports had fallen dramatically in April and since because European insurance firms, fearful of incurring US sanctions themselves, stopped insuring Iranian petroleum exports to Indian refineries. The Indian government, however, may step in to offer the insurance itself. Iran is also offering to insure.

India’s rupee has fallen 11% in value in the past year, in part because it is running a budget deficit so big that it worries currency traders. (Governments that spend more money than they take in make up the difference by printing extra money. Since that extra money is not backed by any real increase in productivity or the production of goods or services, it serves to dilute the value of the currency against other currencies.).

When the rupee declines in value it makes imports (often denominated in US dollars) more expensive. Hence, India’s bill for imported petroleum went up starkly this year.

Iran, on the other hand, has offered to let India pay for its oil in rupees (which locks Iran into spending that money on imports from India, since the rupee is not a hard currency and wouldn’t be accepted by most other states). If India buys more of its oil from Iran in rupees at this point, it will essentially be saving itself 11% on the price. In addition, its economy will benefit when Iran spends the rupees on Indian imports.

India’s fuel crisis is sufficiently severe for the country to risk a tiff with the US over the oil imports from Iran. India still does relatively little business with the US, and apparently the ruling Congress Party feels it can risk the wrath of the US Israel lobbies better than it can risk the fury of the Indian electorate.

Some of Iran’s problems came from the unwillingness of tanker companies to risk US retaliation by carrying Iranian oil. Iran therefore has bought from China 12 huge oil tankers, each of which can carry 2 million barrels of petroleum. Iran just took delivery of 4 more of these tankers. It will therefore be in a position over coming years to export to China and India with its own tankers, holding itself harmless from Congressional sanctions.

At the same time, China says it will abide by UN sanctions against Iran, but sees no reason to conform to arbitrary sanctions applied unilaterally by the US.

US sanctions against Iran are hurting its standard of living and hitting its middle classes. Over time the country could see downward mobility, as happened in Iraq under US/ UN sanctions. A weakened middle class will increasingly find it impossible to defy a strong state (as also happened in Iraq). Likewise, punitive sanctions on Iran will weaken Rouhani, who has slight reformist tendencies, in favor of his hard line opponents.

The main effect of US sanctions is to strengthen the state against potential challengers.

33 Responses

  1. “Not since President Roosevelt told Japan in July 1941 that he was going to cut it off from American petroleum has the United States threatened to use oil to strangle a country so completely. And FDR’s threat caused the Japanese to decide to take Indonesia away from the Dutch, which required crippling the US Pacific Fleet at . . . Pearl Harbor.”

    The United States cut off oil exports to Japan in July 1941 as a result of Japanese aggression in Southeast Asia, specifically the Japanese push into Cochin China, the southern-most part of today’s Vietnam. The Japanese plan all along was to take over Indonesia in order to ensure a supply of oil, and southern Vietnam was a staging area for the invasion of Indonesia. The Japanese did not invade Indonesia because of the US cutoff of oil; it was always in their strategic plan for what they called the “Greater East Asia Co-Prosperity Sphere.”

    As for the attack on Pearl Harbor, the Japanese plan always called for knocking out the US Pacific Fleet. The Japanese had already decided to invade the Philippines because they knew they could not leave the US there, as it would present a threat to their designs on the rest of Southeast Asia. Therefore, they planned to attack Pearl Harbor in order to cripple the US fleet’s ability to respond. The US cutoff of oil in July 1941 may have accelerated the Japanese attack on Pearl Harbor, but it was not the cause of the attack, the plans of which were already in place.

    .

    • As I understand it, the American embargo on Japanese oil imports constituted an “act of war” often ignored in the American mythology that the Japanese attacked Pearl Harbor “out of the blue” and/or “for no good reason.”

      It is the “habit” of the United States to attempt to crippling the economy of a sovereign nations it has disagrements with, which unfortunately usually ends up affecting the general population, particularly the poor. Are our sanctions on Iran then an “act of war” and/or does this constitute collective punishment?

      The legality is disputed. The morality at bit less so, end justifying means, etc.

      • You are confusing a “blockade” with an “embargo,” Ms. Sunflower. The United States embargoed oil exports to Japan, which is perfectly legal under international law. To blockade a country is another matter and is considered an “act of war” under both international law and the Law of Warfare. The US, however, did not blockade Japan in July 1941, it embargoed oil exports to Japan, which was a legal action taken in response to Japan’s aggression in Southeast Asia.

    • Bill, you again treat your own assertions as fact. Every modern military has contingency plans in place. It gives them something to do during peace. But plans are, thankfully, not “always” policy, else humanity would have been evaporated in the enthusiasms of the Cold War. Roosevelt and Hull were complicit in Japan’s final decision to attack Pearl Harbor by opting for and maintaining a hard line approach including not just the squeezing of oil supplies but the freezing of assets. Roosevelt’s position was based not only on Japan’s invasion of China but also on the strategic complications of the European war and Churchill’s repeated demands for more American assistance. Had Roosevelt not gradually acceded to Churchill’s requests, pulling resources from the Pacific to the Atlantic, Pearl Harbor security would likely not have been weakened by the fuel surfeit that virtually eliminated limited long range aerial reconnaissance of the Japanese approach sector, and which increased the number of US ships sitting in harbor rather than at sea. With warning of Japan’s approach the Pearl fleet would have blunted if not crushed Japan’s attack, and the course of the following war would have been markedly altered.

