Sunday, July 22, 2012

Post #292 - Tightening the Screws -- on Europe?

This comes from the Voice of Russia World Service about a month back (6/29/12). The author, Ilya Kharlamov, analyzes the impact of the current and expected Western sanctions regime:

The West is stepping up its efforts to tighten a grip on Iran in connection with its nuclear programme. The USA slapped sanctions on foreign state-run banks that clinched oil deals with Tehran and imposed restrictions on the operations of private financial institutions cooperating with the Islamic Republic. On 1 July, the EU’s launching an oil embargo against Iran. Such an abundance of “economic reprisals” against a major player on the world oil market could have lasting consequences. No more new oil from Iran will be available in Europe after 1 July. Countries will have to rely on the Iranian oil that they purchased under previous contracts. The EU has even banned crisis-struck Greece from importing Iranian oil on preferential terms. Washington’s restrictions on the banks that were “spotted” in partnership with Tehran pursue the same agenda… to slash Iranian oil sales.

The restrictions in question have already had a negative effect on the social and economic situation in Iran, which has seen a rise in food prices and a devaluation of the national currency. However, the embargo on Iranian oil led to an increase in oil prices throughout the EU this spring, to the disappointment of millions of European consumers. Oil prices might spike again after 1 July. The EU accounts for 20 percent of Iranian oil exports, this amounts to about 30 million tons (195 million bbl). Europe expects Saudi Arabia to fill the gap. Nevertheless, Iran has the resources to block the Strait of Hormuz, through which oil from Saudi Arabia and LNG from Qatar reaches world markets.

Yevgeni Satanovsky, of the Institute of the Middle East, said, “As for Iran, it could offset its losses by supplying oil to other countries. This means that the embargo might not prove as effective as planned. Some countries, including South Africa, have sharply increased Iranian oil imports. Consumption of Iranian oil hasn’t dropped in Turkey. South Korea cut Iranian oil supplies, but only slightly. Indian companies reduced the consumption of Iranian oil in the country’s state sector, but it’s increased in the private sector. China, even though it cut Iranian oil supplies, has exerted pressure on Iran to get it to slash oil prices so that Beijing could boost the consumption of Iranian oil for the same prices”.

Because of the embargo, Iran will lose 20 percent of the 100 billion USD (3.25 trillion Roubles. 79 billion Euros. 64 billion UK Pounds) it earns from oil exports annually. The loss is far from disastrous. In addition, sanctions will help to spur Iran’s efforts in other areas. Vitaly Bushuyev, General Director of the Institute of Energy Strategy, observed, “The role of Iran in the formation of world oil prices has been exaggerated. No radical fluctuations on the oil market have been predicted for the near future. Oil prices will range between 85 and 110 USD (2,760-3,570 Roubles. 67-87 Euros. 54-70 UK Pounds). Iran may affect that, but its influence won’t go further than causing one-time price volatility within a maximum variation of 3-5 dollars (97-162 Roubles. 2.50-4 Euros. 2-3.25 UK Pounds)”.

In other words, the western sanctions against Iran won’t trigger any upheavals on the world market or an economic collapse in Iran. Instead, they could hit the wallets of ordinary people in Europe. US Secretary of State Hillary Clinton said that unless Iran takes specific steps to dispel the international community’s concerns regarding its nuclear programme, pressure on it will increase, and it’ll become more and more isolated. As an alternative to economic pressure, Washington might carry out air strikes against Iran’s military facilities. In this respect, attempts to exert pressure on Tehran through economic sanctions aren’t the worst option.

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