With the House and Senate having recently passed bills containing sanctions against Iran’s imports of refined petroleum, George Washington University’s Hossein Askari offers an analysis of the potential impact of these sanctions. Noting that “an effective gasoline embargo can only be implemented through a naval blockade of Iran,” Askari then asks “Even assuming that a gasoline embargo were effective in cutting off Iran’s imports, what would happen?“:
Consumption of gasoline would decline by 30 percent. If the government allowed the reduced supply of gasoline, namely, domestically refined gasoline, to be sold at a price that would equate demand to supply, the price would increase to a level that would eliminate the subsidy, meaning no subsidy for imported gasoline and no subsidy for domestically refined gasoline. There would be no incentive to smuggle gasoline to neighboring countries. The government would have higher revenues to spend on other priorities and projects. Lo and behold, the sanctions would have done what Tehran has wanted to do for years, and the government would not be held responsible.
Askari concludes the following:
1. An airtight gasoline embargo is difficult to implement, as Iran’s borders are long and porous.
2. China is unlikely to sign on at the United Nations without extracting too high a price from the United States.
3. Even if China does acquiesce, UN negotiations are likely to be long and painful.
4. Iran clearly is expanding its refining capacity, increasing its storage of gasoline (and diesel), preparing to reconfigure its refineries to produce a little more gasoline, preparing the ground to reduce gasoline smuggling, and in the event of an embargo would allow prices to increase, at least somewhat. All of these measures would blunt the impact of a gasoline embargo.
5. An embargo would be blamed on the United States, while shoring up government finances.
Askari also asks why there is “so much talk of a gasoline sanction and other unnamed crippling sanctions when financial sanctions, which could deal a mortal blow to the Iranian regime itself, are soft peddled?” It’s a great question. Over the past few years, Treasury Undersecretary Stuart Levey has assembled a package of financial sanctions against key Iranian Revolutionary Guard-controlled firms, and traveled the globe to obtain cooperation from various partners in enforcing them. (Newsweek recently reported that, according to a European diplomat, Levey is feared and hated in Tehran, where “all the officials know how to pronounce his name right.”)
Testifying to the Senate Banking Committee in October, Levey said his goal was “to make sure that we maximize the chance of getting international support for these things because… if we do not have international support, there’ll be diversions, there’ll be work-arounds, and the efficacy of the sanctions will not nearly be as effective.” The laborious and contentious process of lining up international support for and enforcement of gas sanctions could very well undermine actually-effective financial sanctions, which raises the question of whether those pushing for gas sanctions actually believe they’ll be effective, or are just interested in escalating up another notch toward military action against Iran. Once gas sanctions fail (as virtually every actual Iran analyst believes they will) to produce the intended change in Iranian behavior, we’ll really have no other choice, will we?