Major Sources: CSIS, CRS
Summary:
For the time being, the Obama Administration has opted for tightening existing sanctions
US sanctions and not push for any additional sanctions in the UNSC.
Since 1979, US and UN sanctions have had a serious impact on Iran’s economy. Many
western corporations will no longer do business with Iran, and several financial and
energy industry firms have entirely left Iran as a result taking needed investment and
technology. Iran has also been forced to role back its subsidies on gasoline as a result of
sanctions and prices have risen four fold.
Iran’s inability to transact freely in the global market place has led in part to rising
consumer prices (inflation currently stands at 19.1%). The lack of investment in the
energy sector (among other factors), which accounts for 82% of Iran’s exports, has
caused output to fall from 6 million bpd in the 1970s to a projected 3.3 million bpd by
2015. And recently, Ahmadinjad admitted to Iranian lawmakers that sanctions targeting
financial institutions have made it difficult for Iran to conduct many transactions.
Tightening existing sanctions will consist of working with countries that import large
amounts of oil from Iran (Japan, Taiwan, EU) to get them to curtail their imports and
working with transshipment hubs like the UAE, Singapore, and Maylaysia to get them to
restrict goods to and from Iran transiting their ports. The former will be difficult
considering there’s limited spare capacity in the global oil industry (about 5 million bpd
in OPEC countries). European countries will be particualy sensitive given their current
financial turmoil and they have already rejected calls for sanctions targeting the Central
Bank of Iran.
The US has had some success working with the UAE to eliminate shell companies that
serve as fronts for the transfer of goods to and from Iran through the UAE. The US would
have to push similar efforts in Singapore and Maylaysia. Need more data on value of
goods getting in and out of Iran this way.
Russia and China continue to be impediments to enact stricter sanctions through the
Security Council.
It is hard to say with precision what impact tightening existing sanctions will have (need
to dig into this more). The impact will not be as dramatic or “lethal” as directly targeting
Iran’s ability to sell it’s crude oil in world markets. If the US can persuade major oil
importers to cut back this will cut into Iranian government revenues and limit the regimes
flexibility. If the US can work with transshipment hubs to cut the flow of good to Iran,
this will add to inflationary pressures.
Present Sanctions: Full list, pp 9-11.
Present US and UNSC sanctions directly and indirectly target Iran’s nuclear
program. The US sanctions include measures banning all US firms from conducting
commerce with Iran, freezing assets of known WMD proliferators, discoursing foreign
firms with US holdings from doing business with Iran, and specifically targeting entities
exporting gasoline to Iran
The Effect of Sanctions
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Economists and analysts say they are causing prices to rise and making it
increasingly difficult for Iranian companies to work internationally
At least 80 major banks have committed not to finance exports to Iran or to
process dollar transactions for Iranian banks
There has been unrest among small and large merchants who are having trouble
obtaining trade financing, insurance, and shipping availability, which is driving
up their costs by an estimated 40%
Costs associated with Iranian trade have increased by an estimated 10% to 30%,
according to outside figures
However, not all data shows that Iran is suffering. An IMF statement on June 13,
2011, casts
some doubt that international sanctions are seriously harming Iran’s ec
onomy. The statement, based on a May 28 to June 9 visit, indicated tha
t Iran’s GDP is growing at a rate of about 3.5%, and that the government
has brought inflation down from 25% in 2008 to about 12% in 2010/2011. BUT,
this contradicts a Central Bank of Iran release from last week saying inflation was
at 19.1%
Also, Iran has sizable hard-currency reserves to absorb shocks, and the isolation
of its banking sector protected the country from the worst of the global financial
crisis.97 Many believe that the economic effects of international sanctions may be
able to be tolerated by the regime as long as world oil prices remain high, at
nearly $100 per barrel in June 2011
Iran has managed to adjust to sanctions on gasoline, by phasing out subsidies on
gasoline, rationing fuel, and refining more of its own gas (Prior to phasing out of
subsidies gas was $0.38 a gallon in Iran; according to Reuters the price of gas has
quadrupled since 2007.)
