Another Failure for America: The Ineffectiveness of the Iranian Oil Embargo

The Persian New Year (which marks this year as 1391) started out with some unexpected international news: Eleven countries were removed from the Iranian oil embargo list with the possibility of twelve more to follow – an action that ruined America’s efforts to bring the Islamic Republic of Iran to its knees.

On the first of Farvardin, 1391 (March 20, 2012), Hillary Clinton, the U.S. Secretary of State, in statements that indicated the failure of such anti-Iranian efforts, stated that Washington had exempted eleven countries from enforcing sanctions against Iran.

Hillary Clinton stated that because the countries had decreased their imported oil from Iran at this time, ten countries from the European Union and Japan have been exempted from enforcing the new tough sanctions against Iran. She announced that these ten countries were Belgium, the United Kingdom, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland and Spain. The emphasis on the exclusion of these ten European countries and Japan from sanctions against Iran is considered a kind of defeat for America, since it had placed a lot of pressure on these countries to join the White House’s intended sanctions against our country.

This was not the end of the tale, for on the 5th of Farvardin (March 24, 2012), it was also announced that America is reviewing the possibility of excluding twelve more countries – including Turkey, India and China – from the Iranian oil embargo list.

Reason for the Removal of 11 Countries from the Iranian Oil Embargo List

A look at the influential factors in America’s decision demonstrates that in addition to the unprecedented increase in oil and fuel prices in the world markets, internal and external factors have influenced this decision by Washington.

Internal Factors

During the current year, America will hold presidential elections, and Obama is hopeful that he can win this election. However, Obama’s dream has been confronted with a nightmare, and this nightmare is none other than the increase in gas prices in America due to the Iranian oil embargo.

In this regard, opinion polls conducted by ABC News and the Washington Post indicate that if the price of gas continues to increase in America, Obama will face difficult conditions during the November presidential elections. Increasing gas prices have caused the American people to scrutinize all of Obama’s economic policies and to disapprove of his other actions, as well.

For this reason, right now 65 percent of Americans believe that Obama is not managing the control of gas prices well, and only 26 percent approve of Obama’s actions regarding gas policy.

In another question that was asked of the American people concerning whether they approved of Obama’s economic policies as a whole or not, 50 percent responded negatively and 46 percent of respondents approved of his policies in the economic sector. The numbers were the complete opposite in the month of February, when 50 percent of Americans approved of Obama’s economic policies.

While the Democrats have announced that Obama is not responsible for the increase in fuel prices, they are hoping that an improvement in the employment and labor situation in America will assist the President in the next election. However, the approaching presidential election, the heightening sensitivities and campaign fever have caused the American people to look for reasons for these difficulties rather than to seek solutions.

Without a doubt, the increasing fuel prices these days in America are considered one of the consequences of the global crisis of increasing costs of goods. In this regard, the Iranian oil embargo by America and Europe will certainly be viewed as the most important reason for this increase.

External Factors

From the very beginning of the Iranian oil embargo by America, countries that were importers of Iranian oil resisted it, and the voices of India, China, Turkey and even South Korea and Japan were heard above the rest.

In this regard, however, the news of sanctions against Iran had a negative effect on the market and led to an increase in the price of oil and gas in world markets. It had such an effect that the price of the North Sea’s Brent Crude in the world markets reached more than 120 dollars per barrel. This issue gave rise to news of the beginning of another bout of recession in the West’s economies, which persuaded the leaders of the West to think of an alternative prior to the implementation of the sanctions.

Annual reports show that Iran exports around 2.3 million barrels of oil per day on average, of which about 60 percent is exported to the countries of China, South Korea, Japan and India. More than 33 percent is exported to countries that are members of the European Organization for Economic Cooperation and Development.

As one of the biggest producers and exporters of oil, Iran plays numerous roles in stabilizing the world energy market, and any kind of variation in the rate of production and/or the sale of the Islamic Republic’s oil greatly affects the market. As such, sanctioning the import of oil from Iran has inflicted a huge shock to the world market. Considering that the European economy is experiencing a period of decline right now and that countries like Greece, Italy, Portugal, Spain and so on are on the threshold of economic bankruptcy, it seems that the discussion of sanctioning the import of Iranian oil is only a form of psychological warfare.

In this regard, David Miliband, the former Foreign Secretary of the U.K., warned European countries – including their politicians – that giving an appropriate response to Tehran must not lead to Europe beating the drums of war with Iran.

On the other hand, Abdullah Al-Badri, the Secretary General of OPEC, warned Western countries that sanctioning Iranian oil will have a negative effect on the market and that the economic difficulties resulting from this will be irremediable. Currently more than 14 percent of oil exported from Iran goes to European markets, and cutting that off will lead to the onset of changes in the world oil market.

Uncertainty

The effects of the Iranian oil embargo on the world market caused a reaction in most countries, and they expressed their concerns over the consequences of such action. In this regard, supporters of sanctioning Iran in the European Union say income derived from the sale of oil provides 50 percent of Iran’s budget, and they can deprive Iran of billions of dollars in oil revenue. However, diplomats and those active in the oil industry say Europe must consider that even a slight price increase as a result of the Iranian oil embargo will compensate for any kind of possible loss or damage Tehran sustains by selling its oil to Asia at lower prices. One market participant sarcastically remarked, “Perhaps the goal of the sanctions is to aid in the collapse of Italy, Spain and Greece and to shrink the European Union.”

Likewise, Timothy Geithner, the U.S. Secretary of the Treasury, warned the Senate in a letter to reduce the sanctions on the central bank and oil of Iran because these laws can have negative effects on America’s closest allies and trading partners.

While noting that Japan and South Korea are the largest purchasers of Iranian oil, he clarified that these sanctions will cause an increase in oil prices and can increase Iran’s revenue. Furthermore, the Mitsubishi Financial Group, the largest bank in Japan, announced regarding its assets that these sanctions are having effects on the oil companies in Japan that have relations with Iran, and the effects are not insignificant.

Another difficulty America and Europe had in enacting the proposed Iranian oil embargo was finding a replacement for Iran.

Based on estimates from the International Energy Agency, demand for oil in Europe reached its peak in the final quarter of 2011 at 15.1 million barrels. In the second quarter of 2012 – along with the repairs and improvements to refineries after the winter – it will decrease to 14.6 million barrels. European officials are hopeful that by the third quarter of 2012, when consumption will again increase, they can find a suitable replacement for Iran in providing their oil.

Perhaps cutting the supply of oil to the global market by 2.1 million barrels daily will not have much of an effect in meeting demand, but the existing market conditions have always shown that psychological factors in the oil markets have had a much greater effect than fundamental and principal factors.

According to Western analysts, if European countries decided to stop their import of Iranian oil today, they would need six to twelve months to replace the oil company so that they can meet their demand though it, even under the most optimistic circumstances.