Gwynne Dyer: The impact of oil sanctions against Iran

There are cynics among us who would argue that the European Union’s oil sanctions against Iran, which went into full effect on July 1, are a double triumph for Israel’s Prime Minister Binyamin Netanyahu.

If you assume that the real reason for his apparent hysteria over the alleged threat of Iranian nuclear weapons is to divert international attention from illegal Israeli settlements in the occupied Palestinian territories, then his strategy has been a spectacular success. The main reason that Israel’s allies are imposing these sanctions is to head off an Israeli military strike against Iran that would destabilise the entire region—and in the meantime, nobody is talking about the Palestinians.

In addition, the wily Netanyahu gets a bonus, for these sanctions really are going to hurt Iran economically. Iran is Israel’s most dangerous and implacable enemy, and suddenly its oil exports, and with them its hard currency earnings, are going to be cut in half. Not a bad return on an Israeli policy that cost nothing except some threatening rhetoric.

To be fair, not everybody is convinced that Netanyahu’s wild talk about attacking Iran is just hot air. A whole parade of senior Israeli military and intelligence officials has gone public to say that there is no imminent threat of Iranian nuclear weapons, and that attacking Iran “pre-emptively” would be deeply stupid. Clearly, they think Netanyahu really is a mad dog—but many others remain unconvinced.

In any case, the question of the moment is not Netanyahu’s strategy. It is whether these sanctions will hurt Iran so much that it will have to give up its cherished programme for an independent capacity to enrich nuclear fuel in order to make the pain stop. The answer is: probably not, but they’re going to hurt a lot.

The European Union normally takes about one-fifth of Iran’s exports. If Iran cannot find new markets elsewhere, the loss of those exports would be serious but not crippling. However, at the same time the United States is imposing punitive measures on countries elsewhere in the world that continue to buy Iranian oil, and Europe has banned its maritime insurance companies from selling cover to ships carrying Iranian oil.

European companies still dominate the global market for maritime insurance, so that matters: South Korea, for example, will stop buying Iranian oil this week. And while the most powerful countries outside Europe can safely defy the American threat of punitive measures, knowing that they can negotiate exemptions for themselves, many weaker countries have no choice but to obey the American demands.

A week ago (June 27), an Iranian official admitted privately that the country’s oil exports had already fallen 20 to 30 percent from the normal level of 2.2 million barrels a day. It is estimated that by July 1, the day all the sanctions came formally into effect, lost sales of Iranian oil amounted to more than a million barrels a day—that is to say, about half of the usual total.

This is not a trivial matter for Tehran. Given that the price of oil is also significantly down, and that Iran is now discounting oil sales to its traditional customers heavily to keep them from defecting, its ability to pay for imports is going to be severely constrained—this in a country where the average price of ten basic foods has already risen 70 percent in three months.

And there is another matter as well. Iran is already storing oil offshore in tankers, but that is clearly only a short-term solution to the problem of what to do with the unsold surplus. It is also cutting back on how much oil it pumps: the latest figures from the Organisation of Petroleum-Exporting Countries say that Iranian production is already down by 720,000 barrels per day.

But after a certain point Tehran can no longer deal with the problem by just cutting production at all its wells; it has to start shutting some of them down completely. Restarting production later can be tricky, and some wells will be permanently damaged by the shutdown. The longer the sanctions last, the more difficult it will become for the Iranian regime.

Yet there is almost no chance that Iran will back down. You do not have to assume that the regime really wants to build nuclear weapons to explain its defiance. This is a country that has faced a century of exploitation and humiliation at the hands of the West, and even those Iranians who loathe the regime will close ranks in defence of their nation’s right to enrich its own nuclear fuel.

On the other side, President Barack Obama will go on tightening the screws, because he dares not gamble that Netanyahu is only bluffing about attacking Iran at least until he has won re-election this November. There is no sign that other oil-exporting countries are going to show solidarity with Iran, and there is enough oil on the market at the moment that nobody else is going to go short of the stuff because of the embargo.

So it is going to be a long confrontation, and a miserable experience for the average Iranian. But for the rest of the world, it will just be a news story.

Comments (14) Add New Comment
Philip Reid
It would solve a lot of the worlds problems if we could just rendition Netanyahu to Guantanamo Bay with the other Middle Eastern Terrorists.
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JMW
And while the price of oil is low now (although that isn't showing up at the pumps), it will eventually rise.

So:
- win for Israel & Netanyahoo (yes, I misspelled that deliberately)
- win for Obama - sanctions are slow acting medicine, and he needs time to get past the election before he can do something decisive (if he chooses to)
- win for the oil companies, because this situation can only escalate and that means oil prices will eventually go back up

[sarcasm: on]
The only people who lose are the Iranians and the Palestinians, but who cares about them?

Oh, and the average Israeli in the street loses, too, because eventually the worm will turn (it always does if you wait long enough) and Israel won't be the only regional superpower in the MIddle East and the US won't be the world's only super power.

Oh, and all us average people in Canada, Europe and the US lose, because we'll keep paying more at the pump and our militaries will eventually be called upon to try to keep the peace in the Middle East.

And in the meantime, Mr. Harper keeps tying us closer and closer to Israel, so by the time something serious does happen we'll have a treaty obligation to help defend Israel against the hordes of foaming, mad-dog Arabs - all 100% of whom, I can guarantee you, want nothing more than to drive Israel into the sea, kill all the Jews and then start on us infidels.