Effects on the Energy Sector
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High and growing demand for energy, underdeveloped infrastructure, and reliance
on foreign investment to develop its oil fields, all make Iran’s energy sector
highly susceptible to foreign sanctions.
State Department Special Advisor Robert Einhorn testified on July 29, 2010, that
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about $50 billion of investment in Iran’s energy sector had been deterred by
sanctions and other forms of pressure.121 Some US officials have put the figure
closer to $60 billion in lost investment.
Possibly as a result of foreign companies ending business and investment, I
ran’s oil production has fallen to about 3.8 million barrels per day (mbd) from
about 4.1 mbd in the mid-2000s, and is projected to fall to about 3.3 mbd by
2015.125 Although Iran remains a relatively minor natural
gas exporter, some maintain that Iran’s gas sector can more than compensate
for declining oil exports.126 However, given the current political climate, it is
highly unlikely that Iran will attract the $145 billion in new investment by 2018
that Tehran’s deputy Oil Minister has said Iran needs in order to develop its gas
sector.127
Though many Western companies have fled from Iran, most of these corporations
remain interested in exploring profitable Iranian projects in the future, if possible.
Over 1,500 firms from 40 countries—including Germany, Austria, Australia,
Spain, UK, Russia, Switzerland, Sweden, the Netherlands, Norway, Turkey,
France, India, Singapore, Japan, China, Thailand, the UAE, Canada, and Brazil—
attended the 16th International Oil, Gas, Refining and Petrochemical event in
Tehran in April 2011.139
The Current Situation
The Obama Administration has decided to strengthen existing sanctions on Iran (with a
few new additions) rather than taking the more dramatic step of targeting Iran’s ability to
sell its crude oil in international markets. But what would tightening look like? Iran’s
four largest export markets are Japan (23.9 % of exports), Tawain (22.5%), the European
Union (19.8%), and the UAE (2.9%). Interestingly, the vast majority of Iran’s imports
(74.8%) have unspecified origins. Not sure how you put pressure on trade partners of
unspecified origin.
82.4% of all of Iran's exports are "fuels and mining products. Manufactured goods
represent 12.6% and agricultural products represent 5.0% With regards to Japan between
98 and 99% of Iran's exports are "mineral fuels, oils, distilattion products, etc." according
to Trade Map. For Tawain it's closer to 93% with organic chemicals being the next
largest export at between 3-6%. Totals are different for different EU countries. For
Germany totals for oil products as a percent of total Iranian imports is between 45 ad
65% of total imports, while the second largest category is fruit and nuts at between 1016%. For France on the other hand oil products represent 90-95% of their Iranian
imports. Not sure who's buying Iranian manufactured goods
Working with Iran’s trade partners to enforce existing sanctions might consist of a few
elements:
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Persuading major oil importers to limit Iranian oil purchases and limit
transactions with Iranian financial institutions
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Working with transshipment hubs like the UAE, Maylaysia, and Singapore
which allow goods going into and leaving Iran to skirt sanctions to limit the amount of
Iranian goods they handle. By targeting transshipment hubs, it will make it harder for Iran
to get its goods to market and for good to get in to Iran. But, the effects will not be as dire
as options which would directly target Iran’s ability to sell crude petroleum products. The
US has been sucessful in pursudaing Dubai based shell companies to shut down, but it is
easy for them to move elsewhere. But as the US clamps down on major transshipment
centers Iran will have to go to further flung places
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Working with European firms to encourage divestment in Iran
Persuading major oil importers to move away from Iranian oil would be difficult because
there is not a great deal of spare capacity in the global oil industry. There are mixed
reports on Saudis ability to ramp up production. Saudi recently denied rumors that it
would increase production to 15 million bpd from its current 12.5 million. But in the long
term they are projected to raise their output to around 14 -15 million bpd. The
International Energy Agency Estimates thate there are about 5 million bpd of spare
capacity in OPEC countries almost all of which is in Saudi. Iran produces about 4 million
bpd so it would be tight. I thought Russia might be able to ramp up, but their production
is in decline due to lack of investment.