Iran Watch: Oil, oil everywhere

Iran Watch: Oil, oil everywhere

With all the talk about an April 13 date being set for nuclear talks between Iran and the world’s top powers, another important milestone got lost in the shuffle: today, March 30, when President Obama is required by a U.S. sanctions law to determine whether, as Reuters puts it, “the price and supply of non-Iranian oil are sufficient to allow consumers to ‘significantly’ cut their purchases from Iran.” If the answer to that question is yes, then, beginning in June, the United States can proceed with its effort to isolate Tehran by sanctioning foreign banks that continue to purchase Iranian oil.

Obama’s conclusion? There may not be oil, oil everywhere, but there’s enough of it to greenlight sanctions. The Associated Press has more:

The president said he based his determination on global economic conditions, the level of spare oil capacity, and increased production by some countries, among other factors. He said he would keep monitoring the global market closely to ensure it can handle a reduction of oil purchases from Iran.

With oil prices already rising this year amid rising tensions over the nuclear dispute between Iran and the West, U.S. officials have sought assurances that pushing countries to stop buying from Iran would not cause a further spike in prices.

That’s particularly important for Obama in an election year that has seen an increasing focus on gas prices.

Iran meter: Obama’s decision clears a path for the administration’s aggressive sanctions strategy, which it favors over military conflict.

But there’s a wrinkle. Globalization has proven a double-edged sword for sanctions regimes. As scholars Steve Smith, Amelia Hadfield, and Tim Dunne note, an interdependent world economy can make countries more vulnerable to international sanctions. Yet globalization also means that countries facing sanctions can seek out alternative markets and suppliers.

This reality has been on vivid display recently. Bloomberg takes a look today at how China and India are evading U.S. and EU financial sanctions by buying Iranian oil in exchange for local currencies or goods such as wheat, soybean meal, and consumer products. During a meeting in New Delhi this week, the BRICS group of emerging world powers — Brazil, Russia, India, China, and South Africa — declared that they would continue trading with Iran in defiance of U.S. sanctions.

This doesn’t necessarily mean Western sanctions are doomed. Turkey, the fifth largest buyer of Iranian oil, announced today that it would cut imports of oil from Iran by a tenth in the face of U.S. pressure. And the Congressional Research Service’s Kenneth Katzman tells Bloomberg that Iran’s “junk-for-oil” program with countries such as China and India is economically unsustainable. “Iran cannot stabilize the value of its currency with such unorthodox payment methods,” he explains.

But the big question is whether, come June, the United States will actually sanction Chinese and Indian banks — an action fraught with political landmines. Obama’s announcement today doesn’t get us much closer to answering that question.

For more support for keeping the Iran meter at Natanz to Worry About, check out Amir Oren’s argument for why Israel may be postponing an attack on Iran and Karl Vick’s report on Israel’s intelligence services scaling back covert operations inside Iran. (And for a gripping account of how an Israeli strike might play out, read Gary Sick.) 

Note to readers: Earlier this month, I dismissed the importance of Azerbaijan’s pledge to prevent any country from using its territory as a launching pad for an attack on Iran, arguing that Israel probably wouldn’t strike Iran through its neighbor to the north anyway.

This week, Mark Perry reported at Foreign Policy that Azerbaijan has granted Israel access to airbases near its border with Iran, which could heighten the prospect of an Israeli strike. Authorities in Azerbaijan have denied the allegations, and some others have expressed doubt that Israel would actually use Azeri airbases as part of an attack. But the report does raise the question of whether my headline — “You can stop worrying about Azerbaijan” — needs revising.