Iran Feels the Pressure
July 6, 2007 Energy CompassIran Feels the Pressure
Iran’s recent decision to impose rationing on gasoline sales suggests
international pressure over the nuclear issue is starting to
bite, but also that the country is battening down its hatches in
preparation for either a military strike or a tightening of the economic
noose. What happens next?
Tehran’s refusal to suspend uranium enrichment has brought
sanctions or financial pressure on three fronts, with varying
degrees of impact. The first plank involves restrictions imposed
by the UN, which include an international travel ban on officials
involved in the nuclear program, a ban on certain technology
sales, and a call for the assets of the Revolutionary Guard to be
frozen. The second is domestic US legislation — the Iran
Sanctions Act, which gives the
president the right to penalize
non-US companies investing in
Iran’s energy sector. The third
— and by far the most damaging
— involves American pressure
on banks, companies and
export credit agencies to sever
ties with Iran . European financial
sources say the tactics are
working, forcing banks and
agencies to slash their exposure
to Iran — including Japanese
banks, which have been big
lenders to Iran .
In the months ahead, the US
is likely to tighten the financial
squeeze on Iran and make it
even harder for Iranian banks to
deal in dollars, effectively turning
Iran into a euro-driven
economy. “It’s entered a new stage,” a Tehran-based European
banker says, adding that Iran is now turning to banks in Dubai to
open up letters of credit. Now that international credit has dried
up, Iran will have to rely on funds invested in its Oil Stabilization
Fund, which currently holds more than $15 billion from windfall
revenues, but these will not be sufficient to fund large projects
such as new phases of the South Pars gas field and construction of
new refineries.
The limited sanctions imposed by the UN Security Council
have been more symbolic than effective and will not be easily
tightened. Veto-wielding China and Russia are blocking moves to
introduce new measures such as denying landing rights for Iranian
ships and aircraft and freezing the assets of Iranian banks. “More
importance should be attached to the diplomatic track,” China ’s
UN Ambassador Wang Guangya said this week, adding that the
US should enter direct negotiations with Iran on the nuclear issue.
One option would be to freeze more Iranian overseas assets and
widen the list of individuals on the travel ban to members of the
leadership. But this would risk increasing the regime’s sense of
paranoia and bolstering the position of the hardliners around
President Mahmoud Ahmadinejad.
In Washington , the pro-Israeli lobby in Congress has been
pushing for much tougher sanctions. At the end of June, two
members of a bipartisan House committee tabled a bill that, from
the end of the year, would threaten any company that supplies
gasoline to Iran with loss of access to the US market. This bill
looks unlikely to muster enough votes to become law, as
Congress is heavily divided and the US administration won’t
want to risk alienating Europeans. The bill focuses on Iran ’s
Achilles’ heel: its dependence on imported gasoline, which at
current rates of around 180,000 barrels per day makes up around
40% of Iran ’s overall consumption and last year cost the treasury
over $5 billion.
The prospect of UN sanctions on gasoline shipments seems
slim, too. Even without the threat of a Russian or Chinese veto,
any such move would face the
logistical challenge of intercepting
vessels in the Mideast Gulf .
Threatening trading companies
such as Swiss-based Vitol,
which supplies Iran with over
two-thirds of its gasoline
imports, could see moreobscure
outfits undertake the
business instead.
Iranian Oil Minister Kazem
Vaziri-Hamaneh admitted this
week that international pressure
has created problems financing
some projects and that the government
would use “internal
resources and the Oil
Stabilization Fund” to make up
the shortfalls. In contrast,
Ahmadinejad said that, by
rationing gasoline, Iran was
insulating itself from further sanctions, and had made itself “invincible.”
The rationing late last month set a monthly limit on the
amount of gasoline — priced at just 11¢ per liter — each motorist
can buy, a sensitive move in a country where cheap and plentiful
gasoline is taken for granted (EC Jun.29,p10).
Paul Sampson, London
Compass Points
• SIGNIFICANCE: Unilateral US actions are proving most effective
in pressuring Tehran , but these involve behind-the-scenes
leverage on financial institutions, rather than formal sanctions.
Projects are being affected, but the broader economic impact
is limited by bumper oil export earnings — and sanctions on
these are highly unlikely. By rationing gasoline, Tehran aims
to limit the financial burden of subsidies — and so its vulnerability
to external pressure.
• NEXT: Looming over the sanctions is the much larger issue
of US-Iran relations, which remain encumbered by mutual
suspicion and mistrust. Despite initial talks on Iraq ,
Washington refuses to talk face-to-face with Iran on the
nuclear issue until it gives up enrichment — making a
breakthrough unlikely.
posted by Mohammad Reza Farzanegan @ 08:37
