IRAN: THE TIME HAS
COME TO TALK Blockades and the danger of
disaster By Juan Cole
Introduction by Tom
Engelhardt:Negotiators for Iran, the
United States, Britain, China, France, Russia and
Germany - the P5+1 or "Iran Six" - meet in
Istanbul, Turkey this weekend, face to face, for
the first time in more than a year. There are
small signs of possible future compromise on both
sides when it comes to Iran's nuclear program (and
a semi-public demand from Washington that could be
an instant deal-breaker). Looking at the big
picture, though, there's a remarkable amount we
simply don't know about Washington's highly
militarized policy toward Iran. Juan Cole does a
remarkable job of offering us a full-scale picture
of the complex economic underpinnings of the
present Iran-US-Israeli crisis and the unnerving
dangers involved.
It's a policy fierce
enough to cause great suffering among Iranians -
and possibly in the long run among Americans, too.
It might, in the end, even deeply harm the global
economy and yet, history
tells us, it will fail on its
own. Economic war led by Washington (and
encouraged by Israel) will not take down the
Iranian government or bring it to the bargaining
table on its knees ready to surrender its nuclear
program. It might, however, lead to actual armed
conflict with incalculable consequences.
The United States is already effectively
embroiled in an economic war against Iran. The
Barack Obama administration has subjected the
Islamic Republic to the most crippling economic
sanctions applied to any country since Iraq was
reduced to fourth-world status in the 1990s. And
worse is on the horizon. A financial blockade is
being imposed that seeks to prevent Tehran from
selling petroleum, its most valuable commodity, as
a way of dissuading the regime from pursuing its
nuclear enrichment program.
Historical
memory has never been an American strong point and
few today remember that a global embargo on
Iranian petroleum is hardly a new tactic in
Western geopolitics; nor do many recall that the
last time it was applied with such stringency, in
the 1950s, it led to the overthrow of the
government with disastrous long-term blowback on
the United States. The tactic is just as dangerous
today.
Iran's supreme theocrat, Ayatollah
Ali Khamenei, has repeatedly condemned the atom
bomb and nuclear weapons of all sorts as tools of
the devil, weaponry that cannot be used without
killing massive numbers of civilian noncombatants.
In the most emphatic terms, he has, in fact,
pronounced them forbidden according to Islamic
law.
Based on the latest US intelligence,
Secretary of Defense Leon Panetta has affirmed
that Iran has not made a decision to pursue a
nuclear warhead. In contrast, hawks in Israel and
the United States insist that Tehran's civilian
nuclear enrichment program is aimed ultimately at
making a bomb, that the Iranians are pursuing such
a path in a determined fashion, and that they must
be stopped now - by military means if necessary.
Putting the squeeze on Iran At
the moment, the Obama administration and the US
Congress seem intent on making it impossible for
Iran to sell its petroleum at all on the world
market. As 2011 ended, congress passed an
amendment to the National Defense Authorization
Act that mandates sanctions on firms and countries
that deal with Iran's Central Bank or buy Iranian
petroleum (though hardship cases can apply to the
Treasury Department for exemptions).
This
escalation from sanctions to something like a
full-scale financial blockade holds extreme
dangers of spiraling into military confrontation.
The Islamic Republic tried to make this point,
indicating that it would not allow itself to be
strangled without response, by conducting naval
exercises at the mouth of the Persian Gulf this
winter. The threat involved was clear enough:
about one-fifth of the world's petroleum flows
through the Gulf, and even a temporary and partial
cut-off might prove catastrophic for the world
economy.
In part, Obama is clearly
attempting by his sanctions-cum-blockade policy to
dissuade the government of Israeli Prime Minister
Benjamin Netanyahu from launching a military
strike on Iran's nuclear facilities. He argues
that severe economic measures will be enough to
bring Iran to the negotiating table ready to
bargain, or even simply give in.
In part,
Obama is attempting to please America's other
Middle East ally, Saudi Arabia, which also wants
Iran's nuclear program mothballed. In the process,
the US Department of the Treasury has even had
Iran's banks kicked off international exchange
networks, making it difficult for that country's
major energy customers like South Korea and India
to pay for the Iranian petroleum they import. And
don't forget the administration's most powerful
weapon: most governments and corporations do not
want to be cut off from the US economy with a
gross domestic product of more than US$15 trillion
- still the largest and most dynamic in the world.
