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Why Washington’s Iran Policy Could Lead to Global Disaster
Posted on Apr 14, 2012
By Juan Cole, TomDispatch
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 U.S. 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 U.S. 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.
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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 U.S. strong-arm tactics. Moreover, lacking substantial hydrocarbon resources, and given Singh’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 fuelling 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 U.S., 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.
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