Iran General NewsIran suffers ‘crippling effect’ of sanctions

Iran suffers ‘crippling effect’ of sanctions


Bloomberg: The cascade of U.S. and European sanctions imposed on Iran is crippling its ability to export oil and conduct trade, hitting the Gulf state’s economy and stoking internal dissent, sanctions specialists and U.S. officials say. Bloomberg

By Indira A.R. Lakshmanan

The cascade of U.S. and European sanctions imposed on Iran is crippling its ability to export oil and conduct trade, hitting the Gulf state’s economy and stoking internal dissent, sanctions specialists and U.S. officials say.

An array of restrictions on banking, shipping, insurance, ports, trade, commodities and energy transactions and ventures have severed or complicated many of Iran’s commercial ties to the outside world. U.S. officials such as Secretary of State Hillary Clinton say there is limited time for sanctions to pressure Iran into giving up disputed nuclear activities before the U.S. or Israel may take military action.

One of the latest examples of the sanctions’ impact is yesterday’s announcement by Noor Islamic Bank, whose chairman is a son of Dubai’s ruler, that it severed relations with Iranian banks in December in compliance with international rules.

Another example is the willingness expressed last week by Swift, the financial messaging service for most cross-border money transfers, to cut off more than 20 sanctioned Iranian banks and Iran’s central bank in a move that would be a further blow to Iran’s economy, according to two officials involved in the talks.

India, the third-biggest buyer of Iranian crude oil according to the U.S. Energy Department, may ask Iran to deliver its own crude so Indian refiners avoid violating restrictions on arranging insurance, two people with knowledge of the matter said yesterday.

‘Crippling Effect’

“The plethora of sanctions flowing from the U.S. and EU has had a crippling effect on international trade with Iran,” Nigel Kushner, a lawyer specializing in Iran trade and sanctions, said in an interview.

Kushner, chief executive of Whale Rock Legal, a London law firm whose clients include exporters engaged in legal trade with Iran, said the sanctions have become so onerous that many in the insurance and shipping industries are dropping Iran-related business entirely.

Similarly, officials from Swift, the Belgium-based Society for Worldwide Interbank Financial Telecommunication, told U.S. authorities they preferred to expel Iran’s central bank than engage in the complicated process of sequestering and verifying legal transactions, according to U.S. officials.

“It’s having a devastating impact,” Kushner said. “Recent events are unprecedented in their reach and impact since this is coupled with successful, informal pressure being placed on Iran’s trading partners to cut ties.”
Nuclear Bomb

The U.S. and its allies say Iran is seeking the capability to make an nuclear bomb. Iran says its program is for civilian energy and medical research.

Israeli leaders, such as Defense Minister Ehud Barak, have said they may take military action within months if Iran doesn’t abandon suspected military aspects of its nuclear program.

Oil prices have increased 8.3 percent this year, in part on the prospect of a disruption in Gulf oil supplies. Crude oil for April delivery gained 52 cents, or 0.5 percent, to settle yesterday at $107.07 a barrel on the Nymex.

Since a Nov. 8 report by United Nations inspectors that raised questions about Iran’s nuclear program, the U.S. and EU have piled on increasingly stringent economic penalties — including U.S. sanctions on non-petroleum transactions with the Iranian central bank that took effect yesterday and an EU embargo on Iranian oil that starts July 1.

Bank Tejarat

Those penalties are only the steps that have drawn the most public attention. The U.S. and EU also took coordinated action to cut off from the international financial system Iran’s Bank Tejarat, the last institution financing high-volume exports and imports between Iran and Europe, a move that affects tens of billions of euros in trade.

EU sanctions announced Jan. 23 on Iran’s largest ports operator will also curb billions of euros in otherwise legal trade. An asset freeze on Tidewater Middle East Co. affects European companies all along the trade and supply chain. The EU was Iran’s top trade partner in 2010, with about 13 billion euros ($17.3 billion) in non-petroleum trade that year, European Commission and International Monetary Fund figures show.

Iran’s Supreme Leader, Ayatollah Ali Khamenei, referred to the panoply of sanctions in a national broadcast Feb. 3 as “painful and crippling.” President Mahmoud Ahmadinejad said Nov. 1 that “our banks cannot make international transactions anymore.”

Iran’s Assurances

Iranian officials have assured the public they will prevail in the face of sanctions. Deputy Oil Minister Ahmad Qalebani said yesterday that Iran is exporting about 2 million barrels of crude a day and has an increasing number of buyers even as countries impose sanctions, according to the state-run Mehr news agency.

Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, pumped about 3.545 million barrels of crude a day in January, a Bloomberg survey showed, and exported an average 2.58 million barrels a day in 2010, according to OPEC statistics.

The sustained, global sanctions effort “has brought very substantial economic and financial pressure on the Iranian regime,” reflected “most dramatically in its plummeting currency, the Iranian rial,” which has lost half its value since September, U.S. Undersecretary of Treasury David Cohen said in a speech in New York yesterday.

“International sanctions have disrupted Iranian trade to such an extent that, as of late last year, many Iranian banks were experiencing capital shortages,” he said.

The U.S. and its allies say the intent of the sanctions is to exert political pressure on Iran, rather than simply to cripple its economy. Clinton testified before Congress yesterday that “sanctions are working. They are producing the kind of pressure we had hoped for.”

Internal Debate

“We believe from all of our reporting and sourcing that the sanctions are having an impact inside Iran,” she told a House appropriations panel. “We know there is a debate going on inside Iran among various power centers.”

Military options are also part of the Obama administration’s choices for dealing with Iran, Air Force Chief of Staff Norton Schwartz told reporters yesterday in Washington.

The UN Security Council has imposed four rounds of sanctions on Iran since 2006, while the U.S. and the European Union have leveled dozens of their own sanctions on Iranian entities including banks, engineering conglomerates, shipping companies, ports operators, energy companies and individuals to punish links to illicit missile and nuclear activities and to pressure Iran’s leaders to abandon disputed aspects of the country’s nuclear program.

Iran’s Letter

After years of on-again, off-again talks between Iran and the five permanent members of the United Nations Security Council — the U.S., France, Britain, China, Russia — plus Germany, Iran sent a letter earlier this month saying it was ready to return to negotiations over its nuclear program. U.S. and European officials have credited economic pressure as the impetus.

The international community will need to “test the sincerity” of Iran’s offer to negotiate, Clinton said yesterday.

Mark Dubowitz, executive director of the Foundation for the Defense of Democracies, a Washington research institute, said the individual sanctions amount to a “comprehensive, mutually reinforcing” strategy designed to cut off Iranian access to hard currency, fuel a hyperinflationary environment in Iran and render the Iranian currency worthless.

The net effect “will be to make it increasingly difficult for the Iranian regime to manage the economic crisis that it has imposed on its own people,” forcing it to make concessions, Dubowitz said in an interview.

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