[sarcasm: off]

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j harper
And at the same time if anyone says Israel has undue power in shaping US policy you will be called anti-semetic or a holocaust denier. Israeli duplicity is plain to see to anyone with an inkling of reality except in the US of Israel both democrat or republican! In God we trust?
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DR-Montreal
Yes and what happened the last time the Americans launched an economic war against a regime that actually had some teeth?
--Pear Harbour.

Dyer neglects to detail a likely end-game the longer this egregious aggression against Iran is allowed to stand. The regime will hurt you back by mining the straits of Hormuz. Keep in mind all that have to do is announce that a "limited number of mines" will be activated per month in the Straits as long as American/Israeli attacks on their economy continue. It could be real or it could be bluff, but watch the insurance rates go through the ceiling and the price for gas soar.
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Mother of 12
Mr. Dyer identifies himself at the outset as a cynic on this issue. I'm with him on that and I'll go him one better. The whole idea of a "two-state solution" to the plight of the Palestinians is a pipe dream. Only one state can exist in that region, and its name isn't Palestine.
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cuz
Funny how Gwen's article states the average Iranian will close ranks with their leaders when a poll conducted by Iranian state television showed 63% said their country should abandon their nuclear ambitions.
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McRocket
I would have MUCH preferred it had Netanyahu been assassinated back in '95 instead of Yitzhak Rabin.
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Sheeple
They (Israel) should wait but Bibi is a Texas style Neo-Con Con...

Israel government 'reckless and irresponsible' says ex-Mossad chief
Meir Dagan attacks Binyamin Netanyahu for aggression towards Iran, and for failing to make any progress with the Palestinians

That quote by a man who has protected and still intends to protect Israel pretty much sums it up..

Of course as Iran gets more boxed in it can raise the price of Oil to $200 by simply launching various attacks in the Strait...

That of course will screw us all given the fragile Economic situation worldwide...:) the EU would be fucked the most...ironic..:)
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KiDDAA Magazine
Dyer of course Israel has a free pass to what it pleases with a 60 year occupation apartheid of Palestine and now bogus threats on Iran's non existent nuclear weapons.
No one mentions Israels 200 working nuclear weapons and its South Africa Apartheid of Palestine, West Bank and Gaza. Why because the US and some Canadian media is compliant with Israel, Christian fanatics and the far right.
Iran's low enriched uranium is being watched by the UN so there is no way Iran could build a nuke, hence the bs.
Like Iraq and Afghanistan the nuts in the USA and worldwide need wars that starve and kill entire populations. Sad.
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Perdido
What Dwyer fails to mention is that it was actually Iran that halted oil exports to Spain, Greece, and Germany in April. Before that, Iran halted sales to Britain and France. This shouldn’t be news to Dwyer, as Iran announced their intention to do this in January. It is my understanding that energy hungry countries such as India and China are still more than happy to purchase Iranian crude.

The economic decline of ‘sainted and blameless’ Iran seems to be due to a number of factors, some of which Dwyer did not touch upon, such as a general global economic downturn, and an increase in oil production by Iraq and Saudi Arabia. As for the high increases in food items, once again Dwyer fails to mention that the Iranian government subsidized the cost of food, medicine, fuel, etc. for the entire population decades and recently stopped doing so. It is small wonder that the price of everything is increasing. Whether this is economic mismanagement or a cynical attempted by the Iranian theocracy to manipulate the population, remains to be seen.

Being just as cynical as Dwyer, I cannot help but wonder, is Iran, which has been trying to get its hands on nuclear weapons since the days of the Shah, really building a nuclear reactor for peaceful purposes?
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KiDDAA Magazine
Well they invade Iraq killed a million people based on lies and WMDs. Iran has no nuclear weapons and is currently the most rigoursly watched by the IAEA (UN) and not even a kilogram of low grade uranium can be hidden. So the usual losers are crying wolf. Iran is currently not capable of making a nuke due to the monitoring and of course technical problems.
Being cynical means nothing but telling the truth about Iran's non existent nukes and Israels 200 is key to this story.
and the above post is completely wrong sanctions will only hurt the middle class and even kill innocent poor people. It will do nothing to stop their legal Nuclear program under the NPT. You dont have to like the Iranian leadership but they are not irrational in the slightest.
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KiDDAA Magazine
16 US intelligence agencies currently say Iran is not building a weapon. So unless you got proof that they don't put a lid on it. The world does not need any more oil wars or deceptions that hurt innocent people.
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KiDDAA Magazine
Why wouldnt India and China buy the oil? Iran is not breaking any laws under the NPT by enriching non weapons grade uranium up to 20 percent. 95 percent is needed to make a nuclear weapon.
If you believed the Iraq hype you will believe this. It is a good diversion from the Palestinian issue, the dire straights in Iraq and Afghanistan and the terrible American and EU economies.
The nuts always need a fall guy that really should be Saudi Arabia and that type. But hey Iran for all its bad leadership is a very strong and sophisticated nation, that is self reliant. In todays world that is dangerous.
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Perdido
KIDDAA Magazine, I disagree with your statement that: “It is a good diversion from the Palestinian issue, the dire straights in Iraq and Afghanistan and the terrible American and EU economies.”

On the contrary, according to emails leaked by the Syrian opposition and obtained by the UK’s Guardian, Syrian President Bashar Assad was advised by Iranian officials to divert attention towards Israel and Palestine to deflect from worldwide condemnation towards him.
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