Typically, the European Union, fearing
congressional sanctions, has agreed to cease
taking new contracts on Iranian oil by July 1, a
decision that has placed special burdens on
struggling countries in its southern tier like
Greece and Italy. With European buyers boycotting,
Iran will depend for customers on Asian countries,
which jointly purchase some 64% of its petroleum,
and those of the global South.
Of these,
China and India have declined to join the boycott.
South Korea, which buys $14 billion worth of
Iranian petroleum a year, accounting for some 10%
of its oil imports, has pleaded with Washington
for an exemption, as has Japan, which got 8.8% of
its petroleum imports from Iran last year, more
than 300,000 barrels a day - and more in absolute
terms than South Korea. Japan, which is planning
to cut its Iranian imports by 12% this year, has
already won an exemption.
Faced with the
economic damage a sudden interruption of oil
imports from Iran would inflict on East Asian
economies, the Obama administration has instead
attempted to extract pledges of future 10%-20%
reductions in return for those Treasury Department
exemptions. Since it's easier to make promises
than institute a boycott, allies are lining up
with pledges. (Even Turkey has gone this route.)
Such vows are almost certain to prove
relatively empty. After all, there are few options
for such countries other than continuing to buy
Iranian oil unless they can find new sources -
unlikely at present, despite Saudi promises to
ramp up production - or drastically cut back on
energy use, ensuring economic contraction and
domestic wrath.
What this means in reality
is that the US and Israeli quest to cut off Iran's
exports will probably be a quixotic one. For the
plan to work, oil demand would have to remain
steady and other exporters would have to replace
Iran's roughly 2.5 million barrels a day on the
global market. For instance, Saudi Arabia has
increased the amount of petroleum it pumps, and is
promising a further rise in output this summer in
an attempt to flood the market and allow countries
to replace Iranian purchases with Saudi ones.
But experts doubt the Saudi ability to do
this long term and - most important of all -
global demand is not steady. It's crucially on the
rise in both China and India. For Washington's
energy blockade to work, Saudi Arabia and other
suppliers would have to reliably replace Iran's
oil production and cover increased demand, as well
as expected smaller shortfalls caused by crises in
places like Syria and South Sudan and by declining
production in older fields elsewhere.
Otherwise, a successful boycott of Iranian
petroleum will only put drastic upward pressure on
oil prices, as Japan has politely but firmly
pointed out to the Obama administration. The most
likely outcome: America's closest allies and those
eager to do more business with the US will indeed
reduce imports from Iran, leaving countries like
China, India, and others in Asia, Africa, and
Latin America to dip into the pool of Iranian
crude (possibly at lower prices than the Iranians
would normally charge).
Iran's transaction
costs are certainly increasing, its people are
beginning to suffer economically, and it may have
to reduce its exports somewhat, but the tensions
in the Gulf have also caused the price of
petroleum futures to rise in a way that has
probably offset the new costs the regime has
borne. (Experts also estimate that the Iran crisis
has already added 25 cents to every gallon of gas
an American consumer buys at the pump.)
Like China, India has declined to bow to
pressure from Washington. The government of Prime
Minister Manmohan Singh, which depends on India's
substantial Muslim vote, is not eager to be seen
as acquiescent to US strong-arm tactics. Moreover,
lacking substantial hydrocarbon resources, and
given Manmohan's ambitious plans for an annual
growth rate of 9% - focused on expanding India's
underdeveloped transportation sector (70% of all
petroleum used in the world is dedicated to
fueling vehicles), Iran is crucial to the
country's future.
To sidestep Washington,
India has worked out an agreement to pay for half
of its allotment of Iranian oil in rupees, a soft
currency. Iran would then have to use those rupees
on food and goods from India, a windfall for its
exporters. Defying the American president yet
again, the Indians are even offering a tax break
to Indian firms that trade with Iran. That country
is, in turn, offering to pay for some Indian goods
with gold. Since India runs a trade deficit with
the US, Washington would only hurt itself if it
aggressively sanctioned India.
