BigMo’s Blog

Politics and Economics in Israel

Target the Oil

The sanctions against Iran being discussed by western leaders are expected to target the Islamic Revolutionary Guard Corps (IRGC), and the financial and industrial assets it controls.  This will be largely ineffective at slowing the pace of Iran’s march towards a nuclear weapon.  To be a member of the IRGC, let alone one of its top commanders, one has to be a true believer.  Economic sanctions are extremely unlikely to cause a change of heart.  Instead, the Iranians will do what they have already been doing successfully for years: building shell companies, false-invoicing, smuggling and bribing both government and corporate officials in the countries they do business.

Since the 1979 revolution in Iran, the country has been under constant US unilateral sanctions. The first U.S. sanctions against Iran were formalized in November 1979, and during the hostage crisis, many sanctions were leveled against the Iranian government.  By 1987 the import of Iranian goods into the United States had been banned.  In 1995, President of the United States Bill Clinton issued Executive Order 12957, banning U.S. investment in Iran’s energy sector, followed a few weeks later by Executive Order 12959 eliminating all trade and investment and virtually all interaction between the United States and Iran.  The impact of these largely unilateral sanctions by the US – the world’s largest economy – has been negligible.

Despite the sanctions, Iran continued to attract foreign investment and technical cooperation for its energy sector. France, Italy, Norway, UK, Spain, Holland (all members of NATO) have taken advantage of absence of the American competition and tried to fill the gap.  So have Japan, Brazil, Malaysia, China and Russia.   However, the threat of American retaliation against foreign firms has kept the investment way below the levels necessary to maintain the present energy infrastructure and develop additional capacity.  Current investment only allows Iran to continue to keep its oil export at its OPEC determined quota level.

Iran has the third largest proven oil reserves, roughly 10% of proven global reserves. It is the fourth largest oil producer in the world and OPEC’s second largest exporter.  There are, at present, nine refineries (in Tehran, Tabriz, Isfahan, Abadan, Kermanshah, Shiraz, Bandar Abbas, Arak and Lavan Island).  Refineries, tanker terminals and liquid natural gas (LNG) processing plants are limited and concentrated mostly in Iran’s southern and western provinces.

Iran’s petroleum industry is its Achilles Heel. For any sanctions to have a meaningful impact, they must include a total ban on importing Iranian oil & gas, as well as exporting technology, and financing exploration and development.  This will be a painful step for western economies still struggling with the global recession.  However, Israel must make clear to its would-be allies that mealy-mouthed protests are no longer enough.  It must also make clear that if Israel is compelled to act alone, it will.  It must be made clear that not only will Iran’s nuclear programs be targeted as part of a military campaign, but so will Iran’s petroleum industry!

February 15, 2010 Posted by | Middle East | 1 Comment