      Japan’s outward thrust that began at Pearl was enabled only by the Japanese military’s persuasion of the Emperor that oil supplies were finite to only a number of months, and that survival of the nation necessitated an attack on the US. If Japanese oil supplies had been deemed completely adequate the military’s argument for attack would not have been persuasive. See the little book Pearl Harbor and the Coming of the Pacific War by Akira Iriye, and that other exhaustive bible on Pearl, at Dawn We Slept. Your assertion is not supported by these sources.

      • I’m not sure that a “fuel surfeit” hampered US aerial reconaissance or cause more US to remain at anchor at Pearl Harbor. According to Roberta Wohlstetter’s study the recon problem was due to interservice squabbling over whether the Navy or the Army Air Force was responsible for long-distance patrolling. As for all those battleships tied up in port, there was no other place for them under the circumstances. They were overaged obsolescent ships, fuel-hogging and far too slow to keep up with the carriers, which BTW were not tied up in port on December 7th.

        • “They were overaged obsolescent ships, fuel-hogging and far too slow to keep up with the carriers, which BTW were not tied up in port on December 7th.”

          You are spot-on, Sufferinsuccotash. That the carriers were not at Pearl was what saved us. They carried the great battles until American industrial might began churning out ships and aircraft to fight on both fronts, aircraft for the European and Pacific theaters and ships primarily for the Pacific theater.

    • “…….(t)he Japanese had already decided to invade the Philippines……….”

      Even though its largely forgotten today, the Philippines were subject to massive Japanese air assault the same day as Pearl Harbor.

  2. Since the Iranian hostage crisis, several administrations – Republican and Democratic – have been at loggerheads with Iran. Pinning much – all? – of that on a pro-Israel cabal pulling the levers behind the scene is risible. Foreign policy formulation is hardly so monochromatic.

    • I don’t think the blog has been monochromatic. There has been plenty written about US relations with Iran since WW2 = the ’53 coup, pampering the Shah, ignoring SAVAK, 1979, hostages, nuclear issue, etc. History should be seen in its dynamics, in its motion. Iran doesn’t threaten the US directly. At this time, 2013, Obama’s decisions are driven by Israel. Sanctions are a compromise between real negotiation and bombing Iran’s nuclear facility. Obama’s policy is based on keeping Irsrael from taking unilateral actions and,in that context, ensuring Israel retains a nuclear monopoly in the Middle East.

      • No, I don’t believe Juan’s blog is monochromatic. In fact, I enjoy his writing and agree with his POV most of the time. But I don’t subscribe to the devil theory in history where well-connected plotters push their narrow agenda at the expense of the larger polity. Especially when it comes to US history. Israel long ago became the punching bag for left and right conspiracy-mongers. Things are a lot more complicated. What’s more, the debate in Israel among policy elites shows far sharper divides about how to treat Iran than some here suggest.

    • Seriously, you don’t think that there is a common reason for the monochromatic foreign policy regarding Iran, and in fact for any Middle East issue in which Israel has a hand? Do you not remember the attack on the Liberty, and the craven response of the US, long before the hostage crisis?

      Are you aware that Iran has reached out to the US several times attempting to resolve differences and reach normal diplomatic relations, only to be rebuffed? Probably the only time that the USG has worked closely with the Iranians since the Shah, our hand-picked ruler, was deposed, was when Reagan’s folks arranged with them not to release the hostages until Reagan was elected and sworn in, and the Iran-Contra charade began.

      • The Libery? Seriously? Given how the lunatic fringe has seized upon what serious historians long ago explained as an accident, I doubt that you’d be persuaded by any evidence that it was not a Jewish-Israeli conspiracy to stifle the truth.

        • Oh look! another decider of what is “serious history.”

          The evidence I’ve seen looks like the near sinking of the USS Liberty was multiple attacks by several branches of the IDF with clear awareness of the American flag on the mast and the clear intention to keep anyone from observing and gathering intel on the 1967 war operations. Even their “ally,” the putz schmuck freier US of A. All part of “purity of arms.” And “maintaining freedom of action.” HOW did the Israeli folks get weapons grade nuclear material and the expertise and machinery to make 400 or 500 nuclear weapons, and “un-counting?” And all kinds of other fun stuff? Speaking of conspiracies…

  3. This is another reason why our close attachment to Israel is causing the world’s center of gravity to shift eastward.

    Eventually, the US and Israel will stand along against the rest of the world.

  4. China & India have been defying US Congress all along……..in fact they were not part of the possies, there were exempt from joining the sanction wrath of the US.

