Daniel W. Drezner
The Iran sanctions are crippling. They might work, but not in the way that you think.
Because Iran’s economy was already badly mismanaged, it’s been tough at times to discern when Tehran is suffering because of the "crippling" economic sanctions or just rank stupidity. The New York Times’ Thomas Erdbrink has been reporting the hell out of the Iranian economy, however, and so we can be pretty sure that the combined ...
Because Iran’s economy was already badly mismanaged, it’s been tough at times to discern when Tehran is suffering because of the "crippling" economic sanctions or just rank stupidity. The New York Times’ Thomas Erdbrink has been reporting the hell out of the Iranian economy, however, and so we can be pretty sure that the combined effect of the sanctions — with the EU oil embargo kicking in the first of this month — are really starting to bite. When Mahmoud Ahmadinejad goes from mocking the sanctions to stating publicly that, "the sanctions imposed on our country are the most severe and strictest sanctions ever imposed on a country," yeah, things have changed.
How bad is the current situation for Iran? They are literally running out of places to store their crude oil:
Iran, faced with increasingly stringent economic sanctions imposed by the international community to force it to abandon any ambitions to develop nuclear weapons, has been reluctant to reduce its oil production, fearing that doing so could damage its wells. But Iran has insufficient space to store the crude it cannot sell. So while it furiously works to build storage capacity on shore, it has turned to mothballing at sea….
International oil experts say Iranian exports have already been cut by at least a quarter since the beginning of the year, costing Iran roughly $10 billion so far in forgone revenues. Many experts say the pain is only beginning, since oil prices have been falling and Iran’s sales should drop even more with the European embargo that went into effect on Sunday….
The drop in crude sales has hit Tehran with multiple challenges. Besides the financial impact, Iran has to figure out what to do with all the oil it continues to produce. Iran is pumping about 2.8 million barrels a day — already down about one million barrels daily since the start of the year. But it is exporting only an estimated 1.6 to 1.8 million barrels a day.
The unsold crude is being stored in what has been estimated to be two-thirds of the Iranian tanker fleet. Most of the ships are sailing in circles around the Persian Gulf as Iran tries to sell the mostly heavy crude at bargain-basement prices.
International oil experts estimate that Iran is now warehousing as much as 40 million barrels — roughly two weeks of production — on the tankers. An additional 10 million barrels are in storage on shore.
So, even if Iran is somehow able to sell its oil, it will take a huge hit in expected revenue. Clearly, these sanctions are pretty crippling.
I bring this up because, as I’ve written here, I’m somewhat dubious about whether any sanctions against Iran will work in the sense of "change Iran’s mind about its nuclear program." Even though there is room for a deal, the expectations of future conflict between the current Iranian regime and the West are so high that getting to that deal is going to involve significant amounts of labor.
These sanctions are sufficiently punishing, however, that they suggest a new status quo, which is to keep them in place as a containment shell while the Iranian economy slowly implodes. Unless the global economy experiences a significant rebound — hah! — there is no reason why all non-Iranian parties can’t continue with the status quo for quite some time. Even if the Iranian regime persists, its power and influence in the region will continue to wane.
The obvious objection to this is that Iran develops a nuclear weapon and then uses it, but for a regime that wants to survive above all else, I seriously doubt the "use" part kicks in.
This leads to my question to readers: Is the status quo sustainable?