A
history lesson ignored As yet, Iran has
shown no signs of yielding to the pressure. For
its leaders, future nuclear power stations promise
independence and signify national glory, just as
they do for France, which gets nearly 80% of its
electricity from nuclear reactors. The fear in
Tehran is that, without nuclear power, a
developing Iran could consume all its petroleum
domestically, as has happened in Indonesia,
leaving the government with no surplus income with
which to maintain its freedom from international
pressures.
Iran is particularly jealous of
its independence because in modern history it has
so often been dominated by a great power or
powers. In 1941, with World War II underway,
Russia and Britain, which already controlled
Iranian oil, launched an invasion to ensure that
the country remained an asset of the Allies
against the Axis.
They put the young and
inexperienced Mohammed Reza Pahlevi on the throne,
and sent his father, Reza Shah, into exile. The
Iranian corridor - what British prime minister
Winston Churchill called "the bridge of victory" -
then allowed the allies to effectively channel
crucial supplies to the Soviet Union in the war
against Nazi Germany. The occupation years were,
however, devastating for Iranians, who experienced
soaring inflation and famine.
Discontent
broke out after the war - and the Allied
occupation - ended. It was focused on a 1933
agreement Iran had signed with the Anglo-Iranian
Oil Company (AIOC) regarding the exploitation of
its petroleum. By the early 1950s, the AIOC (which
later became British Petroleum and is now BP) was
paying more in taxes to the British government
than in royalties to Iran for its oil. In 1950,
when it became known that the American ARAMCO oil
consortium had offered the king of Saudi Arabia a
50-50 split of oil profits, the Iranians demanded
the same terms.
The AIOC was initially
adamant that it would not renegotiate the
agreement. By the time it softened its position
somewhat and began being less supercilious, Iran's
parliamentarians were so angry that they did not
want anything more to do with the British firm or
the government that supported it.
On March
15, 1951, a democratically elected Iranian
parliament summarily nationalized the country's
oil fields and kicked the AIOC out of the country.
Facing a wave of public anger, Mohammed Reza Shah
acquiesced, appointing Mohammed Mosaddegh, an
oil-nationalization hawk, as prime minister. A
conservative nationalist from an old aristocratic
family, Mosaddegh soon visited the United States
seeking aid, but because his nationalist coalition
included the Tudeh Party (the Communist Party of
Iran), he was increasingly smeared in the US press
as a Soviet sympathizer.
The British
government, outraged by the oil nationalization
and fearful that the Iranian example might impel
other producers to follow suit, froze that
country's assets and attempted to institute a
global embargo of its petroleum. London placed
harsh restrictions on Tehran's ability to trade,
and made it difficult for Iran to convert the
pounds sterling it held in British banks.
Initially, president Harry Truman's administration
in Washington was supportive of Iran. After
Republican Dwight Eisenhower was swept into the
Oval Office, however, the US enthusiastically
joined the oil embargo and campaign against Iran.
Iran became ever more desperate to sell
its oil, and countries like Italy and Japan were
tempted by "wildcat" sales at lower than market
prices. As historian Nikki Keddie has showed,
however, Big Oil and the US State Department
deployed strong-arm tactics to stop such countries
from doing so.
In May 1953, for example,
sometime Standard Oil of California executive and
"petroleum adviser" to the State Department Max
Thornburg wrote to the US ambassador to Italy,
Claire Booth Luce, about an Italian request to buy
Iranian oil: "For Italy to clear this oil and take
additional cargoes would definitely indicate that
it had taken the side of the oil 'nationalizers',
despite the hazard this represents to American
foreign investments and vital oil supply sources.
This of course is Italy's right. It is only the
prudence of the course that is in question." He
then threatened Rome with an end to oil company
purchases of Italian supplies worth millions of
dollars.
In the end, the Anglo-American
blockade devastated Iran's economy and provoked
social unrest. Mosaddegh, initially popular, soon
found himself facing a rising wave of labor
strikes and protest rallies. Shopkeepers and small
businessmen, among his most important
constituents, pressured the prime minister to
restore order. When he finally did crack down on
the protests (some of them staged by the Central
Intelligence Agency), the far left Tudeh Party
began withdrawing its support. Right-wing
generals, dismayed by the flight of the shah to
Italy, the breakdown of Iran's relations with the
West, and the deterioration of the economy, were
open to the blandishments of the CIA, which, with
the help of British intelligence, decided to
organize a coup to install its own man in power.