    Hillary Clinton announced that the US is aware of that, and understand it. I seriously think US had no other option except understanding it.

    China does what China wants, they have a huge trade market with Iran, and India does what India wants because they have Nuclear Capability, and they can make life much harder for US by escalating that little life long riff with Pakistan.

  5. I am thinking 1953 — when Britain, with US support, pursued an embargo / blockade of Iranian oil, leading up to the coup against Mossadegh. The events that still reverberate today.

  6. If “The main effect of US sanctions is to strengthen the state against potential challengers,” then why did Iranians just elect a reformer who wants to cut a deal?

      • Except when they didn’t, such as Ahmedinejad.

        Anyway, I’m not positing a change in Iranian political culture as a result of the sanctions. I’m questioning yours.

        • Rouhani is probably to the right of Ahmadinejad, who was probably only elected once, when he was posing as a populist.

          I don’t see the sanctions as having produced the Rouhani victory. He is an insider and close to Khamenei on most issues, not really a reformist at all. He is however in favor of a slight cultural opening, which is what the Iranian electorate has voted for since 1997 pretty consistently. One forgets that domestically Ahmadinejad attacked the ayatollah fat cats and favored women coming out to stadiums for soccer games, etc. I suspect Mousavi won in 2009 because Ahmadinejad reneged.

        • Amazing how the same kind of people keep floating to the top of the abbatoir’s septic tank that is the Great Game. What’s to choose between the ayatollahs and the Kochs and Berlusconi and Amin and Arafat and Netayahooo and Jerry Falwell? Or pick almost any other state you care to name. The vultures, vampires and tapeworms always rise… and their apologists tell us that is just the way it Realist-ically is. And thanks to the accidents of our common heredity, our life spans, relative to the rate of wasting of the planet, assure the worst of them that they will usually get to pass away so very comfortably in their beds, muttering “Apres moi le deluge…” link to tradicionclasica.blogspot.com

          One wonders, given the physical state of the planet, if the rest of us will have the will or wisdom to do anything else, or more importantly, better.

        • Whether he’s “to the right” of Ahmedinejad on domestic issues is irrelevant to your theory. The issue here is foreign relations in general, and relations with America in particular.

          The idea that American actions are making a peaceful resolution to the situation less likely by inflaming the Iranian public against collaboration just took a rather significant body blow.

          I don’t see the sanctions as having produced the Rouhani victory, either. I see that NOT precluding it, as some would predict they would.

          Iran just completely failed to elect a hardline, anti-American, anti-negotiations candidate, to the surprise and consternation of some who thought they would and should.

        • “The idea that American actions are making a peaceful resolution to the situation less likely by inflaming the Iranian public against collaboration just took a rather significant body blow.”

          I don’t recall the article suggesting that sanctions would push the Iranian public against the idea of co-operation with the United States or attempts at reconciling the two nations.

          What I believe I read was the suggestion that the ever-increasing sanctions will weaken the community’s ability to challenge the government by and making the public increasingly dependent on the government to survive the artificial hardships they face.

          In effect strengthening the Iranian government by weakening the Iranian populace.

          Which, along with a lot of needless misery, is precisely what happened as the sanctions placed on Iraq ran their course.

  7. Could another “Gulf of Tonkin” be in the offing?
    Maybe an Iranian oil tanker attacking the
    George Bush. Crazy things happen.

  8. “Crazy things happen.”

    Like making a suggestion that an “oil tanker attacking the George Bush” would constitute another “Gulf of Tonkin.”

    • Dear Bill,
      It’s not nice to call people names.
      eg “Arrogant”, “Sophist”, and now “Crazy”
      in the name of “National Interest” or for
      any other reason. – Kindergarten 101
      Best Regards,
      Mr. John L. Hansen

      • “Kindergarten 101″

        Interesting how I used your phrase “Crazy things happen” to describe the act of making a particular suggestion, and you interpret it as applying to you personally rather than to the act of making the suggestion.

        Kindergarten 101 indeed.

    • Iran is always two years away from having a nuclear weapon, and we’re always six months away from bombing them. Remember when Obama was going to give the Israeli permission to fly over Iraq just before we left?

      • Its amazing how you show up at seemingly every site on the internet to carry water for this administration. I hope you are paid well for your tenacity.

  9. Pakistan was threatened with US sanctions earlier in the year in regards to trading with Iran, not that the defiance mattered much considering their small economic size and already continuing slide in ties with the US. However, Pakistan tried to oppose it and get around it creatively, like bartering.

    The alternative for energy offered by the US through the Gulf Arab states wasn’t practical. Don’t know whether there’s been any significant step back in policy from the leadership of Zardari to Sharif on relations with Iran, based on specific regional Sunni-Shia and India dynamics.

    With bigger neighbouring Asian economies such as China, Pak’s patron, and India, Pak’s nemesis, also not going along with the US, such punishments are losing effective and maybe marking a decline in the superpower narrative of viewing interests vis-a-vis the US.

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