MONTREAL - The financial sanctions
against Iran signed into law by United States
President Barack Obama 10 days ago are having
deeper financial effects than previous measures
and highlight the regime's domestic political
weakness.
Senior US officials will seek to
implement the sanctions without damaging the
global economy. A speculative rise in the price of
oil could not only damage the tepid global
economic recovery but also benefit Teheran's
revenues in the short term.
The sanctions
package in effect gives non-US firms the choice
between doing business with the Iranian or with
the American financial sector. If its provisions
were to be implemented fully, any foreign
financial institution (including even foreign
central banks)
that transacted or
facilitated purchases of Iranian oil would also be
at risk of penalty.
Iran has responded by
accepting what it said was a Russian proposal to
use the rouble in place of the US dollar, the
Iranian state-run Fars news agency reported on
Monday, citing Teheran's ambassador in Moscow,
Seyed e Reza Sajjadi. The ambassador said Russian
President Dmitry Medvedev made the suggestion to
his Iranian counterpart, Mahmud Ahmadinejad, at a
meeting of the Shanghai Cooperation Organization
in Astana, Kazakhstan.
The Fars agency
says Iran has already replaced the dollar in oil
trade with China, India and Japan, and some press
reports refer to this as "retaliation" for the new
US sanctions. There is rather less to this than
meets the eye. Iran has had in place for some time
bilateral clearing arrangements with China, India
and Russia, intended to balance trade in local
currencies as much as possible.
Also,
Russia is always keen to play Iran's
anti-Westernism to the hilt while assigning to
itself an intermediary and palliative role. In the
line of this strategy, Moscow has long proposed
itself as the internationally designated fuel
reprocessor for Iran's nuclear industry, indeed
for all countries supposedly needing a fair broker
under international supervision. Teheran has
always refused this idea and has now moved beyond
it with its own capabilities.
It is little
surprise that Moscow seeks to take financial
advantage of the present situation, given the
precipitous fall in the value of the Iranian rial.
After trading in December at an official level of
roughly 10,700 to the US dollar, the rial opened
January by falling within two days on the open
market to 17,000 to the dollar.
There are
multiple exchange rates in Iran, and the
open-market value was down 27% from December and
down 10% in two days. It is now over 18,000 to the
dollar. The official level now fluctuates in the
11,000-12,000 to 1 range. It was the mass public's
rush to exchange rials for dollars following the
announcement of sanctions that led to the steep
decline in the open-market rate.
That is a
significant development because one of the
frequent arguments against the use of force
against the Iranian nuclear program is that any
attack would automatically lead to a groundswell
of popular support for the unpopular regime.
However, the population's rush to the dollar in
response to the new US sanctions obliged the
Teheran regime to suspend without warning all
foreign-exchange operations for the Iranian public
two days into the New Year.
Coupled with
the absence of mass protests in Teheran against
the new American move, the Iranian public's rush
to the dollar must be considered a vote of
economic no-confidence in the government. This
leaves rather weak the argument that a military
attack on the country's nuclear facilities would
merely increase the public's esteem for the
regime. It is evidence, indeed, to the contrary.
The latest sanctions mean finding foreign
buyers for Iranian oil will only become harder.
The European Union, which purchases 18% of Iran's
oil exports, has not only agreed in principle to
respect the new sanctions but, in light of Iran's
non-compliance with a raft of UN Security Council
resolutions over its nuclear program, called for
such sanctions in advance of their being
formulated.
It seems unlikely that China,
which takes 22% of Teheran's oil exports
(equivalent to 9% of its own imports), will help
out Iran by buying more of its oil, despite the
statement made to Reuters by S M Qamsari, head of
the international department of the National
Iranian Oil Company's international department,
that Iran "could very easily replace" European and
other customers with increased sales to China and
other countries in Africa as well as Asia.
China has already cut January purchases to
bring pressure to bear on Iran in a pricing
dispute as it renegotiates its contracts for 2012
with Iran, which insists on higher rates and
faster payment. Beijing, by contrast, is only
lowering its offer in light of Teheran's
difficulty in finding buyers.
Increased
sales to other Asian countries do not appear to be
in the cards. The US sanctions bill grants Obama
the power to extend waivers of 120 days in the US
national security interest. It is likely that
Japan and South Korea will seek such waivers while
searching for means to decrease their oil imports
from Iran.
In addition, a number of
Turkish banks have informed Indian companies that
they will likely be unable to process payments for
Iranian oil in the future, as they have done until
recently.
It is only reasonable, and very
possible, that Arab oil producers will increase
exports to Asia as well as the West, to make up
for any shortfall resulting from enforcement of
the new sanctions against Iran.
Dr
Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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