Yesterday, new U.S. sanctions kicked-in barring global financial institutions from doing oil business through Iran’s central bank. On Sunday, a total European Union embargo on Iranian oil comes into effect. The world has, more or less, lined up behind these measures.
Now, economists are saying that these latest rounds of international sanctions could gut Iran’s oil-revenue-based economy. Jamie Webster, a senior manager of the Markets and Country Strategies Group at PFC Energy, told RFE/RL’s Golnaz Esfandiari:
A lot of these countries have already started to back out and essentially completed the backing out of that crude. So that’s around 600,000 barrels a day. Previously, before all of this latest rash of sanctions, Iran was exporting around 2.2 million barrels a day, so that is affecting them…
Another energy economist, Robin Mills, told Esfandiari that European firms’ refusal to insure Iranian oil tankers will also hurt Iranian oil sales to Eastern countries such as Japan and China, perhaps costing Iran another 400,000 barrels a day of exports. With prices of crude oil falling, that could mean Iran’s oil revenues fall by half, Mills said:
[O]il prices, which were very high in March, have fallen back quite significantly, so that’s a kind of a double impact.
So it could be that Iran’s oil revenues which were perhaps something like $100 billion to $110 billion during the last Iranian year, in this year they could be down to $45 billion to $50 billion, so the oil revenues could be cut in half overall with the combination of lower exports and lower prices.
Iran hawks in the U.S. calling for confrontation won’t even acknowledge that exports are down. Forget that the U.N.’s energy agency says Iran’s exports are down 40 percent, the stance that sanctions have no teeth willfully ignores even pronouncements by an Iranian official that exports are down between 20 and 30 percent. (The Iranians rarely acknowledge any economic pain at all, let alone from sanctions.)
The dual-track of pressure and diplomacy pursued by the Obama administration is based on the notion that a potential Iranian nuclear weapon is widely considered a threat to both the security of the U.S. and its allies in the region, as well as the nuclear non-proliferation regime. U.S., U.N. and Israeli intelligence estimates give the West time to pursue an approach other than war. Questions about the efficacy and potential consequences of a strike have led U.S. officials to declare that diplomacy is the “best and most permanent way” to resolve the crisis.