Russian Sanctions-Busting?: Putin’s bruited 500k b/d oil deal with Iran draws US Threats

Russia has rejected US criticism of a plan that has been floated to import 500,000 barrels a day of petroleum from Iran on a barter basis.

The US Treasury Department has been instructed by Congress to place a financial blockade on Iran. The US has had that country kicked off major international bank exchanges, making it very difficult for Iran to pay for imports or get paid for exporting petroleum. In addition, the US has twisted the arms of many countries, not to buy Iranian petroleum or not to buy very much of it, by threatening third-party sanctions on their firms otherwise. These US tactics have reduced Iran’s exports from 2.5 mn. barrels/day to only 1 mn b/d. A handful of Asian countries has been given permission to continue to import Iranian oil as long as they don’t increase those imports, as part of the current round of negotiations between Iran and the permanent members of the UN Security Council plus Germany (P5 + 1).

Russia says it rejects unilateral US sanctions as without basis in international law. That is, UNSC sanctions are binding on UN members. But no one elected the US to go around sanctioning other countries or insisting that everyone in the world abide by its sanctions. The salience of US boycotts derives from the country constituting 22% of the world gross domestic project, being a $16 trillion a year economy. Everyone in the world would like to invest in the US and benefit from US economic growth, or try to attract US investment. The Treasury Department threatens to place entire corporations under a ban if they defy US sanctions. Shell and Total S.A., for instance, withdrew from helping Iran with liquid natural gas (LNG) exports after Washington menaced them.

At $38 bn a year, US-Russian trade is minimal. Russian entrepreneurs and financiers nevertheless fear the third-party sanctions in a way the Russian President Vladimir Putin does not.

Russia does roughly $450 bn a year in trade with Europe, mainly via gas and oil exports, and $150 bn a year with China and the Far East. Putin wants to expand the Asian trade so as to become less dependent on Germany and other Western European Powers.

Russia can contemplate a move that would attract US sanctions precisely because Russian-Iran trade is likely the wave of the future. Moreover, the US is already talking sanctions on Russia over its annexation of Crimea.

Some observers feel that if Russia does the deal with Iran, it will reduce pressure on Tehran to make a deal with the US and the P5+1. I don’t think this analysis is correct. President Hassan Rouhani wants better relations with Washington and wants to remove the US unilateral sanctions. So he has every reason to negotiate at Geneva rather than risk his country going back into deep isolation. The Russia deal would be welcome in Tehran, but it isn’t the big enchilada that they are going for.

A US boycott of Russian energy firms would mean very little. Europe, in contrast, gets 1/3 of its natural gas from Russia and is highly unlikely to cease doing so voluntarily. So I don’t think Europe is going to join a boycott of say, Gazprom. But if the US tries to sanction Russian energy firms, they have the means to wriggle out of it and come back in a year or two with a better physique.

The Russian rumblings raise another question: By pursuing debilitating financial sanctions on other countries, is the US risking the dollar’s centrality as the world’s reserve currency? Russia may attempt to develop its China-based finances instead.

If Russia puts the oil deal off until after August, it may be moot. That is, the P5+1 may have already have made a deal with Iran by then, allowing expansion of exports of the sort Russia is contemplating.

If Russia forges ahead now, it may take some of the pressure off Tehran, but wouldn’t remove all the incentives Tehran has to reach a deal.

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Related video:

CNN: “Iran nuclear talks hit crucial stage”

6 Responses

  1. Realities aside, think about how such a deal will feed into the narrative that Iranian negotiations were nothing but a bad faith ploy by Iran, in its plan for world domination, and a slap in the face of US benevolence and forbearance.

  2. The volume of Iranian-Russian trade is very low compared to Iran’s trade with the rest of her neighbors and with China, and it would be good if they could diversify their trade. However, it would be a big mistake for Iran to get into a deal with Russia that would undermine the nuclear agreement with the West. So far, the talks have progressed well and both sides express hope that a final agreement could be reached by the end of July. Under these circumstances, Iran should not jeopardize a landmark agreement with the West by a hasty deal with Russia, especially as in the past Russia had used Iran quite opportunistically.

    The main danger of Western sanctions on Russia and on Iran lies in what you allude to, namely losing the dollar’s centrality, and even more seriously undermining the entire international monetary and economic system. The way that the neocons in US Congress and Treasury have forced other countries, especially the EU, to impose sanctions on the countries with which they have some problems, and even forcing them to make use of some international economic mechanisms such as SMART and blocking normal banking transactions, apart from being wrong and bullying in itself, it undermines the global economic exchanges. It may be time for countries such as Russia and China to find an alternative to the dominant Western system and the centrality of the dollar until a proper international system is devised that cannot be subverted by some dominant countries, such as the United States.

  3. Putin may think he can divert some of his natural gas business to China, but I would guess the Chinese will be driving a very hard bargain indeed observing how Putin has treated other of his customers. No one wants to be reliant on Russia for anything.

  4. Fear is a great motivator.
    Spy on Europe to use the information against it. Now they can’t buy Iranian oil. Now they can’t buy Russian gas. What’s next? This is doing real harm to real people in Europe.
    Then there’s the plethora of crimes like drones and aggressive wars, ect. Paid for with money fresh off the press, printed with abandon, without restraint.
    The US is acting like a wounded animal, lashing out at friends and enemies alike. Lashing out on the freedoms of it’s very own citizens using phoney justifications. No one is safe.
    These are examples folks point to. They don’t want to be victims. They know that a deranged nation might strike out at anyone. It could get worse.
    It’s a growing fear of the US that ultimately could be the deciding factor.

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