Sanction Effects Still Rippling

Earlier today, the Middle East Policy Council posted an article I co-wrote, titled “The Ripple Effects of Iran Sanctions.” The bulletin focuses on the many secondary effects of the sanctions now targeting the Islamic Republic. As the intro summarizes:

The secondary effects of the European Union ban of Iranian oil and new American sanctions targeting Iran’s Central Bank are still multiplying. Iran’s currency has plummeted in value these past few months and China now enjoys more leverage than ever as it negotiates new oil contracts. Imports of rice, tea, wheat, corn, palm oil and steel, among others, have ground to a halt.

Meanwhile, it looks more than likely that a small group in Iran could benefit from the currency’s collapse. Those close to Supreme Leader Khamenei also hope to benefit politically by placing the blame squarely on President Ahmadinejad. The Iranian parliament, or Majles, made an unprecedented move on February 7: the body summoned Ahmadinejad for a special inquiry where he will be forced to answer for his stewardship of an economy under stress.

The article details the many issues now making life more difficult for Iranian exporters, importers, and politicians. It also explains how some industries may benefit from access to rials at the official rate. China’s bare-knuckle approach to 2012 oil contract purchases is also explored. Combined, these developments–and the market reports we rely on–suggest that business is growing tougher for Iran, even if a “tipping point” is still far off.

Bloomberg highlights Iran’s headaches today as well with a report on supertanker providers and their allergic reaction to sanctions. According to the article, the EU ban on Iranian crude was made more complete by a  measure preventing many shipping companies from obtaining insurance.  Official announcements made in the last week confirm “Overseas Shipholding Group Inc., Frontline Ltd. and owners controlling more than 100 supertankers” will “stop loading cargoes from the Organization of Petroleum Exporting Countries’ second-largest producer.”

These tankers can and will be replaced. Iran will do business. But sanctions–with their intended and unintended consequences–have created countless new obstacles. While these can be overcome, their existence (and persistence) make Iran less and less appealing.  The incredible inconvenience of dealing with the Islamic Republic is matched now by both the risk of war and unforeseen costs and complications. One example from our MEPC report is especially revealing: “An Indian government delegation is due to visit Tehran later this month, where they hope to finalize a deal allowing Iran’s national oil company to accept payment in rupees,” we note. “But even this arrangement could require a revision of the Indian tax code, thus forcing buyers to do even more so that Iran can still sell crude. All of this drama and negotiation serves to highlight just how complicated trade with Iran has become of late.”


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