Oil Sanctions against Iran Are Ineffective
By Nersi Ghorban, energy expert and economic analyst.
A group of American senators are trying to enact a bill which would empower the U.S. president to impose new economic sanctions on foreign companies involved in exporting gasoline and other refined petroleum products to Iran. Nersi Ghorban, energy expert and economic analyst has commented on likely effects of the bill in case it is enforced by Barack Obama.
Based on a bill passed by U.S. Senate companies exporting refined oil to Iran will face punitive measures. The bill will be approved by U.S. Congress and then handed to the American president, who decides whether it should be enforced or not. Hence, there are several steps to be taken before the bill is actually executed.
There are few companies which sell refined petroleum products to Iran. If the sanctions act is implemented, some of they may stop trading with Iran due to financial problems or massive loans they have received from American banks. For example the Indian company Reliance Industries which is the primary gasoline exporter to Iran has received a 900 million dollar loan from American banks and with enforcement of the refined oil sanction act it has to halt trade with Iran because of its long term priorities and interests. One way for these companies is to continue their transactions with Iran through a third party or a secondary European company. Thus, they will not face United States’ punitive measures.
However, it seems that more than being an economic measure to increase pressures on Iran, the refined petroleum sanction act is a political tool. Meanwhile, the act passed by U.S. Senate only talks of penalizing oil-exporting companies, not stopping oil shipments heading for Iran.
As a matter of fact, the sanction act only points to companies trading oil products with Iran. In that case, gasoline import can continue through third parties in different countries, with Iran facing little problems. In the meantime, Iran can reform its gasoline ration structure in order to balance consumption and production and circumvent any problems. While rationing can assuage the effects of a likely sanction, refined petroleum purchase from brokers and third parties may add to imported gasoline price, though this is negligible compared with strategic and security priorities.
In my opinion, the refined oil sanction act is neither a powerful economic tool nor a political one. It is not an effective solution and it can not bring Iran into submission. The act can be only used as leverage in negotiations, but economically, it is lame.
Based on a bill passed by U.S. Senate companies exporting refined oil to Iran will face punitive measures. The bill will be approved by U.S. Congress and then handed to the American president, who decides whether it should be enforced or not. Hence, there are several steps to be taken before the bill is actually executed.
There are few companies which sell refined petroleum products to Iran. If the sanctions act is implemented, some of they may stop trading with Iran due to financial problems or massive loans they have received from American banks. For example the Indian company Reliance Industries which is the primary gasoline exporter to Iran has received a 900 million dollar loan from American banks and with enforcement of the refined oil sanction act it has to halt trade with Iran because of its long term priorities and interests. One way for these companies is to continue their transactions with Iran through a third party or a secondary European company. Thus, they will not face United States’ punitive measures.
However, it seems that more than being an economic measure to increase pressures on Iran, the refined petroleum sanction act is a political tool. Meanwhile, the act passed by U.S. Senate only talks of penalizing oil-exporting companies, not stopping oil shipments heading for Iran.
As a matter of fact, the sanction act only points to companies trading oil products with Iran. In that case, gasoline import can continue through third parties in different countries, with Iran facing little problems. In the meantime, Iran can reform its gasoline ration structure in order to balance consumption and production and circumvent any problems. While rationing can assuage the effects of a likely sanction, refined petroleum purchase from brokers and third parties may add to imported gasoline price, though this is negligible compared with strategic and security priorities.
In my opinion, the refined oil sanction act is neither a powerful economic tool nor a political one. It is not an effective solution and it can not bring Iran into submission. The act can be only used as leverage in negotiations, but economically, it is lame.