A danger of blowback The story
of the 1953 Central Intelligence Agency coup in
Iran is well known, but that its success depended
on the preceding two years of fierce sanctions on
Iran's oil is seldom considered. A global economic
blockade of a major oil country is difficult to
sustain.
Were it to have broken down, the
US and Britain would have suffered a huge loss of
prestige. Other Third World countries might have
taken heart and begun to claim their own natural
resources. The blockade, then, arguably made the
coup necessary. That coup, in turn, led to the
rise to power of Ayatollah Khomeini a
quarter-century later and, in the end, the present
US/Israeli/Iranian face-off. It seems the sort of
sobering history lesson that every politician in
Washington should consider (and none, of course,
does).
As then, so now, an oil blockade in
its own right is unlikely to achieve Washington's
goals. At present, the American desire to force
Iran to abolish its nuclear enrichment program
seems as far from success as ever. In this
context, there's another historical lesson worth
considering: the failure of the crippling
sanctions imposed on Saddam Hussein's Iraq in the
1990s to bring down that dictator and his regime.
What that demonstrated was simple enough:
ruling cliques with ownership of a valuable
industry like petroleum can cushion themselves
from the worst effects of an international
boycott, even if they pass the costs on to a
helpless public. In fact, crippling the economy
tends to send the middle class into a spiral of
downward mobility, leaving its members with ever
fewer resources to resist an authoritarian
government. The decline of Iran's once-vigorous
Green protest movement of 2009 is probably
connected to this, as is a growing sense that Iran
is now under foreign siege, and Iranians should
rally around in support of the nation.
Strikingly, there was a strong voter
turnout for the recent parliamentary elections
where candidates close to Supreme Leader Ali
Khamenei dominated the results. Iran's politics,
never very free, have nevertheless sometimes
produced surprises and feisty movements, but these
days are moving in a decidedly conservative and
nationalistic direction. Only a few years ago, a
majority of Iranians disapproved of the idea of
having an atomic bomb. Now, according to a recent
Gallup poll, more support the militarization of
the nuclear program than oppose it.
The
great oil blockade of 2012 may still be largely
financially focused, but it carries with it the
same dangers of escalation and intervention - as
well as future bitterness and blowback - as did
the campaign of the early 1950s. US and European
financial sanctions are already beginning to
interfere with the import of staples like wheat,
since Iran can no longer use the international
banking system to pay for them.
If
children suffer or even experience increased
mortality because of the sanctions, that
development could provoke future attacks on the US
or American troops in the Greater Middle East.
(Don't forget that the Iraqi sanctions, considered
responsible for the deaths of some 500,000
children, were cited by al-Qaeda in its
"declaration of war" on the US).
The
attempt to flood the market and use financial
sanctions to enforce an embargo on Iranian
petroleum holds many dangers. If it fails, soaring
oil prices could set back fragile economies in the
West still recovering from the mortgage and
banking scandals of 2008. If it overshoots, there
could be turmoil in the oil-producing states from
a sudden fall in revenues.
Even if the
embargo is a relative success in keeping Iranian
oil in the ground, the long-term damage to that
country's fields and pipelines (which might be
ruined if they lie fallow long enough) could harm
the world economy in the future. The likelihood
that an oil embargo can change Iranian government
policy or induce regime change is low, given our
experience with economic sanctions in Iraq, Cuba,
and elsewhere. Moreover, there is no reason to
think that the Islamic Republic will take its
downward mobility lying down.
As the
sanctions morph into a virtual blockade, they
raise the specter that all blockades do - of
provoking a violent response. Just as dangerous is
the specter that the sanctions will drag on
without producing tangible results, impelling
covert or overt American action against Tehran to
save face. And that, friends, is where we came in.
Juan Cole is the Richard P
Mitchell Professor of History and the director of
the Center for South Asian Studies at the
University of Michigan. His latest book,
Engaging the Muslim World, is available in
a revised paperback edition from Palgrave
Macmillan. He runs the Informed Comment
website. To listen to Timothy MacBain's latest
Tomcast audio interview in which Cole discusses
the consequences of sanctions on Iran, click here,
or download it to your iPod here.
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