Do Sanctions on Iran Work?

Three weeks ago, Iran revealed that it had a uranium-enrichment facility near the holy city of Qum. The U.S. began working with its allies, mainly France and Great Britain for a fresh round of sanctions against Tehran. This article addresses the effect of sanctions on Iran

Iran’s nuclear program has been a matter of international concern ever since the discovery in 2003 that it had concealed its nuclear activities for 18 years in breach of its obligations under the Non Proliferation Treaty (NPT). In March 2007, the United Nations Security Council acted unanimously to tighten sanctions against Iran, imposing a ban on arms sales and expanding the freeze on assets, in response to the country’s uranium-enrichment activities, which Tehran says are for peaceful purposes, but other countries, including USA, France and Great Britain, contend are driven by military ambitions.

On the last Friday of August, the U.N. International Atomic Energy Agency (IAEA) released its latest report on Iran’s nuclear-energy program, announcing that it “does not consider that Iran has adequately addressed the substance of the issues.” U.S. State Department spokesman Ian Kelly said in response to the report, “it seems clear that Iran continues to not cooperate fully and continues it enrichment activities.”

Since 1987, U.S. government agencies have implemented numerous sanctions against Iran: U.S. Treasury oversees a ban on U.S. trade and investment with Iran. This ban may be circumvented by shipping U.S. goods to Iran through other countries; The U.S. State Department administers laws that sanction foreign parties engaging in proliferation or terrorism-related activities with Iran. The State Department and Treasury can use financial sanctions to freeze the assets of targeted parties and reduce their access to the U.S. financial system. In addition, the U.S. imposes travel and sanctions to Iran. But do these sanctions work?

U.S. politicians have talked up for months that U.S. can block sales of refined gasoline to Iran as a way of ratcheting up pressure on the government of Mahmoud Ahmadinajad. During last year’s U.S. presidential campaign, the idea of blocking refined gas to Iran was raised by the candidate Obama as “putting the squeeze” on Ahmadinajad. In April of this year, the U.S. Senate introduced a bipartisan Iran Refined Petroleum Sanctions Act, which would expand the sanctions imposed by President Bill Clinton in 1996. The Act gives the White House the authority to sanction companies that export gas to Iran. But how effective is this action?

Iran sits on a vast source of energy reserves –about 136 to 140 billion barrels of oil and some 14 trillion cubic meter of natural gas. But because its refineries are too few and too old to meet the demand at home, the country refines just two-thirds (440,000 barrels/day) of the gas it needs to keep the economy working for 66 million people. The remaining one-third, or about 120,000 barrels/day has to be imported from a fairly small number of Swiss, Indian, Malaysian and Chinese firms. Major Western oil companies operating in Iran, including Total, Royal Dutch and ENI, have held off from signing new deals with the Iranian government for several months.

Iran‘s government of Ahmadinajad, keen to keep voters happy, have subsidized gas. Iranians are entitled to 26 gallons of fuel a month at a price of 38 cents per gallon. If U.S. blocked imports of refined gas, the Iranian government could simply ease its subsidies and blame the U.S. for the suffering of its people. Subsequently, the demand for refined oil will dip.

On the other hand, China’s booming population and its increased demand for oil has been working on massive upgrades of Iran’s refineries. If Iran can upgrade its refineries, they will be self sufficient for few years to come. China estimates that crude oil imports will rise to meet 60 percent of its demand by 2020. That led Beijing in the midst of the nuclear debacle with Iran, to strike a deal with about $2.5 billion. Last month, the China National Petroleum Corporation sealed an agreement with the National Iranian Oil Company, a state-run enterprise, to develop an oil field in Southwestern Iran.

Recently, Iran’s ties with China have accelerated rapidly. In December 2007, the Chinese oil giant Sinopec Group signed a $70 billion deal to begin drilling in Iran’s Yadavaran field. Its estimated reserves can reach 17 billion barrels. In January of this year, China’s largest energy producer, CNPC, agreed to develop an oil field in the North Azadegan, a deal worth $2 billion. In August, Iranian oil officials flew to China to negotiate a $5 billion deal with CNPC for the development of South Pars gas field near the Arabian Gulf. Combine that with the fact that Iran already provides about 14 percent of China’s oil needs. Having invested tens of billions of Dollars in Iran’s energy sector, China, a permanent member of the United Nations Security Council, may veto any new tough sanctions against Iran.
On Thursday China said is was seeking to increase cooperation and high-level exchanges with Iran, suggesting a remote possibility of agreeing to additional punitive measures of Iran’s nuclear program.

Russia, for its part is preparing to sign a deal for the sale of anti-aircraft technology to Iran, and has less appetite to agree on tough sanctions, despite the initial jubilant reaction of President Dmitry Medvedev over Mr. Obama’s scrapping of the Eastern European missile shield program. In his meeting with President Obama at the United Nations last month, President Medvedev said that “sanctions rarely lead to positive results, but sometimes, sanctions are inevitable.” He reiterated his views to Secretary of State Hillary Clinton in Moscow on Tuesday, American officials said. Russia’s Prime Minister, Vladimir V. Putin, said that sanctions were “premature” and two days after its foreign ministry, Sergey V. Lavrov, said that threatening Iran while talks were under way would be “counterproductive.”

So far, Iran has managed since June 2007 to reduce its gasoline imports from 40 percent of total domestic consumption to 25-30 percent without political fallout. Moreover, with Russia and China willing to supply Iran with gasoline, a situation over which the United States has limited leverage, it would seem difficult for the U.S. to enforce any embargo short of military-backed blockade, or a military strike on Iranian nuclear facility by the U.S. or by Israel.

Military blockade or strike may encourage Iran to sabotage the oil fields in southern Iraq, risking 1.8 million barrels/day of oil export for several weeks and possibly months. In addition, Iran can sabotage the oil fields in the Arabian Gulf or even close the Straight of Hurmuz, through which about 20 percent of the world’s oil export passes. In either situation, the price of energy will spike and that will reflect on the U.S. fragile economic recovery, and may cause the U.S. Department of Energy to release the Strategic Petroleum Reserve (SPR), which stores about 700 million barrels of crude oil, capable of supplying 4.4 million barrels a day for up to 90 days.

No matter how tough the sanctions are, there is always room for American products to find its way into Iran. Most U.S. exports are found in the markets of Tehran, from GE refrigerators to Apple laptops and other items. They are smuggled via the Arabian Gulf States. In addition, the sanctions have restricted U.S. companies from doing business in Iran and opened the door for Russia, Chinese and other European firms to do business in Iran.

Gabriel Sawma is Professor of Middle East Constitutional Law; Author of “The Qur’an: Misinterpreted, Mistranslated, and Misread. The Aramaic Language of the Qur’an.” http://www.syriacaramaicquran.com; Expert consultant on Islamic divorce in US courts; Editor of International Law blog: http://www.gabrielsawma.blogspot.com; Email: gabrielsawma@yahoo.com

Gabriel Sawma is a lawyer with Middle East background. Professor of Middle East Constitutional Law, Islamic sharia, and Islamic economics. Expert consultant on Islamic divorce in U.S. courts

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