Analysis: Sanctions on Iran underscore delicate situation

By MICHAEL PURCELL
Published on Saturday 11 February 2012 02:19

INTERNATIONAL sanctions targeting Iran’s oil exports are inflicting economic pain but may well fail to force Tehran to compromise on its nuclear ambitions and may make it more intransigent.

The measures could also boomerang by driving up oil prices, hitting the jittery global economy, analysts say.

“In the process of hunting for alternative sources to Iranian oil, it’s virtually certain that the price of oil is going to rise,” said Gary Sick, an Iran expert and former White House policy adviser at Columbia University in New York.

Ordinary Iranians complain that they, rather than their defiant and resilient regime, are bearing the brunt of sanctions which are compounding problems caused by the government’s economic mismanagement.

US financial sanctions imposed at the beginning of this year are playing havoc with Iran’s ability to take payment for its oil exports.

However, they are also having an impact on the Iranian street, where prices for basic foodstuffs are soaring.

Malaysian exporters of palm oil, critical to Iran’s food industry, have halted sales to Tehran because they could not get paid. A margarine factory owner in Iran said: “The way things are going, I predict that over the next three to four months our edible oil will run out because of sanctions.”

A default by Iranian buyers on purchases of 200,000 tonnes of Indian rice is potentially more crippling, and imports of tea from India, Iran’s favourite beverage, are facing similar payment hurdles. Iran, meanwhile, is reportedly seeking to close grain purchases using gold and oil as payment.

The Iranian rial has lost half its value against the dollar in recent weeks. The official inflation rate stands at 20 per cent but it thought to be much higher, and the same applies to the official unemployment rate of 14.6 per cent.

The stated aim of the US sanctions and a European Union embargo on imports of Iranian oil was to force Iran back to the negotiating table, paving the way for a diplomatic solution to the growing crisis.

Iran does not see it that way. It believes the sanctions are aimed at inciting domestic unrest.

“By going after the jugular of the Iranian economy, the Obama administration is giving signals, intentionally or unintentionally, that it is going for the collapse of the Iranian economy and eventually the regime,” said Farideh Farhi, a distinguished Iran expert at the University of Hawaii.

“With this ambiguity … Iran’s leadership has zero incentive to negotiate,” she told The Scotsman.

Iran’s propagandists say that the sanctions will be beneficial, arguing they will create 200,000 jobs by boosting domestic manufacturing.

Despite Iran’s bravado, analysts believe its room to manoeuvre is fast shrinking.

“The last thing they want is the pressure of sanctions influencing domestic politics in the run-up to parliamentary elections [on 2 March],” said Anoush Ehteshami, an Iran expert at Durham University.

Iran and the West are gearing up for a new round of nuclear talks, but each is hampered by having set maximal positions that make it politically difficult for either to make concessions.

The strengths of Iran’s relatively self-reliant if troubled economy suggest that, as long as it can find buyers for a large proportion of its oil, it will be able to limp along.