What happens as a result of US-led sanctions on Iran? That's the topic of a great essay by Juan Cole, of the middle-east focused blog Informed Comment, entitled Why Washington’s Iran Policy Could Lead to Global Disaster: What History Should Teach Us About Blockading Iran.
Here is where we stand now:
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.
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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 U.S. government for exemptions).
So far the European Union has agreed to comply, but Asian countries have not. South Korea, Japan, Turkey and others have sought exemptions, some in return for a pledge to import less from Iran. China and India have not agreed to boycott. It will be interesting to see how much pressure the US can bring to bear on these countries. Cole feels the effort will ultimately fail, due to the realities of the world oil market and oil's role economic health:
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).
Many are concerned about the effect of rising oil prices on US and European economies. Cole points to
analysis that already the Iran sanctions have added $0.25/gallon to the US price of gasoline (Christian Science Monitor):
What do Iran sanctions cost you? About 25 cents a gallon, experts say.
Energy experts say it’s difficult to pinpoint precisely how much sanctions on Iran are costing consumers as they filter down to the gas pump. But Lucian Pugliaresi, president of the Energy Policy Research Foundation, a Washington nonprofit organization that studies energy economics, says it’s possible to make an estimate.
The sanctions the US and other countries have slapped on Iran’s energy sector and on its central bank (aimed at curtailing its oil exports) are costing Iran about 300,000 barrels a day in exports, Mr. Pugliaresi estimates. When added to other factors affecting the international oil market, that decrease in exports may have added about $10 to the current price of a barrel for crude, he says.
And that $10 increase translates roughly to about a 25-cent increase in the cost of a gallon of gas in the US, Pugliaresi says.
And where do sanctions lead? That is the other theme explored in the Cole piece. He relies on his knowledge of the region, pointing out that the US/Britain-led overthrow of the democratically-elected Iranian government in the 1950s was preceded by economic sanctions that caused increasing pain for the Iranian people. And look what that got us - a shah, a revolt, and then an oppositional theocracy. He also notes that the Iraq sanctions of the nineties did not prevent war. I won't quote anymore but this part of his piece is really good as well - The
whole thing is great.
One really wonders where this leads. It appears the Obama administration is trying to head off an Israeli attack - that makes their actions somewhat understandable. However, it's not clear how much neocon/imperial thinking is driving this as well. In any case one hopes an agreement is reached between all parties before the sanctions go much further. As Cole cogently argues, it's very easy to see this going bad.