United Nations and United States financial and economic sanctions on Iran have probably gone about as far as they can in damaging Iran’s economy. They have had a significant effect, but are hardly in danger of shaking the regime or convincing it to cease its civilian nuclear enrichment program.
Iran is preemptively responding to threats of escalating sanctions by conducting a big naval exercise, Vilayat-90, in the Straits of Hormuz at the mouth of the Persian Gulf. Iran is making the point that if it wants to, it can close the straits, through which about 17% of the world’s petroleum exports flow. Any interruption in that flow would cause a global energy crisis. An Iranian admiral has said that closing the straits would be as easy as “drinking a glass of water.”
These exercises are not a threat to close the Straits, which Iran needs as well, any time soon. They are a demonstration that if the US tries to impose a global oil embargo on Iran, it has the means to reply to that act of war. It is a response to the threats of the US Senate.
The US- and Israel- led economic war on Iran is not a notable success so far. Iran’s central bank says, at least, that the Iranian economy grew some 5.5% in 2010-2011, which is pretty good given the state of the world economy and rather better than the US.
Iran’s annual oil income based on its performance in the past seven months is nearly $100 billion a year, and oil prices were up nearly 10% in 2011. (The Iranian state receives the oil income, since that industry is nationalized. Iran’s nominal gdp is on the order of $400 billion a year, in the range of South Africa, Taiwan, Argentina and Norway). That is, even with all the US and UN sanctions, Iran’s government is wealthy. Middle class Iranians may not be able to vacation in Europe very easily because of banking issues, and Iran isn’t attracting the kind of foreign investment that would allow it to grow 8% a year, as it would like (and which would be possible if the regime weren’t at loggerheads with the US and its allies). But the regime’s economic strength has probably grown in recent years, not weakened.
Another problem with trying to sanction Iran primarily through financial sanctions is that the world financial system is leaky. Venezuela, Turkey, and Russia, not to mention China, all offer Iran financial back doors for accessing the world banking system. Iran’s temporary problems in selling petroleum to India once it was kicked off the South Asian bank exchange under American pressure have been resolved, probably via Turkish banks. Iran can be put under pressure, and pain inflicted, but nothing debilitating.
A further step in the escalating conflict, advocated by the Israelis and their allies in the US Congress, is to impose an embargo on Iran’s gasoline imports or on its petroleum exports.
The time for the former idea has probably passed; Iran had a temporary shortage of refinery capacity to turn crude petroleum into gasoline. But the regime has addressed that problem by building more refineries and by phasing out gasoline subsidies, thus discouraging Iranians from driving so much.
The problem with imposing an embargo on Iran’s petroleum exports, which the US Senate wants to do by sanctioning Iran’s central bank, is that it is like cutting off your nose to spite your face. It would be South Korea, Japan, India and Italy that would suffer, i.e. US allies (along with China, which wouldn’t be happy and is not without resources to fight back).
Moreover it would put up world oil prices in an election year, harming Barack Obama’s reelection chances.
Israel, the US and some European states maintain that Iran has a secret nuclear weapons program, but there is no really good evidence for any such thing if by that you mean a rush to construct an actual warhead. The real problem for Israel and its allies is that Iran’s civilian enrichment program is potentially dual-use. If Iran can enrich uranium to 3.5 percent for nuclear reactor fuel, it could in theory use its centrifuges to enrich to 95 percent for a bomb. Israel and the US don’t want Iran even to have the possibility of making a bomb if Tehran someday chooses to, since that would knock Israel down a peg on the Middle East pecking order.
(It isn’t actually that easy for Iran to make a warhead, and the “in theory” should be underlined. For one thing, in order actually to develop a bomb, Iran would have to be able to evade US satellite and other surveillance, hide enormous use of water and electricity and trucking activity, and kick out United Nations International Atomic Energy Agency inspectors altogether. The inspections, while not perfect, are ongoing, and don’t find things like plutonium signatures that would point to a weapons program).
So, Iran is insisting on its nuclear enrichment prerogative, guaranteed by the Nuclear Non-Proliferation Treaty. And it is saying to the US Senate and the US Israel lobbies that if they go too far, it is perfectly willing to play the spoiler with the world economy.
The USG Open Source Center paraphrases an interview on the exercise with Rear Admiral Habibollah Sayyari:
“Iran: Navy Commander Comments On Ongoing Velayat 90 Drill
Islamic Republic of Iran News Network Television (IRINN)
Wednesday, December 28, 2011
Document Type: OSC Summary…
Tehran Islamic Republic of Iran News Network Television (IRINN) in Persian at 0447 GMT on 28 December interrupted its regular coverage to report on the naval drill codenamed Velayat-90, which is currently being held in the Strait of Hormuz. The ten-day drill entered its fifth day today.
The channel established a video-link with Navy Commander Rear Admiral Habibollah Sayyari, who was present at the drill site. Sayyari described the drill detailing how the forces had spread out across the naval exercise area. Commenting on the data-gathering scope of the drill, he said that the drill covers the area up to the free waters of Indian Ocean and added that the navy had information bases across the Gulf of Aden. He then expressed content over the spreading out of the forces and said it took place less than the estimated time.
Sayyari said that the results of the drill will allow evaluation of strength and flexibility of their forces, which will lead to changes in tactics. He added that the today (28 December) was the second day of the “tactical phase.” He further said that the forces, which were divided into two groups (orange group as the enemy force and the blue group as the home force), were involved in developing tactical measures.
On adhering to the policies of the Navy as well as the guidelines of Iran’s Supreme Leader, who is the Commander-in-chief of Armed Forces, Sayyari said that as per the commands of the leader, Iranian Navy should showcase its authority across free waters, which he said, has been fulfilled to some extent over the last three years. Commenting on the Leader’s remarks, Sayyari said that Iran needs to make use of the resources and potential trade sources in the south of the country (Persian Gulf and the Sea of Oman).
However, he added that this can be realized only by establishing security across the free waters and cited recent incidents of piracy.
The conversation ended at 0559 GMT.
(Description of Source: Tehran Islamic Republic of Iran News Network Television (IRINN) in Persian — 24-hour news channel of state-run television, officially controlled by the office of the supreme leader)”