Iran sanctions bring unintended, unwanted results (REUTERS) By Peter Apps, Political Risk Correspondent LONDON, ENGLAND 03/23/12 1:40pm EDT)
Reuters News Service
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(Reuters) - Western sanctions have so far failed to deter Iran from
pursuing its nuclear program and their unexpected and unintended side-
effects are producing a new collection of challenges.
The expected loss of Iranian crude production has helped push oil
prices to levels seen threatening the global economy.
Already Iran´s oil exports appear to have fallen this month by some
300,000 barrels per day (bpd), or 14 percent, the first sizeable drop
in shipments this year, according to estimates from industry
consultant Petrologistics and an oil company.
Oil rose sharply on the news, with Brent jumping to over $127 a
barrel, up almost $4 from the day´s low.
Meanwhile, many Iran-watchers, including some Western officials,
worry that far from producing compliance, ratcheting up the economic
pressure is making the Islamic Republic more volatile, unpredictable
and perhaps dangerous.
The United States and the European Union have introduced several new
rounds of sanctions this year on oil and wider financial activity
including targeting the Iranian central bank.
While Tehran says its atomic work is purely peaceful, Israel and
Western nations believe it is moving towards a nuclear bomb that
could change the regional balance of power.
"The sanctions are having an effect - it´s just not the effect they
were supposed to have," says Dina Esfandiary, a research analyst and
specialist on Iran at London´s International Institute for Strategic
"Sanctions are not exerting the desired influence on the regime. If
anything, they may be making them more committed."
While Iranians may bear the brunt of the economic pain, people around
the world are also feeling the knock-on effects of rising fuel prices
that also drive food and price inflation.
Coming alongside heightened speculation and rhetoric over a potential
Israeli military attack on Iran, the sanctions have helped push oil
prices up by around 15 percent this year, although they have fallen
back somewhat in recent weeks.
Britain and the United States, it seems, were sufficiently worried to
begin to release fuel from usually locked strategic reserves. But
many other countries, including much of Western Europe, have yet to
follow, perhaps nervous of letting stocks dwindle while the risk of a
wider Gulf conflict remains.
Some see little choice, particularly for U.S. President Barack Obama
in an election year. Robust Western sanctions, they say, are key to
keeping Israel from staging a military strike.
"The sanctions are a real Catch-22 for the global community" says
Hayat Alvi, associate professor of Middle Eastern studies at the U.S.
Naval War College. "Given global interdependence, many fragile
economies and their valuable recoveries will be hard hit...We´re
already starting to see some of the effects."
Asian powers such as China and India have already broadly signaled
opposition to tighter sanctions, although Western diplomats say they
may yet be persuaded. Despite promises by long-time Iranian foe Saudi
Arabia to it would make up lost Iranian supply, there is widespread
skepticism in the oil market that it genuinely has the spare capacity.
Whether sanctions work or not, however, it may now be far from easy
for Western states to significantly alter course to reduce or remove
the restrictions, even if they want to.
In the United States, where Congress would have to agree, the White
House may find it almost impossible to lift them, although it may
issue more official waivers to allow more trade.
Both Tehran and Western powers, most recently the EU, have
periodically offered to renew nuclear talks. But the gulf between
them remains so wide that even if a possible meeting took place in
April many analysts doubt it could achieve much.
"The terrible thing is that this is the moment there might be a
possibility to at least begin to make progress," says Rosemary
Hollis, head of the Middle Eastern studies program at London´s City
University. "But we are going to miss it."
IMPACT ON IRAN
Exactly what impact the sanctions will have on Iran and its already
fractious and unpredictable politics is hard to say, particularly if
they remain in place for years, analysts say.
If major Asian buyers joined in a broad boycott of Iranian crude, the
International Energy Agency says its exports could fall by 1 million
barrels per day by the end of the year.
Even with many states continuing purchases, exports are now running
at some 2.2 million bpd against a more regular 2.6 million, their
lowest in years.
While high global oil prices will mean Tehran may now be earning more
per barrel, the falloff in volume may cancel that out. Foreign buyers
are reported to be using sanctions to negotiate better prices.
With no new foreign investment in Iran´s oil sector, output is
expected to fall even more drastically in the years to come.
While Western states deny viewing sanctions as a means to topple
Iran´s clerical rulers, some in Washington, particularly in Congress,
may be hoping for just that.
But any new Iranian government may be just as committed to the
nuclear program, even if the present leadership, which crushed
opposition protests after a 2009 election, were to fall.
What the growing economic pressure could do instead, however, is
supercharge existing power struggles within the political, clerical
and military elite.
The recent storming of the British Embassy, bomb attacks on Israeli
diplomatic missions in Georgia, Thailand and India and a bizarre
alleged assassination plot against the Saudi ambassador to
Washington, some say, show a growing unpredictability.
Some Western officials and others worry about an Iranian gambit, such
as an attack on shipping in the Gulf, that could ignite the kind of
war sanctions were supposed to avoid.
"Iran will most likely continue to suffer the most, and over time the
pressures might be too much for its economy and society to bear,"
says Alvi at the U.S. Naval War College.
"(But) I seriously doubt that Iran will give up its nuclear program
without a fight, even with the increasingly difficult struggles to
survive." (Editing by Alistair Lyon) (© Thomson Reuters 2012.
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